Hard, soft, Segwit2x — if the blockchain splits (or not), you’ll know all there is to know
If you’ve followed the recent news in the cryptocurrency world, you’ve probably come across the term “fork.” Because forks are a rather difficult topic for many people to understand and prepare for, we’ve decided to attempt to provide a clear overview of their differing types.
What, exactly, is a fork? What is its purpose? How can a blockchain split? How can you prepare yourself? And, most importantly, how can you make sure your bitcoin is kept safe?
We’ll start from the beginning.
Intentional or not?
A bitcoin fork occurs when the bitcoin blockchain splits. Unintentional forks occur occasionally, and are nothing to worry about. They usually last for just a few minutes and are internally resolved without making waves. Such a fork occurs when miners discover two blocks at (or close to) the same time. This problem is solved when new blocks are added to one or the other of the recently discovered blocks, because the network follows the greatest proof-of-work chain and moves on. Problem solved.
Certain forks, however, can be intentional and permanent.* Bitcoin, after all, is a type of software. And software can be changed or upgraded. Developers, users, or miners (or all three) will sometimes seek to upgrade the bitcoin software’s rules that determine, for example, a transaction’s validity. When the bitcoin network’s consensus rules are changed, it creates a fork.
*This was the case for August’s fork, which created Bitcoin Cash, as well as November’s potential fork. (We’ll take a look at these in a moment.)
Soft or hard?
Forks can be soft or hard.
A soft fork occurs when the bitcoin software is upgraded, and the computers working within the bitcoin network, which are called nodes, are able to validate blocks created by using either the old or the upgraded software. A soft fork, then, is backwards compatible.
Most soft forks to date have been “miner activated,” meaning that the nodes know when to activate a new consensus rule based on indications in block versions. Once the minimum required number of supporters is reached, nodes and miners will activate the new feature and only accept blocks which are valid under the new rules.
If there is consensus among a majority of the bitcoin community — exchanges, wallets, etc. — that an upgrade to the bitcoin software is needed, but this consensus does not have support of large mining pools, a user-activated soft fork (UASF) can be implemented. These lack the miner voting step and instead rely on activating the upgrade based on some other criteria. To occur, a UASF must have public support from a majority of exchanges and members of the bitcoin community. Having this support is known as having an economic majority. A UASF typically take a long time to implement, because it is subject to a great deal of discussion, debate, and planning.
A hard fork occurs when the blockchain splits. August’s fork was a hard fork, as it created another chain — Bitcoin Cash. After a hard fork, nodes using the original software will no longer accept blocks created by nodes using the new software. During a hard fork, supporting nodes must upgrade, or they risk being on the wrong side of the fork once it occurs. The change is absolute, and there is no backwards compatibility. When the November fork occurs, it will be a hard fork.
Example of a previous bitcoin fork
The most recent fork, which occurred in August, is known as the Bitcoin Cash hard fork. This is because the fork created the Bitcoin Cash (BCC) chain. BTC.com was one of the first to create a Bitcoin Cash wallet and to provide tools to make sure all of our users would have access to their Bitcoin Cash in their BTC.com wallets.
What to expect in November
Just as things seemed to be calming down, yet another fork poked its pronged head above the horizon. This fork, which is referred to as the Segwit2x update, is expected to take place in November. It is a hard fork that concerns an increase in block size. Currently, blocks on the blockchain are allowed to hold 1MB worth of data. With the fork in November, this number will increase to 2MB.
Now, you may ask yourself, is the November fork going to be the same as the Bitcoin Cash fork was in August? Can I sit and wait it out?
In short: If you are a BTC.com wallet user, yes. If you are not, you should very carefully read the paragraph below.
As stated, forks are usually not a big deal. But when a fork occurs that causes a major change within the bitcoin network, some risks may arise. A replay attack is one of those potentialities.
Replay attacks occur if transactions can not be differentiated between the two fork chains. Once a transaction is created, digitally signed, and published, anyone can take it and rebroadcast it on the other fork chain. This would cause the bitcoin in question to move on the other chain, as well, resulting in two transactions for the same coins. An unknowing user, then, might want to transfer one bitcoin, but after the transaction is replayed, he or she will have transferred two.
Replay attacks can occur when a transaction can be valid on both chains. This means there is a greater possibility of transactions being rebroadcast. Because all blockchain transactions are public, a malicious entity could see your transaction and rebroadcast it.
This is why, after a hard fork, you should be particularly careful of replay attacks, and ensure you do your due diligence to protect yourself. Replay protection, in a broad sense, means that a transaction has to be created under certain special rules to make it invalid on one side of the fork.
To reiterate, protecting yourself from a replay attack is of utmost priority. BTC.com wallet-holders, however, don’t need to worry, as their wallets have replay protection built-in. If you use an additional wallet or bitcoin service, reach out to the provider and inquire about how they protect your transactions against replay attacks.