Making The Most of A Fork

The recent BCH fork wars are encouraging investors to learn more about cryptocurrency forks. Without going into what is a blockchain, this articles explains hard forks, soft forks, and their consequences.

Since the blockchain technology is software-based, it frequently requires upgrades. However, relatively few of these proposed upgrades fundamentally alter the protocol and lead to divergent opinions within the community. When they do, a hard fork is imminent.

In centralized systems, governing bodies impose their decisions on a network. In decentralized systems, the individuals tasked with running the network must agree on any proposed changes as they are responsible to keep the network up and running.  Each blockchain has a particular way of managing these ‘suggestions of change.’ Bitcoin Network, for instance, requires proposed changes be submitted via a standardized document known as the Bitcoin’s Improvement Proposal (which explains the change and its effects). Depending on the community’s level of acceptance for a proposed change, developers may implement new rules for the blockchain in two ways – Soft Fork or Hard Fork.

Soft fork
In a soft fork, developers release a new client with new rules and all the nodes or miners on the network can download this latest version. These new rules are typically incompatible with the old rules.  As such, a mandatory upgrade of the client is not needed as the new blocks on the soft forked chain still obey the old rules. In addition, the new chain is backward compatible with the prior chain so as not to harm compatibility. Although such a soft fork may result in a temporary split of the chain, the older chain continues to be extended till the new chain gains higher hash power, thus abandoning the older chain altogether. Segregated Witness (SegWit) is a soft fork on Bitcoin. However, this soft work should not be confused with SegWit2x, a canceled hard fork of Bitcoin.

Hard fork
In a hard fork, the proposed rules are not a subset of the protocol established, but an extension or an entirely new add-on to the original set of rules. A part of the community supporting the new set of rules starts working using this change, ignoring the original chain as it can no longer recognize the new proposed rules. This action results in two separate coins – one which follows the original set of rules and another that supports the proposed changes.

Forks in Recent Times

Some recent examples of forks include  
Bitcoin Forks: About 44 hard forks of Bitcoin have come out since the Bitcoin Cash hard fork in August of 2017. Bitcoin Private, Bitcoin Atom, Bitcoin Pizza, Bitcoin SV, Bitcoin Candy, and Bitcoin Gold are a few among these 44 forks. Of course, most of these hard forks were made to make short-term financial gains.

As George Kimionis, CEO of Coinomi, states,   

 Unfortunately, most fork-based projects we see today are more of a sheer money grab. Looking back a few years from now we might realize that they were just mutations fostered by investors blinded by exponential price increases — rather than honest attempts to contribute to the blockchain ecosystem.

Bitcoin Cash, on the other hand, was born as a solution to improve the scalability of the Bitcoin Protocol. Bitcoin Cash intended to increase the scalability by increasing the block size. It gained strong community support since its inception. In the latter part of 2018, Bitcoin Cash got hard forked into two – Bitcoin ABC (BCHABC) and Bitcoin Satoshi Vision (BCHSV). 

BCHABC proponents argue that Bitcoin Cash requires few changes outside an eventual increase in its blocksize. In contrast, BCHSV aims at increasing Bitcoin Cash’s blocksize from 32MB to a maximum of 128 MB to increase the capacity and scalability of the network. To assert their dominance over each by mining more blocks as possible, both the groups rallied the mining power from BTC mining to BCH mining during the peak time of their clash. While Coinbase and Bittrex allocated the original Bitcoin Ticker BCH to BCHABC, Binance and most other major players decided to simply assign new tickers to both hard forks. 

Ethereum ForksSeveral Ethereum forks have occurred since Ethereum’s founding. Perhaps the most popular has been Ethereum Classic (ETC).  Ethereum Classic came about as a means to reimburse venture capital funds lost on DAO (the Distributed Autonomous Organization acts as a decentralized venture capital fund). Although the Ethereum community has been heavily divided about allowing hard forks, Ethereum Classic developers proceeded anyway. Unfortunately, it recently came into light that ETCDev, a leading development firm behind Ethereum Classic, will be shutting down its operations due to a financial crunch.

Things to be Cautious About

Never give out the private keys of your wallet. Some fork or airdrop scams like the one discussed on this Reddit thread ask for your wallet’s private key. These are tell-tale signs of fraud. Instead, keep your original tokens in your desktop wallet or on an exchange that supports the hard fork (preferably the former).

Getting Free Coins

Finally, as Cryptocurrency Facts helpfully explains, it’s entirely possible to get free coins when a Bitcoin hard fork occurs. However, several prerequisites are necessary. For instance, one must “have Bitcoin on a platform that supports the fork before the block height at which the fork occurs.”  In particular,

This is because the developers of the new chain will take a “snapshot” of the ledger at a specific block height thereby creating a duplicate copy of the chain (the result being that all holders of Bitcoin on one chain will hold a proportionate ratio of the new coin on the new chain). That duplicate will become the new chain after the forked coin’s network goes live. After the forked blockchain goes live down the road (which can take hours, days, weeks, or months), you can then claim your “forked coins.”

To claim your coins, you must

  • Be in a wallet where you control your private keys before the snapshot block.
  • Move your funds to a new address after the snapshot, but retain your private key for the old address.
  • Download the new wallet once it is live.
  • Import your private key from the address you had crypto on before the fork to the new forked coin’s wallet.

As its somewhat difficult to summarize all the qualifiers involved, be sure to read the full article for various tips.

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