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Crypto Terminology Hard Forks & Soft Forks

 

New Innovations create new terminology that is used when you interact with it. Cryptocurrencies have created many new words and terminologies. These words and terms need to be thoroughly understood. Reacting to terminology you don’t understand can increase the odds of you making a costly mistake. Let’s look at some new terms that are used often within the cryptocurrency marketplace, and understand their meaning.

  • Hard Forks?

  • Soft Forks?

  • Why do you need to know what these terms mean?

Be willing to take the time to become knowledgeable about the technological terminology used to produce cryptocurrencies.

With every new innovation comes new terminology. In order to be fully functional in any conversation about cryptocurrencies. You have to truly understand the key words of its language. The language of cryptocurrency is so new that it can be confusing when you read new terminology or hear new terms the first few times. To give you a point of reference to the newness of cryptocurrency jargon, the word cryptocurrency was officially added to Merriam-Webster’s word list in March of 2018.

In our modern world, a value that can be used to purchase goods and services has been digitized. Brand names have transformed into a primary source code within our digital world of internet trading. There are very similar characteristics between traditional financial instruments and cryptos when peeling the onion  layers of value. Value that is contained inside growth and investment options within a particular brand, quite often get chopped up in ways you may already be familiar with. Since these old attributes of finance have evolved digitally they are given new names.

A ‘Hard Fork’ is the term used to describe the execution of a new code in the blockchain. This new code will result in the creation of a new blockchain of the same brand alongside the original. The eventuality is that the new code will continue and the original code will become obsolete.

Courtesy of Investopedia

Hard forks have usually been implemented to nullify critical security threats found in older versions of the blockchain software, and add new functionality. Hard forks are also used to reverse transactions (this was successfully done to reverse the hack on the DAO (Decentralized Autonomous Organization) in the Ethereum blockchain. The incorruptibility of the blockchain was demonstrated when the hacked holders of Ethereum had their stolen coins returned to them as a new Ethereum coin, the result of the hard fork.

I relate this process to a stock being called and reissued with a new stipulation like Class “A”. The re-issuance will take place. The process is helped along when holders tender (upgrade) their shares to receive the new stock.

A “Soft Fork” is very similar to a hard fork. The similarity is that the blockchain code has been changed in order to continue as a new blockchain. The difference is that the old blockchain code is not allowed to run alongside the new blockchain code for any reason. There is only one blockchain whenever a soft fork is executed. The change in code can be temporary or permanent but there is only one blockchain throughout its execution.

I relate a soft fork to a  financial security symbol change. The security cannot trade when using the old symbol, although the underlying security did not change. The issuer can revert to the old symbol if they choose to while the underlying security remains the same throughout the process.

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