Guide
What Is a Bitcoin Fork? Hard Fork vs. Soft Fork Explained
The Bottom Line
In one sentence, a "Bitcoin fork" is what happens when the transaction rules (consensus rules) of the blockchain are changed and the chain splits, or "forks." There are two kinds. A soft fork keeps backward compatibility with the old rules (examples: SegWit and Taproot), while a hard fork breaks compatibility, producing separate chains — and a new cryptocurrency (example: Bitcoin Cash). Whether compatibility is preserved is the decisive difference between the two, and it also determines what happens to the BTC you hold.
Key points of this article
- A fork means the blockchain splits because its rules changed. It is not about "good vs. bad" — it is a question of how an upgrade is deployed.
- Soft fork = backward compatible (old nodes can stay on the chain). SegWit and Taproot are the classic examples.
- Hard fork = not backward compatible (unless everyone upgrades, the chain splits in two and a new coin is born). Bitcoin Cash is the classic example.
- When a split occurs, holders may be granted an equal number of the new coin — but in Japan the acquisition cost is treated as zero, so it is taxed when you sell.
Why does a fork (split) happen in the first place?
Bitcoin has no central administrator. A single chain is only maintained because nodes (participants' computers) all over the world follow a shared set of rules — the consensus rules — for deciding which transactions are considered valid.
When someone wants to change those rules, it is difficult to get every participant to move in perfect lockstep at the same time. So:
- Improvement proposals for lower fees, higher throughput, or new features are put forward (BIPs = Bitcoin Improvement Proposals).
- Depending on how many nodes accept the new rules, the chain branches either temporarily or permanently.
That is a fork. In other words, a fork is not an accident — it is the very mechanism by which a decentralized network upgrades itself.
The difference between hard forks and soft forks
The biggest difference is whether backward compatibility is preserved.
| Aspect | Soft fork | Hard fork |
|---|---|---|
| Backward compatibility | Yes (rules are made stricter) | No (incompatible with old rules) |
| Old nodes | Can stay on the chain without upgrading | Left on a separate chain unless they upgrade |
| Chain split | In principle stays a single chain | Splits permanently into two if consensus fails |
| New coin | Not created | May be created (e.g., BCH) |
| Examples | SegWit, Taproot | Bitcoin Cash, Bitcoin Gold |
Soft fork = a change that "narrows" the rules
A soft fork introduces the new rules as "tighter constraints than before." Blocks created under the new rules still look valid to old nodes, so nodes that have not upgraded can remain on the chain. If a majority of miners back it, the chain quietly upgrades while staying a single chain.
Hard fork = a change that "widens" or "alters" the rules
A hard fork creates new blocks that old nodes would judge as "invalid" (for example, increasing the block size). If every participant upgrades to the new software, the transition happens on a single chain — but if some insist on sticking to the old rules, two chains run in parallel and split into separate cryptocurrencies.
A list of major past Bitcoin forks
Here are the most representative forks that actually occurred on Bitcoin, organized around verified facts.
| Name | Type | Date | Overview |
|---|---|---|---|
| SegWit | Soft fork | Aug 24, 2017 (block 481,824) | Separated signature data to effectively expand capacity; resolved transaction malleability |
| Bitcoin Cash (BCH) | Hard fork | Aug 1, 2017 (block 478,558) | Split over a dispute about raising the block size limit |
| Bitcoin Gold (BTG) | Hard fork | Oct 24, 2017 (block 491,407) | Changed the mining algorithm to decentralize mining |
| Taproot | Soft fork | Nov 14, 2021 (block 709,632) | Improved smart contract efficiency and privacy |
- SegWit was a soft fork implemented as BIP141 that replaced the block's capacity limit with a "weight"-based system. For details, see What is SegWit.
- Bitcoin Cash is the most famous hard fork, born out of a dispute over scalability. The background is summarized in What is Bitcoin Cash.
- Taproot was activated in 2021 and is one of Bitcoin's largest upgrades in recent years. How it works is covered in What is Taproot.
What happens to your own BTC in a fork?
Here is what matters most to holders.
In a soft fork: the currency does not split. The quantity or value of the BTC in your wallet is not directly increased or decreased by the fork, and most users simply experience the network improving without their even noticing.
In a hard fork where the currency splits: if you hold BTC at the moment of the split, you may in principle be granted an equal quantity of the new coin (for example, 1 BCH for 1 BTC held). However, to receive it you must either be holding it on an exchange that supports the fork or be managing your own private keys, and handling varies from exchange to exchange. Always check the official announcement from the exchange you use.
Tax treatment (Japan)
According to guidance from Japan's National Tax Agency, the acquisition cost of a cryptocurrency obtained through a split (hard fork) is treated as zero. This is because there is no market price and the asset is considered to have no value at the moment of acquisition, so it is not taxed at that point. Instead, when you sell or use it, the entire sale price is taxed as income (because the acquisition cost is zero). Note that this is not a tax exemption but a deferral of the taxation timing. The rules abroad differ by country, so check your own jurisdiction's authority.
注意
This article is an educational explanation to help you understand how forks work; it is not investment advice. It does not guarantee profit from new-coin grants or price movements caused by a fork, and there are fraudulent schemes disguised as "fork coins" or airdrops. For details on whether a grant applies, how to receive it, and the tax treatment, always confirm with the official information of the exchange you use, the latest guidance from your tax authority, and a tax professional if needed. Cryptocurrency is a highly volatile asset.
Frequently asked questions
Q. Does Bitcoin's value fall when a fork happens? A. Not necessarily. A soft fork (a feature improvement) involves no split and can be neutral to positive for the market. A hard fork tends to make prices more volatile in the short term due to the uncertainty of the split, but long-term value is determined by many factors such as supply, demand, and adoption. It is a mistake to assume a fork automatically means a price drop.
Q. Which is "safer," a soft fork or a hard fork? A. It is not about which is superior — it is a difference in purpose. Improvements that can preserve compatibility favor a soft fork (SegWit, Taproot), while changes that fundamentally alter the rules require a hard fork. Hard forks make community consensus-building all the more important.
Q. Is Bitcoin Cash a "fake" Bitcoin? A. No. It is an independent cryptocurrency that branched off in the 2017 hard fork, with its own blockchain and community. For details, see What is Bitcoin Cash.
Q. Do I need to file a tax return if I receive a new coin from a split? A. It is not taxed at the moment of acquisition, but if you sell or use that new coin and make a profit, it is subject to tax. Because it is calculated with an acquisition cost of zero, the full sale price can become income. Check your tax authority's official information for the latest treatment.
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FAQ
- Does Bitcoin's value fall when a fork happens?
- Not necessarily. A soft fork (a feature improvement) involves no split and can be neutral to positive. A hard fork tends to make short-term prices more volatile due to the uncertainty of the split, but long-term value is determined by many factors such as supply, demand, and adoption.
- Which is safer, a soft fork or a hard fork?
- It is not about superiority but purpose. Improvements that can preserve compatibility become soft forks (SegWit, Taproot); when the rules must be fundamentally changed, a hard fork is needed. Hard forks make community consensus-building more important.
- Is Bitcoin Cash a fake Bitcoin?
- No. It is an independent cryptocurrency that branched off in the August 2017 hard fork, with its own blockchain and community.
- Do I need to file a tax return if I receive a new coin from a split?
- It is not taxed at the moment of acquisition, but if you sell or use it at a profit it becomes taxable. Japan's National Tax Agency FAQ calculates it with an acquisition cost of zero, so the full sale price can become income. Check your tax authority's official information for the latest treatment.
This article is informational only and is not financial, investment, or trading advice. Prices are reference snapshots and may be outdated. Always do your own research.
