hard fork occurs when a cryptocurrency blockchain protocol splits into two. The new protocol is distinct and doesn’t interact with the original protocol from which it originates.
Cointelegraph explains the concept further. It says:
After a, the previous version and the new one are completely split, there is no communication or transaction option between the two. Usually, the new version inherits all the historical transactions and, from now on, each version will have its transaction history.
Several factors may be responsible for ato undergo as evident in the events that led to both and Ethereum hard forks in the past. However, that’s beyond the scope of this article.
This article focuses on the potential impact of theon the industry.
Over the years, there have been different cases of cryptocurrency hard forks.and Ethereum are two with the highest number of hard forks experience.
Some Ethereum hard forks are:
- Frontier Thawing
- DAO Fork
These are somehard forks:
What are the implications of cryptocurrency hard forks?
There are several implications of cryptocurrency hard fork. We shall quickly take a look at a few of them.
Whales can Influence the Market
Whales are large organizations or individuals with a massive investment in. Due to the amount of money invested in , they are always on the lookout for opportunities to increase their digital wealth.
According to a report, once a undergoes , each digital currency owner will own the same amount of the coin on the new fork. For instance, if you have 50 , you will have 50 pieces of the forked coin, say Cash.
What Whales do is increase their investment in the coin a day before the expected hard fork day. By increasing the number ofthey have, they automatically increase the number of Cash they will have after the .
Their substantial investment allows them to manipulate the market. They can thus, influence the price of the particular coin they invest in. The report says:
Investors may have stockpiledanticipating an equal amount of and then sold off a significant amount of both and – in our example Cash – to reap the massive capital gains available to them.
Hard fork also improves network speed. Explaining the rationale behind this impact, Forbes wrote:
The hard fork, which usually means asplits in two, will see Ethereum miner rewards fall from three ether to two and decrease the block time, making the network faster.
Althoughis the case study here, by implication, this extends to all other as well. Thus, whenever a experiences , its network will receive a massive speed boost.
It is a windfall for investors
Investors are offered the opportunity to increase theirasset without spending a dime on the new currency. Imagine if you already have 500 coins of a particular and receive another 500 coins of its fork. This boosts your asset at zero cost to you.
That’s on a small scale. Some investors have thousands of some coins. Forbes talks about “some 17,000 addresses containing more than $1 million worth of ”. People with such a huge amount of are the major beneficiaries of hard fork. They earn thousands of dollars worth of the forked coin.
Two parallel coins are produced
The need for thelays the foundation for two parallel coins. While the original currency remains, the forked coin is also operational simultaneously. Some miners will support the new coin while others root for the existing coin. The initial coin won’t be bothered by the existence of another coin.
However, one of the coins plays the dominant role while the other remains active. Ethereum Cash andCash exist parallel to the more dominant and Ethereum coins.
Their coexistence notwithstanding, the two coins don’t share similar attributes. They are different in prices and other qualities.
It affects cryptocurrency prices
Hard forks have a reputation for altering the value of. One notable experience is the expected Constantinople upgrade, a planned Ethereum hard fork that failed to materialize.
The failure of the planned Forbes. It wrote:had a negative impact on , as reported by
, the world’s third-largest by market capitalization, has fallen today as investors and traders nervously look towards the delayed Constantinople upgrade—which was expected to help solve the ‘s scalability issues.
Things would have turned out differently if thehad been successful. would have probably experienced a massive increase in demand. The increasing quest for the may have boosted ’s value, triggering price increase.
In a report on, CNBC explained the impact on a on the fifth most valuable by market capitalization, according to the trusted , CoinMarketCap.
spiked as much as 10 percent on Tuesday after a so-called ‘ ‘ resulted in the creation of a new . The , or alternative , has risen 55 percent in the past seven days as a result of a recent rally.
This was the result of a Litecoin hard fork that led to the creation of Litecoin Cash. Thus, a can influence the price of significantly. The impact may be positive or negative, depending on some other factors that are mentioned in this article and elsewhere.
Amay be a blessing or curse to , depending on its impact at a particular time. As noted, it may enrich some people and bring out the manipulative tendencies in others.
Whatever the effect on, is one of the concepts associated with that both investors and enthusiasts must come to terms with.