The main difference between a hard fork and a soft fork in cryptocurrency lies in the level of compatibility with the existing blockchain protocol and the resulting network split.
Hard Fork: A hard fork is an upgrade or modification to the blockchain protocol that is not backward-compatible. It introduces changes that are incompatible with the previous protocol. Nodes running the old software cannot validate blocks created by nodes using the upgraded software, leading to a permanent split into two separate chains.
Soft Fork: A soft fork, on the other hand, is a backward-compatible upgrade or modification. It introduces changes that are compatible with the existing protocol, allowing nodes running the old software to recognize and validate blocks created by nodes using the upgraded software. The network remains unified without a permanent split.
Hard Fork: During a hard fork, the blockchain splits into two separate chains, each following its own set of rules and forming a new cryptocurrency. Holders of the original cryptocurrency receive an equal amount of the new cryptocurrency based on their holdings at the time of the fork. Examples include Bitcoin Cash and Ethereum Classic.
Soft Fork: In a soft fork, there is no network split or creation of a new cryptocurrency. The upgraded software enforces new rules or restrictions that are compatible with the previous protocol. Non-upgraded nodes can still operate and participate in the network, but they may not recognize some new features or improvements. An example is the implementation of Segregated Witness (SegWit) in Bitcoin.
Hard Fork: A hard fork requires consensus among participants to be successfully adopted. It typically involves a significant portion of the community, developers, miners, and other stakeholders agreeing to the proposed changes and upgrading their software accordingly.
Soft Fork: Similarly, a soft fork also requires consensus, but it can be implemented with a lesser degree of support. As long as a majority of miners and nodes adopt the upgraded software, the soft fork can be enforced, and non-upgraded participants can still function within the network.
In summary, a hard fork introduces incompatible changes, results in a network split, and creates a new cryptocurrency, while a soft fork is backward-compatible, does not split the network, and maintains a unified blockchain.