The term “fork” is often used in software development to describe a change in protocol. Since blockchain technology is based on software code, it’s not surprising that this term is also used in connection with Bitcoin and other cryptocurrencies.
We should understand what forks are and why they occur because they are fairly common, and the logical place to begin our study is with Bitcoin. This is because it was Bitcoin that started the entire cryptocurrency revolution.
Bitcoin Overview
Bitcoin was one of the first decentralized, open-source blockchains and cryptocurrencies. To understand Bitcoin you need to know about its software protocol. This protocol defines the rules that the network uses for everything from transactions to mining. The open-source nature of Bitcoin is very important because it allows anyone to view, inspect and use the code.
How Do Bitcoin’s Hard Forks Affect BTC Price?
The BTC price often varies, and you can easily track it accurately in real time by following trusted and verified exchanges.
When there is a fork in the Bitcoin network, some of the value present in the original chain splits into the new forked chain. For example, when Bitcoin Cash forked off from the Bitcoin network, the price of Bitcoins dropped.
The value of the individual’s assets might drop when there is a fork, but because the person now owns an equal amount of another currency, they end up making a profit. Even though the original coin has gone down in value, the secondary coin more than makes up for it.
Forks can ultimately provide solutions to the original coins’ problems and even develop the coins in a way that would make them more attractive to investors.
Furthermore, they allow for the development of a given token to make more money off of it by making the fork worth more than just the original value.
Hard Forks Explanation
A hard fork is created when code changes are made that aren’t compatible with older versions of the software. In the instance of Bitcoin, this means that everyone taking part must upgrade to the new version if they want to keep validating transactions. Once this type of change occurs, it causes a lasting split, or fork, in the blockchain. However, both chains have the potential to exist as long as there is some support from miners on both chains. In addition, there are two types of hard forks: contentious and planned.
Planed Hard Forks
Planned hard forks have already been specified on the project’s roadmap for weeks or even longer. The team supports these hard forks because they want to improve features or advance their blockchain capabilities. This means when a fork happens, everyone switches over to utilizing the new chain instead of the old one. There would be no purpose to support an abandoned and dying chain, so it simply ceases to exist over time.
Contentious Hard Forks
A contentious hard fork happens when members of a community disagree, leading to two different versions of the same chain. One is the new one created by the fork, and the other is an old chain supported by some members of the community.
Bitcoin Spin-off Coins
The software used to create Bitcoin is open-source, so anyone can duplicate it or change it however they see fit to make it more useful. This has led to the development of numerous blockchains based on the Bitcoin codebase, with Litecoin being the best known.
Litecoin was created by modifying the Bitcoin code. Some of these changes include a decrease in block time from 10 minutes to 2.5 minutes, using the Scrypt algorithm instead of SHA-256, and increasing the fixed coin supply from 21 million to 84 million.
Dogecoin, Namecoin, and Peercoin are all examples of coins that were launched after Bitcoin and used its codebase.
Issuing Free Coins to Bitcoin Holders
Hard forks offer a financial incentive to Bitcoin holders in the form of free coins. When the blockchain is duplicated, a new cryptocurrency is created for both chains–the original and the fork. All individuals who held BTC on the old chain are then eligible to receive an equal amount of currency from whichever new chain they wish to pursue.
Bottom Line
A Bitcoin hard fork is a significant event because it leads to the creation of a new cryptocurrency. If you own bitcoins at the time of a hard fork, you will have an equal number of units in the new cryptocurrency. It’s important to stay up-to-date on all upcoming forks so that you can take advantage of them and claim your free coins.
