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On August 1st, Bitcoin, the first and biggest cryptocurrency with regard to market cap , will very likely split into two coins. But how does the splitting actually work and what is the difference between a hard- and a softfork? To understand that you first have to look at how a cryptocurrency, or the blockchain behind it, works.
Put simply the blockchain is a ledger, which records all transactions. The transactions are saved in blocks, which are linked together. On the other hand, there is no file, which explicitly says which balance an address something like an account has. For example, if you want to know how the balance of address A is, there is no file that says address A has 1. Rather you have to scan the complete blockchain and for example block 10 says A received 5 BTC and block 15 says A spent 3.
Assuming nothing more happens until the current block, every full node can calculate that A has 5 - 3. If a miner finds a valid block, then he distributes this block to the other miners and full nodes and every miner starts searching for a block building on the new found block every block has to be linked on its predecessor and only one block can be linked to one predecessor, as otherwise there would be two incompatible blockchains.
In theory this works perfectly, however, in practice, it sometimes happens that two or more miners find valid blocks, which build in the same predecessor. For example, Alice, a miner in Europe, finds block number a, which builds on block and sends this block to the others. Before Bob, a miner in Australia receives this information he also finds a valid block building on block , block b, and sends it to the network. This happens regularly in blockchain networks, e.
Bitcoin , but usually do not cause a chain split, since all conflicting blocks except for one get orphaned. Only in extreme cases, with high orphaning rate the network might split into multiple incompatible versions. The probability of orphaned blocks increases with increasing blocksize, decreasing internet connection speed as in both cases blocks need longer to spread in the network and decreasing time between blocks e.
In the above-mentioned example, the split happened by accident and both competing blocks have the same consensus rules. However, it is also possible that new consensus rules e. A softfork is such a change of consensus rules, where tighter rules are introduced.
For example, if previously all blocks are allowed, then the introduction of a blocksize limit of 1 MB would be a softfork. Because of that only miners have to update their software, while nodes can stay part of the network without updating, which is why the Bitcoin Core developers prefer softforks such as SegWit. A hardfork on the other hand is a change of consensus rules, where previously invalid blocks can become valid.
For example, if previously a valid block may only have a maximum size of 1 MB, then the removal of this limitation would be a hardfork. As this example also shows softforks can only be undone by hardforks. Since a hardfork makes invalid blocks valid, all network participants, namely miners as well as nodes, have to update their systems.
Otherwise, they would reject newly valid blocks and therefore be isolated from the network. Because of that users have the choice to reject an update by not installing it and being isolated from the updated system, which is why e. Ethereum developer Vitalik Buterin favors hardforks. Now, what happens after such a fork? In case of the hardfork the nodes also have to update their systems to remain part of the network. The next case is a softfork with majority support from the miners.
Here some but not all blocks following the old rules, will fork away from the blockchain. However, the majority of miners will ignore the blocks, which do not follow the post-softfork rules and instead build a longer chain of blocks following post-softfork rules. Since the latter is also valid for miners who did not activate the softfork, they will also follow this longest chain and therefore orphan all blocks, which do not follow the post-softfork rules.
On the long run, this will force all miners to update their systems to avoid the costs of orphaned blocks. A hardfork with a majority support of miners might very likely, but must not necessarily, lead to the minority chain where the hardfork is not activated being orphaned.
Because of a significantly decreased hash rate in the minority chain most miners left for the majority chain and the difficulty not adjusting in real time e. This puts pressure on miners and nodes to update their systems. However, as the example of ETC shows a minority chain can also survive. So ultimately the market, or more precisely the price, will decide which chain or both will survive or have the majority hash rate.
A softfork with a minority hash rate is the same as a hardfork with a majority hash rate from the perspective of the minority. For example, a blockchain without blocksize limit is a hardfork to a blockchain with a 1 MB blocksize limit, while a blockchain with a 1 MB blocksize limit is a softfork to a blockchain without blocksize limit.
Following the same logic, a hardfork with a minority hash rate is like a softfork with a majority hash rate from the perspective of the minority. In a UASF users nodes try to enforce a softfork, by ignoring all blocks that do not signal the intention to activate a softfork.
It was first and until now only discussed with respect to the activation of SegWit. A more detailed article about UASFs will follow. This happens if a majority hardfork loses its majority or a minority softfork gets the majority.
BTC will ignore this block and build an alternative blockchain without this block, which is invalid from their perspective. One way to prevent that is to include a rule that the block after the split block X must be included in the blockchain.
Now BTU never forked, but BCH will most likely do this site will show if there is a chain split , so what will happen to the Bitcoins after the fork? As stated before the blockchain records all transactions.
In the case of a chain split, there will be two incompatible blockchains, which contain the exact same information until the block, where the fork happened block Y. This applies to users who have their private keys.
This might not be necessary in case of BCH, since the developers implemented a replay protection making BCH transactions invalid for BTC, but users who want to be on the safe side should still first split their coins Note: Be very careful, when you try to split your coins, as they might be irreversibly lost in case of errors.
Start anticache What the Fork? What happens when the block chain splits? And when does a fork lead to a chain split? By Jackie Liu On August 1st, Bitcoin, the first and biggest cryptocurrency with regard to market cap , will very likely split into two coins. Softforks and Hardforks In the above-mentioned example, the split happened by accident and both competing blocks have the same consensus rules.
Chain Split Now, what happens after such a fork?