A protocol upgrade where only previously valid transactions are made invalid, with most soft forks requiring miners to upgrade their mining software.
A soft fork refers to the changes applied to a blockchain for modifying or adding any functionality without causing any fundamental structural change. It ends further validity of older transactions or blocks for the network participants (nodes) who have decided to follow the new consensus rules. However, it still allows the nodes following the old consensus rules to consider newer transactions or blocks as valid. Therefore, a soft fork is backward-compatible, which is its differentiating characteristic from the more commonly known hard fork, which ends forward compatibility for all old consensus-following nodes.
One salient part of cryptocurrency soft forks is that they don’t need all miners on the network to agree to run the new code, as it can be implemented with the majority of the miners agreeing on it. This allows network upgrades to be carried out faster and avoid causing a significant rift in the community. It can also be a result of a miner’s mistakes if the old nodes violate new rules that they aren’t aware of.
Bitcoin and Ethereum’s blockchains have, over the years, enacted several soft forks in order to upgrade the network, fix issues or enhance functionality without taking the more contentious hard fork route of forcing all miners to agree on the new consensus rules, which would run the risk of splitting the network. A commonly known and typical example of a soft fork is the Bitcoin Segwit upgrade, which allows block capacity to increase by removing signature data from the transactions.