It Is Extremely Important To Know The Difference Between A Hardfork And A Softfork

Many newbies to Bitcoin and crypto are overwhelmed after hearing discussions about hardforks and softforks, but it is a really important subject to understand and certainly worth some of your time. A hardfork is riskier to carry out, but that is by far the least important issue, in this article I want to describe the less visible but much more relevant (negative) results of a hardfork.

When you think many of the Bitcoin community only don’t want a hardfork because there is a threat that a messy event takes place you certainly need to educate yourself more on this subject.

Upgrade time! Hardfork or Softfork?

What is a hard fork?

A hardfork is a software upgrade that changes the rules of the network in a way that the old version is not compatible with the new version anymore. Actually a new coin is created and all the software have to be updated to be able to handle this new coin. Whoever doesn’t want to update or is not able to update will be unable to interact with the network.

What is a softfork?

A softfork is also an upgrade that changes the rules of the network, but in a backwards compatible way. This means that the changes happen within the original rules, so old software is still compatible with the post fork coin. This means that anyone who is not able or willing to update can still interact with the network. A softfork doesn’t create a new coin but only changes the original coin within the limits. All the fundamental rules of the pre-fork chain are still intact.

Using old software that Satoshi himself was using back in the days, you can still synchronise with the BTC blockchain because it is updated with Segwit through a softfork. When you try to synchronise with the BCH blockchain you will fail because it is upgraded through a hardfork and thus not the same coin anymore.

The fundamental difference is extremely important

The fact that a hardfork is not backwards compatible is very relevant, it conflicts with some fundamental properties of the cryptocurrency in a irreversible way. Especially when it becomes clear that hardforks are easy to carry out and will happen regularly it will greatly harm some of the base properties of the coin.

Softfork is voluntary

A softfork doesn’t force anyone to use the new software, when you don’t trust it or you are just not comfortable with it you can use the old version and still interact with the rest of the network. For example, Segwit is implemented ten months ago (at the time of writing) and 40% is using it (they are rewarded with cheaper transactions). 60% of the transactions still happens through the legacy software, and they are free to do that.

In case of a hardfork it is very different: Users are forced to use the new software and when they deny they will be kicked off the network (this can obviously also happen accidentally). This makes a network where you can expect hardforks less reliable because you never know whether you or your peers are able to connect around that time (now still 13% of the BCH nodes are offline after the recent hardfork, from 20% directly after the fork). Furthermore, the people behind the changes are gaining more power every fork because everyone who disagrees will be kicked off. The coin will slowly centralise.

A Hardfork makes the future of the coin uncertain

As I described HERE, store of value is a critical feature for a blockchain to reach a high security level and security is obviously the most important feature of a blockchain. A hardfork will literary destroy the store of value proposition.

When you buy Bitcoin as a long term investment to store value you want to be sure that the Bitcoin you buy today is still the same Bitcoin in 2, 10 or 30 years. For example, you want to be sure that the maximum supply is still 21 million in the future. When there is a long track record of only soft forks you can expect that the properties of the coin will not change over time, because changes are only made within the fundamental rules.

When you know hardforks take place regularly, you know the properties of the coin change regularly too. It is like you have an item in your hand and now and then someone comes and takes your item and gives you something slightly different back. Good luck guessing what your item looks like in the future. Because BTC has only hardforked in emergency situations in the very early years and BCH already 3 times in ten months, I can be much more certain that the 21 million maximum supply is still intact in BTC in 30 years than in BCH.

So, what coin are you going to HODL to store your value?

Using hardforks in emergency situations makes a lot of sense

Bitcoin will fork in case of a major bug or attack that will otherwise destroy the network, but this is a good thing. It also strengthen the store of value proposition that investors know that there is probably already code prepared for in case that an attack by quantum computers or colluding miners appears.

Also the fact that miners know that a PoW change will take place through a hardfork when they attack the network makes it less likely that they will attack, because it will harm their future income when their hardware becomes obsolete. When a real emergency takes place everyone in the community will support the hardfork and it will go through with near 100% consensus thus the negative effects will be limited.

Being not easy to hard fork is a feature, not a bug

Bitcoin is the only cryptocurrency that has proven to be extremely hard to change with a hardfork. Many will see it as a downside because transactions were slow and expensive for a while, but actually it is a huge advantage. It brings a lot of certainty for the HODLers, makes it as hard money even harder and hugely proves the high level of decentralisation and resilience.

Many of the easy to hardfork crypto’s will be compromised (by forking off the ones who disagree every time) or even destroyed (by weakening there rules until it breaks or implementing bugs). A conservative coin like Bitcoin will move slower, but maintain all it’s strengths and fundamental properties over time.

Conclusion:

As you can see, hardforks will centralise the cryptocurrency over time, harm the store of value proposition and make it less reliable for users. How more often hardforks take place, how bigger the effect and the effect is permanent. The fact that Bitcoin has never hardforked in a non emergency situation is one of the bigger reasons that it is the most decentralised and reliable cryptocurrency of this moment and by far the best store of value.

Disclaimer
This is no financial advice, just my view on the market.

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