Crypto Free Money? How Hard Forks Motivate Coinholders A hard fork basically means that if you have one coin, you are due the equivalent amount of coins in the new currency, free money! by Cameron Bowen 10:36 GMT
Nearly ten years ago, the fintech industry was introduced to an innovative payment solution and digital currency, built on a decentralized, autonomous consensus algorithm. Nowadays, we all know it as bitcoin. When it first arrived on the scene, it was a one-of-a-kind technology with which the e-cash solutions that preceded it could not compete. It left the likes of PayPal, credit cards, and online bank accounts in the dust as well. Less than nine years later, and it’s almost as if this seminal cryptocurrency is a thing of the past.
Bitcoin cash now has the potential to stand on equal footing with bitcoin. This similarly named coin was created during a hard fork that took place this past August, when dissenting developers split from the Bitcoin Core team’s blockchain, and decided that SegWit was not the only way they could enhance the groundbreaking platform.
The algorithms and protocols that cryptocurrencies operate by dictate that all bitcoin holders are given an equal amount of the new chain’s coins after a new hard fork.
While some see this as free money, is it? Others are drawn to this kind of event for a completely different reason, because it inflates the price of bitcoin itself pre-fork. Regardless of why, the nuanced relationship between price and hard forks must be studied. Making Money
A hard fork is when cryptocurrency developers on the same chain as another coin plan to upgrade their version of it, and instead of getting consensus to change the underlying coin, simply leave to create their vision as an entirely new coin. When a hard fork occurs much like in the case of bitcoin and bitcoin cash, the blockchain splits into a new path.
Each chain operates a bit different than the other intentionally. Bitcoin has the Segregated Witness (SegWit) protocol, for instance, which is an algorithm that allows second-layer solutions to take data off the blockchain and store it someplace else, like in the Lightning Network. Bitcoin Cash, on the other hand, operates solely on the blockchain by considerably increasing the block size limit to fit more data.
Where do these free coins come from? To draw people into migrating over to new versions of bitcoin, the developer teams established a standard that would automatically create an equivalent amount of new coins to match the number of bitcoins users already had in their wallets.
That was not an empty promise, but the economic dynamics of such an operation complicate the situation somewhat. Delicate Dynamics
Before bitcoin and bitcoin Cash had their famous split, coin holders were promised that they would receive an amount in the new token that would be equal to the amount they owned in the old token. This gave certain people the idea that this meant free money was up for grabs. People increasingly invested in bitcoin in anticipation that they would also receive the new coins once the fork happened.
However, within this single idea are multiple conflicting ones. During a hard fork, the base digital currency rises as people invest into the hard fork, so one could say that a hard fork is beneficial for bitcoin. However, one can also argue that any value the new coin gets is at its predecessor’s expense, which is also true. What ended up happening is that the hard fork, despite being viewed as controversial and a net negative for the community’s image, provided a rising tide that lifted all boats.
Once users are done migrating and settling from one chain to another, they will have a clear picture of which token has the upper hand once the crypto markets stabilize. In special cases like that of bitcoin cash, both it and its older brother bitcoin went on bull runs.
Bitcoin cash never made the promise that coin holders would receive free digital funds for joining the network. They simply did their duty to ensure that clients would not be subjected to financial damage from the split, which was the responsible thing to do. Feigning Forks
Though people would like to assume hard forks are essentially these lucrative events, there have been instances where things took a surprising turn which was not in everybody’s best interest. SegWit2x was supposed to be an upgrade for Bitcoin’s second layer software, which was meant to make the network’s operation both faster and smoother.
However, the developer team decided to cancel the upgrade. Bitcoin cash , the “foe” of bitcoin in terms of network speed, generated significant returns thanks to the ball that the failed token had fumbled.
Hard forks can be money-making opportunities in some cases, but they can further prove to be quite the opposite in others. Bitcoin and bitcoin cash may not be affected by real world political events, but these forks are surely the inner workings of crypto-politics. As such, the outcomes of these events might be harder to predict in the future..
