Hard fork vs soft fork, and what each one does to a miner

What is a fork?

A fork is a change to a blockchain's rules, nothing more dramatic. A blockchain is a set of rules that everyone runs the same copy of. The word sounds like a crisis, but most forks are routine maintenance that only the developers notice.

One question separates the two kinds, and every other difference follows from it. Does software that has not upgraded still accept blocks made under the new rules?

• Hard fork: no. Old software rejects the new blocks.
• Soft fork: yes. Old software still accepts them.

Hard fork: the rules loosen, old software refuses

A hard fork allows something the old rules did not. It might be a larger block, a new transaction type or a changed reward schedule. Software running the old rules sees these blocks do something forbidden, and rejects them as invalid.

So a hard fork is not backward compatible, and everyone has to move together. If everyone upgrades, there is one chain and the change simply takes effect.

If a meaningful group does not upgrade, there are two chains from that block onward. Each is valid under its own rules, and each ignores the other.

Soft fork: the rules tighten, old software agrees

A soft fork forbids something the old rules allowed. The new blocks are a subset of what was already valid. So old software checks them, finds nothing to object to, and accepts them. Nobody is forced off the chain for not upgrading.

The catch runs the other way. A miner on old software can produce a block that fits the old rules but breaks the new, tighter ones. The upgraded majority rejects it. The block is not just late: it is thrown away, along with all the work spent finding it.

This is why a soft fork usually activates only once a large majority of hashrate signals it is ready. Hashrate is the total mining power on the network. The upgrade is timed so the minority left behind is small, notices quickly and moves.

What does a chain split mean for my payouts?

If a chain truly splits, two things matter to a miner more than the reasons for the split.

First, the hashrate divides between the branches. Both are then less secure than the single chain was. Both also see slower blocks until difficulty adjusts.

That adjustment takes time. Meanwhile, a branch with a small share of the hashrate can produce blocks very slowly indeed.

Second, your coins exist on both branches, because both share the history up to the split. Whether the second branch is worth anything is a market question, and often the answer is very little.

Exchanges are usually cautious with deposits around a fork. Keep that in mind if you were planning to sell.

Does every fork create a new coin?

No. Most forks change one chain and leave one chain. The famous exceptions are forks where a group deliberately kept the old rules alive as a separate coin. Several well known coins came from such splits.

A planned network upgrade that everybody adopts is technically a hard fork. Yet it produces no new coin at all. The upgrade is the point, and the fork is just the mechanism.

Only a fork where two groups both keep building leaves two coins behind.

What does a miner need to do?

You do not need to follow the debate. You need to run the software that the chain you are paid on is running. You also need to know when that changes.

• Watch the coin's own announcement channel for activation heights. A fork lands at a stated block height, not a stated time, so note that number.
• If you mine on a pool, the pool runs the node and handles the upgrade. Normally your miner is unaffected, because the pool sends you work and you do not validate blocks yourself.
• If you mine solo against your own node, upgrading that node is your job. Upgrade late, and you mine a chain nobody accepts.
• Around a contentious fork, expect your earnings estimate to be wrong for a while. Difficulty, price and the chain the pool follows can all move in the same week.