Ethereum Constantinople

Ethereum Constantinople is a hard fork of the Ethereum blockchain designed to lay the groundwork for huge scaling improvements.

Originally scheduled for Wednesday 16th January, Ethereum Constantinople has been delayed by developers. A vulnerability was found in the code that could have been exploited by hackers, putting funds at risk.

In a blog on Ethereum.org, the team explained: “Out of an abundance of caution, key stakeholders around the Ethereum community have determined that the best course of action will be to delay the planned Constantinople fork.”

The delay is temporary while developers work towards a solution.

What is Ethereum Constantinople?

The hard fork is part of Ethereum’s long-term scaling road map. Ethereum has long suffered congestion problems which results in high fees and slow transaction times when the network is busy.

The Ethereum team is working on several scaling projects including off-chain solutions, sharding, and, ultimately, a switch to “Proof of Stake” algorithm. Together, these changes should result in significantly higher speeds and lower costs.

However, upgrading the network while operational is like changing the engine in a moving car. The Ethereum team need to lay the technical groundwork before the big changes can happen.

That’s where Ethereum Constantinople comes in. It implements a series of maintenance upgrades that facilitate enormous scaling in the future.

What’s in the upgrade?

Ethereum Constantinople will implement five ethereum improvement proposals (EIPs).  They are as follows:

EIP 145 – Will result in a 91.4% saving in Ethereum gas costs through more efficient information processing methods. It relates to a process known as Bitwise shifting and requires the introduction of a native operation on the Ethereum Virtual Machine (EVM).

EIP 1052 – Makes it cheaper to process large smart contracts that only require a hash.  More specifically, this functionality returns the keccak256 hash of a contract’s bytecode. It improves upon the design of the EXTCODECOPY opcode.

EIP 1283 – This proposal aims to help smart contract developers by reducing gas costs related to changes made to data storage.

EIP 1014Introduces some off-chain transaction solutions to improve scaling possibilities.

EIP 1234 – Delays the “difficulty bomb” and reduces the mining reward from 3 ETH down to 2 ETH.

Of the proposals above, only the last one is considered controversial. Ethereum’s difficulty bomb is designed to make it progressively more difficult to mine Ethereum. At a certain point, it will become almost impossible, forcing the switch from “proof of work” to “proof of stake.”

The proposal exists to de-incentivize miners by not only making it more difficult to mine but by reducing the reward too.

Despite the controversial proposal, mining pools were generally on board with the upgrade. We were not expecting a contentious fork or competing chains.

Ethereum Constantinople Delayed

On Tuesday 15th January, Ethereum developers announced a delay to the upgrade. The decision involved Ethereum founder Vitalik Buterin and other prominent Ethereum developers.

A new date for the upgrade will be discussed on Friday 18th January. 

A Critical Vulnerability Discovered

A vulnerability was discovered in one of the proposals (EIP 1283) by ChainSecurity, a smart contract auditing company. 

The vulnerability would have enabled a “reentrancy attack” against smart contracts similar to the 2016 DAO hack which saw $70 million in ethereum stolen.  

A reentrancy attack means a manipulative actor could theoretically ask the smart contract to perform a specific function multiple times before the contract is executed or anyone is notified. It means an attacker could keep withdrawing money almost endlessly. 

In a detailed Medium post, Chain Security explains:

“The upcoming Constantinople Upgrade for the ethereum network introduces cheaper gas cost for certain SSTORE operations. As an unwanted side effect, this enables reentrancy attacks when using address.transfer(…) or address.send(…) in Solidity smart contracts. Previously these functions were considered reentrancy-safe, which they aren’t any longer.”

Is Ethereum at risk now?

ChainSecurity concluded that the current Ethereum blockchain is currently at risk:

“A scan of the main ethereum blockchain using the data available from eveem.org did not uncover vulnerable smart contracts.”

At the time of writing, the Ethereum Constantinople upgrade is delayed with a new launch date to be discussed on January 18th.

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bitcoin cash hard fork

This article is regularly updated to include the latest Bitcoin Cash fork developments.

What is the Looming Bitcoin Cash Hard Fork?

As part of the Bitcoin Cash system, the community schedules a bi-annual upgrade to keep the network up to date.

The next upgrade is due on November 15th, around 4.40pm GMT. However, there is disagreement over the upgrade itself. The split in the community is likely to create a “hard-fork,” where the blockchain splits with two different rules or “protocols.”

Background reading: What is a hard fork in cryptocurrency?

Bitcoin Cash ABC vs nChain

The dispute centers around two developer communities: Bitcoin Cash ABC and nChain.

Both aim to release a different version of the upgrade on November 15th.

The difference in opinion means this is a “contentious hard-fork.” When the upgrades are made, there will be two versions of the Bitcoin Cash blockchain, and it remains to be seen which will be the “dominant” chain.

The Argument: Bitcoin Cash ABC

One of the most prominent features of the Bitcoin Cash ABC proposal is to move beyond monetary transfers. An improvement to the scripting language may lead to the introduction of smart contracts on the Bitcoin Cash blockchain.

Further reading: What is a Smart Contract? (In Simple, Easy-to-Understand Terms)

The upgrade will also introduce “canonical transaction ordering,” which alters the way transactions are listed in a block. Bitcoin Cash ABC claims this will act as the foundation for enormous scaling potential in the future.

The current proposal maintains the current block size of 32MB, although ABC is open to increasing it in the future.

The Counter Argument: nChain

The major feature of the nChain upgrade is the quadrupling of blocksize. nChain proposes a new blocksize of 128MB, which is their solution to scaling issues.

nChain will release a “full node implementation” reflecting these changes on November 15th. nChain calls this upgrade Bitcoin SV, or “Satoshi’s Vision,” as they claim it is a true reflection of Bitcoin founder Satoshi Nakamoto’s ideals.

The Two Upgrades Are Incompatible

The two differing proposals cannot function together. So, when the two parties activate their upgrade, two different chains will be created, hence the hard fork.

Who’s in Favor of Bitcoin Cash ABC?

Software company Bitcoin Cash ABC put forward the proposal, hence the name.

Their software is used by two-thirds of Bitcoin Cash mining nodes, who simply need to upgrade the software to implement the upgrade.

As for the big name support, Roger Ver and his website bitcoin.com are vocal supporters of Bitcoin Cash ABC. Bitmain, the world’s largest cryptocurrency mining company, has also publicly stated support for Bitcoin Cash ABC.

Pre-fork trading on Poloniex showed that ABC was initially valued four-times higher than rival SV, suggesting that traders backed the ABC project. However, the two coins are now trading at near parity ahead of the fork.

Who’s in Favor of Bitcoin Cash SV

The loudest voice for Bitcoin Cash SV is Craig Wright, who has publicly declared himself as Satoshi Nakamoto in the past.

His software company nChain proposed the alternate vision, called Bitcoin SV (or “Satoshi Vision”)

The argument reached boiling-point when Roger Ver published an email reportedly from Craig Wright which read “You are my enemy… You will now discover me when pissed off.”

Bitcoin Cash also has support from the vast majority of Bitcoin Cash mining pools. Current estimates suggest that SV will command up to 72% of mining power, which could give it the edge when the fork initially happens.

Coinbase, Binance, and Ledger Support?

Two of the world’s leading crypto exchanges, Coinbase and Binance, have both expressed support for the hard fork. Although, it remains to be seen which fork they will ultimately follow.

As Coinbase explains:

“Unlike previous BCH hard forks, there is a competing proposal that is not compatible with this published roadmap. Coinbase will monitor the hard fork process and work to minimize customer disruption until the network meets Coinbase security standards.”

 

Binance didn’t comment on the contentious nature of the fork, but did express support:

“Binance would like to confirm support for the upcoming Bitcoin Cash hard fork.”

 

Hardware storage company Ledger will also support the forked coin, but clarified it would only support the dominant chain:

“Ledger will pause Bitcoin Cash service to avoid unwanted transactions until it is clear which of these chains will be the dominant one.”

 

In all cases, transactions will be paused at least an hour before the fork is due to take place (roughly 4.40pm GMT).

What Happened to the BCH Price?

Generally speaking, a hard fork often triggers a price run in anticipation of free tokens. When a hard fork occurs, holders of the coin are often granted the new forked token on a 1:1 basis.

This was the case when Bitcoin forked to create Bitcoin Cash. Everyone holding bitcoin also received the same number of bitcoin cash tokens.

Traders initially flocked to BCH in anticipation of a new, valuable forked coin.

However, that excitement has run out, with Bitcoin Cash falling almost 20% this week. After the initial gold rush, traders are contemplating the fact that vicious infighting could have a negative effect on the future of Bitcoin Cash.

Conclusion

Unless nChain and ABC come to a compromise or agreed solution, Bitcoin Cash will fork on November 15th, resulting in two separate blockchains. The dominant chain will likely be supported by major exchanges and third parties, but it remains to be seen which chain that will be.

Block Explorer will keep you updated on the developments as we move closer to the November 15th upgrade.

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bitcoin cash ABC

Bitcoin Cash is about to tear itself in two.

On one side, Bitcoin Cash ABC.

On the other, Bitcoin Cash SV.

Sound messy and confusing? Well, it is.

Bitcoin Cash is on the brink of another hard-fork – where a blockchain splits in two, potentially creating two separate cryptocurrencies.

Background reading: What is a hard fork in cryptocurrency?

Early signs suggest that Bitcoin Cash ABC has the edge and will become the dominant chain. But what is Bitcoin Cash ABC? Who’s behind it? And what changes will it bring? Let’s dive in.

What is Bitcoin Cash ABC?

1. The “Best Money the World Has Ever Seen”?

Bitcoin Cash ABC has a grand vision of creating the best money the world has ever seen, according to their roadmap. In very simple terms, it’s an upgrade to the existing Bitcoin Cash system.

That in itself isn’t unusual. Bitcoin Cash developers schedule bi-annual upgrades to keep the system up-to-date. In the past, the community has mostly agreed on how to move forward.

But now there’s a major divide in opinion, which could lead to two separate cryptocurrencies.

2. Who’s in Favor of Bitcoin Cash ABC?

Software company Bitcoin Cash ABC put forward the proposal, hence the name.

Their software is used by two-thirds of Bitcoin Cash mining nodes, who simply need to upgrade the software to implement the upgrade.

As for the big name support, Roger Ver and his website bitcoin.com are vocal supporters of Bitcoin Cash ABC.

Bitmain, the world’s largest cryptocurrency mining company, has also publicly stated support for Bitcoin Cash ABC. Bitmain is reportedly marketing its new miners heavily at mining farms for the upcoming hard fork. 

Exchanges Binance and Coinbase have expressed support for the hard fork and cold storage company Ledger will support the dominant chain (likely ABC).

3. And Who is Against Bitcoin Cash ABC?

The loudest voice against Bitcoin Cash ABC is Craig Wright, who has publicly declared himself as Satoshi Nakamoto in the past.

His software company nChain proposed the alternate vision, called Bitcoin SV (or “Satoshi Vision”)

The argument reached boiling-point this week as Roger Ver published an email reportedly from Craig Wright which read “You are my enemy… You will now discover me when pissed off.”

Bitcoin Cash SV also has support from mining company CoinGeek.

4. The Technicals of ABC: Same Block Size, More Features

From a technical viewpoint, Bitcoin Cash ABC aims to maintain the current block size of 32MB. However, they will introduce “canonical transactions,” which allows for enormous scaling.

As explained in the ABC roadmap, “there are some technical improvements that must be made to enable Bitcoin Cash to scale to a world-wide currency.”

In a nutshell, Bitcoin Cash ABC is about laying groundwork for huge scaling in the future. On the flip side, Bitcoin SV wants to go ahead and raise the block size immediately to 128MB, claiming “the future of Bitcoin is big blocks, big business, and big growth.”

Another technical upgrade for Bitcoin Cash ABC is a new opcode that will introduce the potential for cross-chain atomic contracts.

5. Bitcoin Cash ABC Has the Edge According to Pre-Trading at Poloniex Exchange

Poloniex took a unique position by allowing users to trade both tokens ahead of the official hard fork.

Early trading activity put Bitcoin Cash ABC at five times more valuable than SV. 

Bitcoin Cash ABC has a price of $505.

Bitcoin Cash SV has a price of $104.

Of course, this is all subject to change as we move closer to the hard fork implementation. 

Countdown to November 15th

The hard fork is due to take place on November 15th, unless the two communities can come together and reach an agreement.

If no compromise is reached, we will likely see the emergence of two new cryptocurrencies.

Block Explorer News will keep you up to date in the coming week as the clash evolves.

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Monero logo

A huge upgrade to Monero, the 10th largest cryptocurrency network, just made transactions 97% cheaper while maintaining its privacy features. Monero, which is best-known for its anonymous transfers, now uses technology called “Bullet Proofs” to scale up. Armin Davis explains further.

Another six months have gone by, and as such, Monero has performed its bi-yearly network upgrade hard fork. Specifically, the hard fork took place on the 18th of October, at block height 1685555. 

Of the numerous changes made over this upgrade, a few stand out:

  • “Bullet Proofs” greatly reduce transaction size (and therefore transaction fees)
  • Monero’s upgrade further discourages specialist mining tools like ASICs.
  • To maintain privacy, the ring size for all transactions on the Monero network has been fixed to 11.
Monero infographic
Credit: Reddit u/cryptoKL

Explaining Monero’s New “Bullet Proofs”

Prior to this upgrade, Monero used a version of what is called a “range proof”, or zero-knowledge proof”. 

A zero-knowledge proof means that something can be proven true without knowing the actual data. For example, I can prove that it is less than 0°c outside without knowing the actual temperature data. All that I need to do is place some water outside and see if it freezes.

For Monero, range proofs allow outside observers, like other Monero nodes, to confirm that a transaction took place using cryptocurrency that already existed. Rather than currency created out of thin air, or currency already spent elsewhere.

The Downside of the Previous Monero System

The downside of these range proofs is that they are large, each transaction takes up somewhere around 13 kilobytes, which is significantly larger than Bitcoin’s ~ 300-byte transactions. 

With large transactions comes large fees, as the fee you pay is (mostly) based on the size of your transaction in the block. And, while not an issue for Monero, larger transactions can cause network congestion on blockchains with small, fixed size blocks.

bullet proofs

Enter Bullet Proofs: A great improvement on the previous range proofs, reducing transaction size by as much as 80% while maintaining the same level of privacy and ensuring that no foul play occurs. 

As discussed above, the size of your transaction is what determines your fee (mostly). By reducing the transaction size, transaction fees are also greatly reduced (as much as 97%)

A Two-Stage Monero Upgrade

The upgrade to Bullet Proof based transactions will happen in two stages. Starting at height 1685555, the Monero network will be upgraded to v8. On v8, transactions using both the old range proof and the new Bullet Proof system will be accepted on the network. 

Shortly after, at height 1686275, a second hard fork will occur that upgrades Monero to v9. This will cause the Monero network to reject any non-Bullet-Proof based transactions and implements a number of patches to Bullet Proofs.

Crucial Monero Audit Halts Threat of 51% Attack

On the 22nd of October, an embargo was lifted on some major bugs found during an audit of the code around Bullet Proofs. 

Of the few bugs found, the most major involves a method to perform a 51% attack on the Monero network. Due to the magnitude of this bug, information around it was embargoed until a patch was live. As is standard practice for most major bugs. 

The flaw was discovered by OSTIF (The Open Source Technology Improvement Fund) during its audit of Monero’s Bullet Proofs.

A 51% attack involves gaining the lion’s share of mining power on a given blockchain. Once you have the most mining power, you can begin to rewrite history, and otherwise change the blockchain. This is because most blockchain nodes follow the longest chain. If you have the lion’s share of mining power, you control the longest chain.

51% attack explained

There are various methods one can use to gain 51% mining power on a given network. In Monero’s case, a vulnerability was discovered that would allow malicious actors to crash other nodes remotely.

By crashing nodes other than yours, you can begin to chip away at the mining power that is not yours. Once you have removed enough rival mining power, you gain two things; most of the mining profits on the blockchain, and the ability to perform a 51% attack.

Monero Continues to Deter Mining Hardware (ASICs)

Monero developers purposely try to deter giant mining companies (like Bitmain) from monopolizing, and therefore centralizing, the network.

Earlier this year, specifically just before the previous hard fork, Monero’s network “difficulty” (a measure of how difficult it is to mine a block) began to rise uncharacteristically quickly.

It was discovered that the cause of this was that Bitmain had developed a working mining device (ASIC) for the CryptoNight algorithm – the backbone of Monero’s network. 

At the time, a small change to the algorithm was made as a hotfix to make the ASICs unusable on Monero. Said change was referred to as CryptoNight v7.

Monero blocks ASIC miners

Fast forward to this month, and the Beryllium Bullet network upgrade, Monero’s algorithm has once again been changed. Now called CryptoNight v8, it is intended to make producing an ASIC for Monero even more difficult.

How Does CryptoNight Prevent ASIC Miners?

CryptoNight v8 continues the work done by v7, in that it further increases the amount of memory bandwidth used by the algorithm. Specifically, the increase is by a factor of four. 

Unfortunately along with this comes with a slight performance hit to regular CPUs of around 5-20%. The Monero developers and community feel that the performance drop is worth the gained protection from ASICs. And the performance may be gained back through optimizations of mining software.

This change works on the basis that it is prohibitively expensive to add large amounts of fast and high-speed memory to ASICs. A regular desktop CPU usually has somewhere between 4-64MB of cache, of which 2MB will be used per CryptoNight mining thread. 

So for an ASIC looking to run a large number of threads, a large amount of high-speed, cache-like memory will be required. And further still, v8 now requires a 64-byte wide memory access. Which, for a desktop CPU is easy as it should already have the required hardware.

Keeping Monero Private With Fixed Ring Size

Beryllium Bullet changes two things about how Monero users can structure their transactions.

Fixed Ring Size: First off, Monero users can no longer select the ring size of their transactions. Ring size is the number of decoy transactions added to every Monero transaction in order to hide which transfer is the real one in the transaction.

monero-ring-signature
Credit: BitcoinKeskus

This change, while controversial, is intended to help keep all users on the network private. Specifically, keeping transactions private while also keeping some transaction sizes down.

Ring Size Increased to 11: Secondly, the minimum (and now fixed) ring size has been set to 11. This is greater than the previous minimum of 5.

The rationale behind locking the ring size to 11 is that by making all transactions look exactly the same, it’s harder still to trace a given transaction across the network. You want to look the same as everyone else, rather than making a transaction with a massive ring size, which will stand out. While it is true that a larger ring size makes the transaction more private, it also makes the transaction as a whole a lot easier to spot.

Conclusion

Together, these upgrades combine to make Monero transactions 97% cheaper, while deterring mining centralization and maintaining its core privacy features. The upgrades make Monero truly bulletproof.

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  • A hard fork occurs when one cryptocurrency (like bitcoin) breaks off to form a new currency (like bitcoin cash).
  • Hard forks take place when the community wants to make a significant upgrade or disagrees on how to move forward.
  • Examples include bitcoin cash, ethereum classic, and bitcoin gold.

Cryptocurrency Hard Forks: Explained

A hard fork is when one cryptocurrency spins off to create another. Think of it like a train track splitting in two. The new coin (and its blockchain) takes a new direction from the old, but they share the same history. It’s a simple fork in the road.

bitcoin hard fork diagram

Let’s take the example of Bitcoin Cash, which is a hard fork of Bitcoin.

In 2017, the Bitcoin community disagreed on how to make improvements to the network. One group wanted to stay true to the old rules and “protocol.” Another group wanted to make drastic changes to how transactions were processed.

Unable to reach an agreement, the second group “forked” off to create a new blockchain. Bitcoin Cash was born.

Bitcoin Cash shares the same blockchain as Bitcoin right up until the moment it forked. From that point onwards, Bitcoin Cash took its own path with its own rules.

bitcoin cash hard fork
Image credit

Bitcoin has forked countless times as the community seeks to improve the technology or disagrees on how to move forward. These forks are not always successful.

How Hard Forks Work

Every blockchain enterprise has its own rules. Those rules dictate how the system works. How large is each block? What rewards do miners get? How are fees calculated? And so forth. One day, the community disagrees on some tidbit, such as whether new code should be introduced or whether participating miners should receive a bonus.

A successful fork is where most of your users agree, collectively make the changes, and move over to the new blockchain. A contentious or experimental fork is where your users split. Some might stick with the present blockchain, some may migrate to the new blockchain, and some use both. Soon you have two versions of your cryptocurrency with different rules.

A failed fork occurs when too few users leap to the new blockchain. That new cryptocurrency quickly becomes worthless.

Hard forks also happen in the following cases:

  • To fix important security risks found in older versions – It took the dollar more than 300 variations to become today’s counterfeit-resilient currency. Blockchain developers aim to make their blockchains 100% breach-free.
  • To add new functionality – Windows 10 is enormously different from its very first version. Blockchain developers upgrade their versions from year to year, adding functions for improvement.
  • To reverse transactions – If website developers suspected a security breach, they could block the previous fork, declaring all previous transactions non-existent. Their new fork would herald a new start.

Hard Forks Can Mean Free Money

The new blockchain is a replica of the old, so all transactions barreling through blockchain A are replicated on blockchain B. If you’ve joined blockchain B, you receive those coins as well as new ones that are mined on your blockchain. Those new coins are known as an airdrop.

crypto airdrops falling

Image credit

When Bitcoin Cash forked, everyone holding bitcoin received the same number of bitcoin cash tokens, essentially for free.

There is a catch, though. You’ll want a secure, private wallet that supports the airdropped coins on the new fork. If you keep your cryptocurrency on an exchange like Coinbase or Binance, the exchange may keep them.

You’ll also want to check whether the forked coin has a future. The unfortunate truth is that most coins fail. Look at the reputation of the fork developers; what are their reviews? Also, see whether credible blockchain services have inspected and credited the open source code of this new coin.

Are Hard Forks a Good Thing?

Some people in the crypto community oppose forks fearing that the new coin will devalue their old. However, a successful fork usually means good news for traders.

When a new fork is announced, we often see a flurry of traders rushing to buy the coin hoping to get free airdrops. That naturally increases the price.

It’s true that the forked coins often become worthless, but some are successful and ultimately valuable, such as bitcoin cash. You’ll often see a profit from a successful airdrop.

Sometimes the hard fork is widely opposed by the majority of people. When that happens, it can strengthen support for the original coin, sending the price up.

Hard Fork Example: Bitcoin Cash

bitcoin cash logo

In August 2017, a group of Bitcoin stakeholders including investors, entrepreneurs, developers, and China-based miners quarreled over the size of the Bitcoin block. Some wanted to keep the one megabyte (MB) limit coded into Bitcoin by Satoshi Nakamoto himself. Others wanted to increase the size to two MB while other stakeholders fretted it should exceed 9,000!

The team eventually split. Bitcoin loyalists adhered to the old protocol, while critics created a new coin called bitcoin cash.

Bitcoin cash never became as popular as the original bitcoin. In December 2017, bitcoin cash was worth $4,355.62. August, 2018, bitcoin cash sold for $519.12. The research firm Chainanalysis noted that in May 2018, the 17 largest payment processing services processed bitcoin cash payments worth US$3.7 million, down from US$10.5 million two months before

To date, Bitcoin’s hard fork iterations include the following:

  • Bitcoin Platinum (BTP). December 1, 2017. A scam, invented by a South Korean teenager in an attempt to kill the price of bitcoin and profit by betting against it.
  • Super Bitcoin (SBTC). December 15, 2017. Among other changes, Super Bitcoin included smart contract functionality, taking a leaf out of the Ethereum blockchain.
  • Bitcoin God (GOD). December 25 2017. Chandler Guo proclaimed Bitcoin God a Christmas gift to bitcoin holders. Most called it bizarre
  • Bitcoin Uranium (BUM). December 31, 2017. BUM was an attempt to democratize Bitcoin, which critics said had become dominated by a small group of entities over-exerting their power over miners. BUM was created as Satoshi’s original vision. It bummed.
  • Bitcoin Cash Plus (BCP). January 2, 2018. Promised “low fees and reliable confirmations”. It flunked almost from the start.

Bitcoin also spawned Bitcoin Diamond (BCD), Bitcoin Gold (BTG), Bitcoin Atom (BCA), Bitcoin Core (BTX), Bitcoin Private (BTCP or ZCL) and Segwit, among others.

Segwit was a soft fork which is quite a different creature.

What is a Soft Fork?

Hard forks are unique in that the changes are incompatible with the previous protocol. Soft forks are different because the software or protocol changes are compatible with the previous versions.

Think of a hard fork being the difference between PlayStation 3 and PlayStation 4. You can’t play PS3 games on PS4 and you can’t play PS4 games on PS3.

A soft fork, on the other hand, is more like Microsoft Excel. You can use MS Excel 2015, even with MS Excel 2005 running in the background. The upgraded version is compatible with the old. At the same time, the updates in the newer version don’t appear in the old. MS Excel 2015 shows features that don’t appear in MS Excel 2005. The new soft fork has additional – or different – features to its older version.

In other words, soft forks have backward compatibility. The new chain contains the previous rules with additions, while the previous blockchain continues unchanged.

segwit soft fork diagram

Image credit: Reddit user u/k06a

As you can see in the diagram, the SegWit fork of Bitcoin is a “soft fork.” It doesn’t create its own blockchain. It simply upgrades and continues the previous chain. In contrast, the hard forks, like Bitcoin Cash and Bitcoin Gold actively split off.

With a hard fork, you need 90 to 95% of the stakeholders, or nodes, to accept your changes for the system to succeed. For a soft fork, you only need a majority of miners to upgrade and agree on the new version.

Soft Fork Example: The SegWit Solution

One of Bitcoin’s greatest frustrations is its slowness. Ten transactions take about a second to slip through compared to Visa’s 5,000-8,000 transactions per second. This is called the “scalability” problem.

In October 2016, Pieter Wuille, a Bitcoin Core developer, tried to treat this problem by modifying the appearance of the Bitcoin block.

Bitcoin blocks have two sections:

  1. The header with its cryptographic data.
  2. The body with transactions and sender/receiver data.

The bulkier the block, the slower traffic.

Wuille divided transactions from sender and receiver data. He gave each their own blocks, creating, in effect, a freeway where bitcoin transactions zoomed through, while so-called witness boxes (SegWit, short for Segregated Witnesses) with scripts and signatures used the parallel lane.

SegWit is called a “soft fork” since it was compatible with Bitcoin’s old code. All Bitcoin needed was 95% of its miners to accept the changes, which happened in less than a year. The platform didn’t need a separate blockchain and currency to make alterations work.

Update:

Critics complained that Segwit fell short of solving Bitcoin’s congestion problems and that the platform needed major changes to decongest its platform. Dissension led to the string of hard forks like the previously mentioned Bitcoin Cash (BCH). In 2017, Bitcoin developers also promoted hard fork SegWit 2x to magnify blocks from 1 MB to 2 MB. That fork died a week before it was scheduled to occur.

Bottom Line

A hard fork:

  • Results in two new blockchains, both of which share the same past.
  • Changes a fundamental aspect of the blockchain or the rules that govern it.
  • Is not compatible with previous versions.

A soft fork:

  • Does not create a new coin or split the blockchain.
  • Upgrades the system with new features that are compatible with the old version.

It’s as simple as that.

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