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What are Soft Forks and How Have They Impacted Bitcoin?

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Soft Forks and Bitcoin
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Hard forks and soft forks have played a key role in the development of blockchains both old (like Bitcoin) and newer (like the Ethereum blockchain) since their inception. They frequently are the result of open-source community consensus in determining new blockchain rules that add new features to or create a new version of the protocol.

But there are big differences between hard and soft forks on crypto blockchains, and Bitcoin forks are no exception. While hard forks often result in entirely new versions of the blockchain, soft forks differ in their intentions and how they are carried out. 

Here, we'll lay out how soft forks aim to improve blockchain networks (in this case, the main Bitcoin network), and we'll lay out some examples of soft forks that have been approved by the Bitcoin community.

Defining a Soft Fork

In the context of cryptocurrencies, a soft fork is a change or protocol upgrade that is backward-compatible, meaning it does not result in a permanent divergence of the blockchain. Soft forks are generally implemented to introduce new features, improve functionality, or fix bugs in the existing blockchain software.

During a soft fork, the new rules or protocols are designed to be more restrictive than the previous ones. This means that nodes or participants that have not upgraded to the new software will still be able to validate and process transactions according to the updated rules. In other words, nodes running the older version of the software will still recognize the new blocks as valid, even though they may not fully support the additional features or changes introduced in the upgrade.

Soft forks typically require a majority consensus among network participants to activate the new rules. If a sufficient percentage of miners, validators, or nodes adopt the upgraded software, the soft fork is considered successful, and the updated rules become the new standard for the blockchain network.

It's important to note that during a soft fork, nodes and participants who have not upgraded their software may not be able to fully utilize the new features or functionalities introduced by the upgrade. However, their transactions will still be recognized as valid within the updated blockchain, ensuring backward compatibility and maintaining the integrity of the network.

Soft Forks vs. Hard Forks

Soft forks and hard forks are two different types of protocol upgrades or changes in a blockchain protocol, and they differ in their compatibility and the impact on the network's consensus rules. Here are the main differences between soft forks and hard forks:

  • Compatibility: Soft forks are backward-compatible, meaning nodes running older versions of the software can still validate transactions according to the updated rules. On the other hand, hard forks are not backward-compatible and require all nodes to upgrade to the new software version to continue participating in the network.
  • Consensus rules: Soft forks introduce new rules that are more restrictive than the previous ones. This means that blocks and transactions following the new rules are recognized as valid by both upgraded and old nodes. In contrast, hard forks introduce new rules that are not compatible with the previous version. Nodes that have not upgraded to the new software will consider blocks following the rules as invalid.
  • Network split: Soft forks do not result in a permanent divergence of the blockchain. They maintain a single chain, with upgraded nodes accepting the new rules while non-upgraded nodes follow the old rules. In contrast, hard forks create a permanent split in the blockchain. There are now two separate chains, with upgraded nodes on one chain and old nodes on the other, resulting in the creation of a new cryptocurrency.
  • Consensus requirement: Soft forks require a majority consensus among network participants to activate the new rules. A significant percentage of miners, validators, or nodes need to adopt the upgraded software to enforce the rules. On the other hand, hard forks typically require a supermajority consensus, where nearly all network participants must upgrade to the new software for the fork to be successful.
  • Upgrade process: Soft forks generally involve less disruption and coordination compared to hard forks. Upgrading to the new software version is simpler since non-upgraded nodes can still operate, even if they do not fully utilize the new features. In contrast, hard forks require a coordinated and simultaneous upgrade by all participants to avoid network fragmentation.

A History of Bitcoin Blockchain Soft Forks

Several notable soft forks have occurred in the history of the Bitcoin network. Here are some of the more significant soft forks:

  • BIP 16 (P2SH): BIP 16, or Pay-to-Script-Hash: Implemented in 2012, this upgrade introduced the concept of a "script hash" to enable more complex transaction types, such as multi-signature transactions. This soft fork improved Bitcoin's flexibility without invalidating existing transactions.
  • BIP 34 (Block v2): BIP 34 was activated in 2012 and introduced a new block versioning scheme. It required blocks to include a block height within the block's coinbase transaction. This change allowed for future protocol upgrades based on block height.
  • BIP 66 (Strict DER signatures): Activated in 2015, BIP 66 enforced stricter rules for digital signatures. It mandated that signatures must follow the DER (Distinguished Encoding Rules) format, enhancing security and preventing certain types of transaction malleability.
  • Segregated Witness (SegWit): One of the most significant soft forks in Bitcoin's history, SegWit was activated in 2017. It aimed to address several issues, including transaction malleability and the scaling debate. This soft fork separated transaction signatures (witness data) from the transaction data, resulting in increased block capacity and improved transaction efficiency.
  • BIP 65 (OP_CHECKLOCKTIMEVERIFY): BIP 65, activated in 2015, introduced a new opcode called OP_CHECKLOCKTIMEVERIFY. It allowed for the inclusion of time-based conditions within smart contracts, enabling various use cases such as time-delayed transactions or conditional spending.
  • BIP 141 (SegWit v0): BIP 141 was part of the SegWit soft fork and defined the rules and deployment for its activation. BIP 141 introduced a new transaction format and increased the block size limit from 1MB to 4MB by moving the witness data outside the block's base structure.
  • BIP 340, 341, and 342: Together, all three of these updates comprise the Taproot upgrade. It was the first major upgrade to Bitcoin since 2017 following the SegWit upgrade and the introduction of the Lightning layer-2, with all three proposals aiming to improve efficiency and privacy on the Bitcoin network (the introduction of Schnorr Signatures, for example).

The backward-compatibility of these upgrades differentiate them from other notable events like the creation of Bitcoin Cash (BCH), Bitcoin SV (BSV) and Bitcoin Gold (BTG), all of which are considered hard forks from BTC.

Blockchain Forks and the Bitcoin Blockchain Network

Soft forks don't create new blockchains, but they offer new upgrades to improve upon existing decentralized cryptocurrency blockchains like Bitcoin. Bitcoin itself has seen examples of hard forks and soft forks over its lifetime, with each seeking to enact sets of rules that community members and subsets of participants believe would bring positive changes to the protocol.

Ultimately, the soft forks that did happen all sought to increase the scalability and efficiency of Bitcoin. They attempted to address some of the biggest concerns around the blockchain protocol's biggest challenges.

The soft forks that have occurred in Bitcoin are still highly relevant to Bitcoin today. Both the SegWit and Taproot upgrades, for example, factored prominently in the creation of the Ordinals protocol that revived not just interest in Bitcoin NFTs, but also building on the Bitcoin blockchain in general thanks to the Ordinals inscriptions generated.

The Bitcoin community is dedicated to ensuring the growth of the blockchain, meaning that we'll likely continue to see even more soft forks down the line. In the end, the Bitcoin ecosystem not only wants to preserve the highly decentralized and stable nature of the Bitcoin blockchain, they are also determined to exploring its scalability potential. In order to do so, upgrades to the software protocol seem highly probable, including the possibility of additional soft forks.