What is the difference between a soft fork and a hard fork in cryptocurrency?

A soft fork and a hard fork are both types of updates or changes to the protocol of a blockchain network, typically involving changes to the consensus rules. Here's how they differ:

1. **Soft Fork**:
   - **Definition**: A soft fork is a backward-compatible upgrade to the blockchain protocol. It tightens the ruleset, making previously valid blocks or transactions invalid under the new rules.
   - **Implementation**: Soft forks typically involve adding new rules that restrict the consensus rules in some way, such as requiring stricter validation of transactions or blocks.
   - **Compatibility**: Nodes that have not upgraded to the new rules can still operate on the network but may not be able to validate all new transactions or blocks. However, they will still recognize new blocks as valid under the old rules.
   - **Example**: Segregated Witness (SegWit) in Bitcoin was implemented as a soft fork. Nodes that didn't upgrade to SegWit could still operate on the Bitcoin network but wouldn't recognize SegWit transactions as fully valid.

2. **Hard Fork**:
   - **Definition**: A hard fork is a non-backward-compatible upgrade to the blockchain protocol. It introduces changes that are not compatible with older versions of the software. This means nodes that haven't upgraded will see new blocks as invalid.
   - **Implementation**: Hard forks typically involve fundamental changes to the protocol, such as altering the block size limit, changing the consensus algorithm, or modifying how transactions are validated.
   - **Compatibility**: Nodes and users must upgrade to the new version of the software to continue participating in the network and validating transactions. If not upgraded, they may end up on a different blockchain, resulting in a split (fork) of the network.
   - **Example**: The creation of Bitcoin Cash from Bitcoin in 2017 was a result of a hard fork. Bitcoin Cash increased the block size limit, making blocks bigger than those on the Bitcoin blockchain, thus requiring a separate set of rules.

**Key Differences**:

- **Backward Compatibility**: Soft forks are backward-compatible, allowing nodes that haven't upgraded to still function on the network, albeit with limited capabilities. Hard forks are not backward-compatible and require all participants to upgrade to the new ruleset.
 
- **Network Split**: Soft forks do not necessarily split the blockchain; they typically maintain a single chain with upgraded and non-upgraded nodes coexisting. Hard forks, if not universally accepted, can lead to a split where two separate blockchains and currencies emerge.

- **Risk of Consensus Failure**: Soft forks have a lower risk of causing a consensus failure because they maintain the existing consensus rules while adding new ones. Hard forks carry a higher risk of splitting the community and creating competing networks if not universally adopted.

In summary, the choice between a soft fork and a hard fork depends on the nature of the proposed changes and the consensus among stakeholders in the cryptocurrency community. Both forks are tools for protocol upgrades but differ significantly in their impact on network continuity and participant compatibility.