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In the blocksize debate it is often stated that hard forks are dangerous. This is sometimes supported by the claim that "people may lose money and must be protected". And that it's impossible to prepare for a hard fork in a few months.

  1. What are the dangers of a hard fork?
  2. How would people lose money due to a hard fork?
  3. Why is it necessary to give more than a month time to prepare for a hard fork?
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The following assumes that one understands what happens with a soft and hard fork. See all the answers here for a good explanation.

Say a new change is implemented in the bitcoin protocol and it requires a hard fork. Full nodes are required to upgrade to the new version (otherwise there are dangers...).

What are the dangers of a hard fork?

The real danger is that the blockchain will split in two parallel blockchains. Miners, merchants, users (via wallets and other software), etc. that did not upgrade will support/use blockchain A and miners, merchants, users, etc. that did upgrade will support/use blockchain B.

How would people lose money due to a hard fork?

Effectively there are now two bitcoin blockchains. The bitcoins that you had before the fork will exist in both blockchains A and B (they doubled!). A simplified example would be that: You can use your bitcoins from an old wallet and buy something from a merchant that uses old nodes. Then you can use a new wallet and buy something from a merchant that uses the new nodes with the same bitcoins. This is not even doublespend since the chains are different.

However, what this also means is that the bitcoin users and community are also split. Each blockchain instead of having X nodes (the nodes before the split) that keep it secure will have X/2 nodes. Several merchants accept bitcoin but some accept version A and some version B... and so on. This is not user friendly and it will cause much confusion. Something like that will shatter trust in the bitcoin network causing its price to diminish. Fear of future hard forks (splits) will diminish trust (and price) even more. So people will lose money indirectly since the value of bitcoin will collapse (best case scenario the price will split... but it is probably going to be much much worse).

Why is it necessary to give more than a month time to prepare for a hard fork?

Because we want to make sure that everybody is aware of the change; miners, merchants and users. We want to make sure that they do not have objections to the change and that they agree on the upgrade. In addition wallet creators and merchants might also need time to upgrade their software accordingly (depending on the upgrade changes). The delay is for both (first) social and (second) technical reasons.

Also note that if the split is, say 95% upgraded - 5% did not (or vice versa), it will not be a big problem since the bigger chain will have the overwhelming majority and the remaining will be forced to upgrade or be ignored.

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    Adding to your "simplified" example: if done naively, someone can take your first transaction and put it into the other chain (only if it's also valid there of course). The receiver of your transaction would love to do that, so he gets coins in both chains and also miners might want to do it for the fee. Maybe that's why you called it "simplified", just wanted to add that.
    – Jannes
    Jan 21, 2016 at 13:41
  • Another reason that prices of one (likely both) will quickly diminish is that a lot of people will want to sell the coins of the chain they don't want ASAP. That's a huge supply that will lower the price a lot.
    – Jannes
    Jan 21, 2016 at 13:44
  • Even in a 95-5 split, the 5% is getting screwed. That should still lower the trust in Bitcoin significantly, because it means every 1 in 20 hardforks, you will get screwed. (It's not always the same 5%.)
    – Jannes
    Jan 21, 2016 at 13:47
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    In case of a 95-5 split some that were actively doing transactions might have issues. They are not really getting screwed... they have their coins in the 95 chain too. In case you are buying something with coins from the 5 chain and a merchant accepts the merchant loses and the user benefits since the user might get the product but the 5 chain will lose so the coins that the merchant got are useless -- still, only on a certain time frame. People will upgrade fast on that split difference.
    – karask
    Jan 21, 2016 at 14:50
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    My comment says that their bitcoins also exist in the 95 chain and only active transactions in the 5 chain are in danger. And it has nothing to do with "lazy". Even if they badly wanted the change for whatever reason they will be forced to join the 95 chain or give up bitcoin. The value of the 95 chain might hurt a little but it will come back as it did the last time. If you believe that not getting their way is "getting screwed" then fine. But they are not getting screwed in the sense that they lose value from their bitcoins (maybe a little but not enough to deserve the "g. screwed" label)
    – karask
    Jan 21, 2016 at 17:42
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Risk of a hard fork (as compared to a soft fork)

The only difference between hard and soft-fork is how pre-fork full nodes react to the new blocks. This has a few implications:

Pre-fork full nodes will be willing to follow a different (likely shorter) chain. They might accept payment confirmations that turn out to not be valid in the longer chain. Note that this can happen in a soft-fork too if a non-upgraded miner mines an invalid block.

Pre-fork miners, if there are any, can continue to mine on the shorter chain (since it is the longest valid chain to them). This leads to the biggest risk: if that shorter chain ever overtakes the longer one, there will be a large reorganization, and many confirmed payments no longer will be (from the perspective of the people who had followed the fork). This is why most proposed hard-forks ensure they have a supermajority of hashpower before triggering.

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