Bitcoin Forks explained and what to consider
Bitcoin Cash was the first cryptocurrency forked off Bitcoin, and it was received with considerable controversy; it certainly shook the crypto world back in August last year. From then, two other forks have been born from the main Bitcoin network: Bitcoin Gold and Bitcoin Diamond. However, even though forks are not a rare occurrence in the crypto universe, there is still a lot of people who have no idea of what they mean.
Thus, we first need to clarify what is a fork.
What is a Bitcoin fork?
A Bitcoin fork is a modification of the protocol that is currently running the blockchain. That means that the rules and the way it works are altered.
When that type of change happens, be it on Bitcoin or any other altcoin, every node and user of the currency must accept the new protocol and adapt to it. If that happens, then there will be no issue related to continuing the blockchain with the new changes.
However, if there is a conflict regarding the implementation of the new rules, then a split may be created, and two versions of the same currency will function at the same time. That is what happened with Bitcoin Legacy and Bitcoin Cash since a significant dispute originated from the increase in block size and the principles of Bitcoin as a vision.
There are two types of forks in the crypto universe:
- Soft Forks, which are modifications that are either small or that can be adapted to the old blockchain. This kind of fork is less “traumatic” and, as such, is backwards-compatible with the blockchain, so there is no need for an update of the whole code.
- Hard Forks, on the other hand, are not compatible with the blockchain it originates from and requires users to abandon it. Popular hard forks include the Bitcoin Cash (as mentioned above) and Ethereum Classic ones.
From these types of forks, hard forks are the most heard since, because of their nature, most controversies are born because of them.
Forks are very important and should not be ignored for several reasons. The first one is the most obvious; you may believe that the new protocol and rules are just better than the current version of Bitcoin and, thus, you may prefer switching to the latest version. Another apparent reason is that forks are usually controversial and are profoundly influential in how the Bitcoin community gets along; they could even make the value of Bitcoin go up or down somewhat significantly.
However, there is one reason that most people ignore because you need to understand precisely what a fork is before you become aware of this third factor.
Whenever a fork happens in any cryptocurrency, a new blockchain is created. This blockchain doesn’t appear from a void, but it branches off the original.
Can you see where this is going?
Since it branches off from the first chain, it doesn’t begin from scratch, and it will still contain all the logs as the original, which is running simultaneously.
And, we also know that what moves a cryptocurrency are the records of transactions on the blockchain. Once a coin is registered for an address, it becomes present in it.
Parting from this point, we now have a new blockchain with new coins and that it still contains logs which reference transactions made in it. The new protocol treats those records as legitimate for the new cryptocurrency and, as such, it considers them as existing and present in those addresses.
In other words, anyone who possesses some Bitcoins will also own an equal number of the new coin. If you had 15 Bitcoin in August 2017, you also had 15 BCH by the time that fork was released. The same with Bitcoin Gold and Diamond.
So, the third reason to care about a Bitcoin fork is that you have all those free coins which you can sell for a 100% profit.
However, you must make sure you claim them. While the protocol assigns the new tokens to your addresses automatically, you still need to make a claim so that they can be stored in your wallet for you to do whatever you want with them.
When you take that into consideration, it’s easy to see why you should take your time to keep yourself updated about Bitcoin forks, how they function, and their releases and predictions. By doing so, you will make sure you are not missing out on any business opportunity because of a lack of information.
Nevertheless, while all those statements might make Bitcoin forks look like a sweet deal and an easy way to make money, Bitcoin forks are a big deal for a reason. And, said idea is starting to fade away in the apparent craze for the modifications.
Back when Bitcoin Cash was forked off Bitcoin, forks were seen as a method of protest against the way Bitcoin was being handled and developed, which differed from the original vision by Satoshi Nakamoto.
But, it seems forks which came out recently have little difference between each other or even with the original Bitcoin blockchain, with a sensation of them following pure marketing and making money instead of pursuing an idea. Simplified, Bitcoin forks seem to be a way to push a new coin and capitalising on the current Bitcoin fame instead of creating an altcoin and having to deal with advertising.
It’s a very worrisome trend that seems to be catching up as a “quick money” method. The crypto market already has a history with people looking to make money as quickly as possible, which is something that led to the spike in popularity of ICOs, which grew in number from a few dozens to the hundreds during last year.
What that creates is a population of investors and speculators looking to obtain free coins that they can sell for an instant profit, pouncing on every new fork that makes the news with no regards for what they stand for or even if they are offering something new.
Something that originates from this is developers who also see forks as a gold mine and set out to create a new “fork”, which barely changes the original blockchain (just enough to deceive investors) and which are made so that the developers can obtain a significant amount of coins for them to sell immediately.
All of that results in a breeding space for scams. If you don’t believe us, just look at Bitcoin Platinum, which has already been reported as one. Said scams are not necessarily those who seek to create forks to gain new and free coins, but ill-intentioned individuals who look to short the price of Bitcoin or develop forks whose claiming process allows them to steal real Bitcoins.
As you may see now, Bitcoin forks can be a very positive thing which can make the cryptocurrency become something better or, at least, make you some money in case you don’t really care about the updates. But, they can also be extremely dangerous if the community is not careful enough.
As such, it is essential to understand the way to claim your new tokens after a fork is made safely.
Claiming your forked coins
First of all, we can recommend the obvious: read and inform yourself about the project, its developers, their history and reviews, anything that might let you verify if the plan is legitimate or not.
Nevertheless, a fork being real is not a synonym of it being worthy of claiming. Claiming coins can be a precarious process, and you may even lose your coins if you have no idea of what you are doing. Especially if you have a low Bitcoin balance, like half a Bitcoin, the instant profit made by selling the new coins may not be worth the risk.
One example we may give is the availability of “replay protection” in the new blockchain. Forks need to implement a way for the network to separate the new tokens from the older ones so that the original ones are not sent to the new addresses once the claim has been submitted for a forked coin.
Something else you should keep an eye out for is whose guide you are following. Try to stick with guides published by popular wallets, like Ledger, or publications that are credited. Always remember that you are the only one responsible for your money and its safety and that no writing, no matter how reputable is the source, can take the said responsibility for keeping your coins safe.
If, after considering all the risks associated with claiming forks, you still decide to claim the new coins, remember to keep your Bitcoin in a wallet which grants you access to the private keys. That is to ensure you can get your Bitcoins from off any exchange and web wallet by the time the fork is released as you need to be able to interact with the private addresses to perform the claim request.
By the time the fork occurs, you must make sure you have sent your Bitcoins to a new wallet which has a different private key and that you have uploaded your old private address to a wallet that accepts the new currency.
Knowing which wallet will provide support for each fork is not an easy task due to the uniqueness of each one. Because of this, each fork should list the supported wallets and exchanges on its official website.
Additionally, if you decide to leave your BTC in an exchange, it’s probable that the company will extract the new coins instead of you having to do it. The issue with this is that you’re letting someone else decide and interact with your money.
Make sure you always send your BTC to a new wallet that has a unique seed phrase before you try to claim a forked coin. That is to lower the chance of your Bitcoin being lost in the process.
We do have a step by step guide how to redeem your forked coins under “How to claim”.
Now that we’ve analysed what a Bitcoin fork is, went through their pros and cons, and even explained how to proceed if you wish to obtain your new coins, it’s time to move on to the existing Bitcoin forks.