4.4 Hard and Soft Forks - Video Tutorials & Practice Problems

In this video, I'm gonna be talking about forks. Now not this type of forks but I'm specifically gonna be talking about forks in open-source software. (forks clinking) For this lesson I wanna talk specifically of forks when it comes to Bitcoin. Now, when you talk about open-source software, forks are usually perceived as a way where a developer or developer team may create a new project from an open source software project that already existed before. This is exactly what actually happened with Litecoin. Litecoin is a fork from Bitcoin. So Litecoin was a cryptocurrency that was developed by taking the Bitcoin software, because it's open-source and then forking it and creating a new cryptocurrency called Litecoin. But the ones I want to talk about specifically today are upgrades to specifically block chains and in this case, the Bitcoin blockchain. Now, when you're dealing with a decentralized network and this case, you have all these miners that are running the Bitcoin software, you have to keep the software upgraded. It has to be up to date. So in order for the software to develop and keep improving, you need to perform software upgrades. But how can you do that, When you have all these miners that are running the software, and there's no centralized entity that forces all these miners to change? Well, you do that by implementing what are known as forks. So I'm gonna tell you about two types of forks, and I'm gonna show you about some examples that actually have happened in Bitcoin using these different types of forks. The first type of fork I wanna talk to you about is a hard fork, and the second type of fork that I want to talk to you about is a soft fork. Now I'll tell you the difference of these. A hard fork is an upgrade to the protocol that requires an upgrade of the software. What that means is that if a minor wants to run a different upgraded version of the protocol, if you perform a hard fork, it forces everybody to be on that software. If you do not upgrade, you'll get kicked off the network. And I'll tell you some examples where this has happened. A soft fork on the other hand, is an upgrade that does not require the miners or the people running the software to upgrade, they can still remain in consensus that is in alignment with the rest of the network. So a soft fork is backwards compatible. You do not need the upgrade to remain on the network. But let me give you some examples of these and give you practical examples of what's actually happened by actually telling you about the history of Bitcoin. So if we look at where Bitcoin started, we begin the blockchain by creating blocks of transactions, and this actually happened on January 3rd, 2009. This is what's known as the Genesis block. It's the first block on the Bitcoin blockchain. Bitcoin has been running through, but there's been some very interesting forks which have happened fairly recently, which I wanna point out to you because as a result, big changes happen because of it. The first one I wanna to talk to you about specifically happened on August 1st, 2017. Now on that date specifically on block 478,558, a group of miners decided to create a different type of block. They were creating a new type of block that was actually larger, than what the Bitcoin blockchain permitted. The Bitcoin blockchain at the time had a limit of one megabyte per block. But these miners decided to start mining blocks that actually had eight megabytes. So it was a much larger type of block than the one megabytes that Bitcoin permitted. As a result, the Bitcoin network kicked them off the network and a new blockchain was spun off. It's a whole new blockchain, and that blockchain became what we know today as Bitcoin cash. So this blockchain that you're seeing on the top, is Bitcoin. Bitcoin symbol is BTC. So you have the Bitcoin blockchain, and then as I mentioned on August 1st, 2017, a group of miners performed a hard fork and they spun off a new cryptocurrency called Bitcoin cash. But Bitcoin kept running. That's because this blockchain is still running. Now here's what's interesting. On August 23rd, 2017, the Bitcoin blockchain performed a soft fork. And what it did was it didn't upgrade. That upgrade is known as SegWit or segregated witness. This was a different approach and a different upgrade to the protocol that did allow larger blocks, not as big as Bitcoin cash, but it did allow it made some modifications and it was a new type of software. Now this was a soft fork. As a result, it was backwards compatible. That meant that even if there were miners, they were mining Bitcoin blocks, but didn't upgrade to use this new segregated witness software, they could still remain on the blockchain. So the blockchain kept running exactly as it is. Now here's what's interesting. On October 24th, 2017, another group of miners, different group of miners, started mining a different type of block. It wasn't compatible with Bitcoin. That group of miners, spun off a cryptocurrency called Bitcoin gold. So right now notice we have the Bitcoin blockchain, from the Bitcoin blockchain, we had a hard fork which spun off Bitcoin cash, and then we also had then on October 24th, 2017, another hard fork which spun off Bitcoin gold. Meanwhile, Bitcoin is still running. Now, here's what's fascinating. On November 15th, 2018, Bitcoin Cash had a hard fork of its own. So while you still continued creating Bitcoin cash, a different type of cryptocurrency spun off. This cryptocurrency is called Bitcoin SV or Bitcoin Satoshi Vision. Now, the reason why I'm telling you all of this, is that these hard forks and soft forks are the way that the network can upgrade. So the hard fork forces you to upgrade to the new software or else you will not be compatible with the network. And as a result, you'll get booted off the network. That's what happened with Bitcoin cash. The Bitcoin cash miners were creating these new blocks and the rest of the network didn't upgrade to their version. Therefore, they were kicked off. Same thing happened with Bitcoin gold Bitcoin gold spun off on its own, so you wind up having these different cryptocurrencies spinning off of the Bitcoin blockchain because these hard forks were not compatible with Bitcoin. But here's what fascinating about this whole topic. If you actually held Bitcoin on this specific date of this hard fork, August 1st, 2017, you would receive one Bitcoin cash for every single Bitcoin that you had before. So almost like saying free money. Key thing is you keep moving forward. When this additional hard fork took place on October 24th, 2017, if you held any Bitcoin, you'd receive one Bitcoin gold for every Bitcoin you had before. Same thing happened also in Bitcoin cash. When Bitcoin cash went through a hard fork on November 15th, 2018, for every single Bitcoin cash that you had, you would receive one Bitcoin Satoshi Vision. And these hard forks and soft forks are the way that the network can remain upgraded.