In the most basic sense, a hard fork in a cryptocurrency is when one currency will split into two seperate cryptocurrencies. People will often mistake this with a “soft fork”.
This is simply when a cryptocurrency will update to a new version, and abandoning the old version of the cryptocurrency.
So where a “hard fork” will turn one coin into two, a “soft fork” will turn one coin into one updated coin.
Bitcoin is a great example of a coin that has had both hard and soft forks which are great for comparison.
Bitcoin had a hard fork and thus created currencies such as Bitcoin Cash and Bitcoin Gold, whilst it also had a soft fork in which Segwit was implemented.
In more advanced terms, when a major change is made to the protocol of a blockchain which either invalidates or validates any previous block of the coin, a hard fork is created.
The results of a hard fork vary, particularly in the adoption of each coin.
The newly created coin may become more popular and thus superior to the original coin, or it may not, perhaps still becoming a successful fork (such as Bitcoin Cash, Ethereum Classic or Litecoin), or becoming a complete failure (With examples including Bitcoin Unlimited and Bitcoin Classic), but some things always stay the same.
There will always be two different coins at the end of this process, there will always be two different ledgers and two different pieces of code – regardless of the fact both come from identical blockchains.
How Will The Market Respond To A Hard Fork?
Generally, once a hard fork takes place there will be a large volume of the new coin traded.
This is due to the free tokens handed out on the fork – a lot of coin holders will sell immediately.
This will mean a rapid decrease in coin value for the new coin, but this often corrects over time – sometimes even coming out at a higher value than the initial price of the coin.
There have been many examples of this happening around cryptocurrencies, one of which is Bitcoin Cash.
This currency is a hard fork of Bitcoin Core which started at an initial value of around $550 and gradually dropped to around $220 over just 5 days.
After the coin began to recover we saw prices of $730 just 5 days after the coin was valued at $220.
When the fork is made, there will be a large adoption or acception of the coin from the community of the coin that it is forked off of.
This will have a larger affect the better the coin has been marketed and the more miners have accepted the new software.
This should aid in initial investment from traders, meaning that trading volume will be high early on, and perhaps a little lower on the original coin.
After some time one coin will often be deemed the “superior” of the two coins, this will have the most favor by the community and will often do a lot better on the markets.
If this is the new coin, it will often mean a massive drop in the price of the original coin and a rise in price on the newer coin as people will sell their old coins for the “new and upgraded coin”.
Tips For “Fork Hunting”
When a cryptocurrency forks, there will be a distribution of coins to all holders of the original coins.
This means that you will be given “free” tokens but only if you have your coins in a personal wallet, not a wallet hosted by an exchange (unless the exchange states otherwise).
If, at the time of the token handout, your tokens were within an exchange, then the distributed token wouldn’t particularly belong to you, but to the exchange (Unless the exchange tells you otherwise).
When searching for new forks yet to be released, you would consult sites such as coinmarketcal.com and cryptoticker.io – these gather information from forums and gather a calendar as a collective.
If you have a lot to invest, this can be a particularly profitable trade, especially if you are willing to “hodl” coins which have a chance of gaining a large amount of value in future.
Often, due to this distribution of coins, the market will gain a lot of activity pre-distribution.
You will often find that in the week leading up to the distribution of the new forked coin, the initial coin will gradually increase in value, and in volume.
This means that the price will be particularly high the day before the new fork is handed out, traders will take advantage of this high value and try and sell mass amounts of the coin on this day.
This then leads to a decrease in price of the coin in the hours leading up to the fork – this is the best time for you to buy into a currency which is about to fork.
You will be able to gather a lot of cheap coins and then resell them soon after for a similar price – all whilst gaining the new forked coin.
Could I Make A Hard Fork Of A Coin?
Absolutely, however it is very hard to maintain a successful coin.
Any of you could, in theory, go and visit Github and download the code for a coin and then develop the code to update the software, however a lot of you probably won’t be able to gather enough users to update their software and trade or mine it.
On top of that, you would need to work on getting your coin listed on exchanges, which isn’t always easy.
Once you have achieved all of this, you will be riding a rough road in an attempt to get your coin back up to its original value.
Very few forks are successful and end up being adopted on a large scale – it isn’t an easy goal to achieve.
Upcoming Hard Forks Worth Watching
This for is due to happen on April 18 2018 and will fork from block 518,000 of Bitcoin.
This coin brings something totally new to the table – it will be the first coin which will be mined with, and only with renewable energy.
The coin has visions of overcoming the global issues surrounding energy consumption when mining cryptocurrencies.
Spectrecoin is a hard fork of Xspec, this fork is due to happen on the 1st May 2018.
This coin is going to fork at a 1:1 ratio with Xspec, and after several months the coin will soft fork, releasing its own coin, based off of both Bitcoin and Xspec – as a result becoming “Wisp”.
This is a hard fork due to happen on or before April 30 2018 and will be supported by HitBTC exchange, meaning you can keep your coins within the exchange and still be credited from the token drop.
This will fork from block 1564965 and will credit token holders with 10 times more tokens than the Monero held within their wallets.
This token aims to be a low fee cryptocurrency in which individuals and businesses can make transactions whilst being confident that the transaction made is secure, reliable and anonymous.
In conclusion, a hard fork is simply when a coin splits into two.
This can be a great way to make a bit of money from doing practically nothing!
Hundreds of hard forks take place all the time and sometimes they offer lucrative rewards.
Hard forking is most certainly a trade in cryptocurrencies worth keeping an eye on.