When you enter the gates of cryptocurrency, you will most likely encounter this word called “forking.” What does it mean when a cryptocurrency forks? Will this thing have a huge impact on your money? How will this affect the entire cryptocurrency industry? In this article, you will be given relevant information to expand your understanding of this topic.
Forks in Cryptocurrency
Cryptocurrency is becoming much more popular in the finance world lately. It has gained the trust of companies, people, and huge investors. Traditional cash transactions have been replaced with digital payments through cryptocurrency. As time goes by, the number of improved currencies will occur, and this is due to a thing called a fork. What does it mean when a cryptocurrency forks? Continue reading down below as you will be introduced to the cryptocurrency fork definition.
What Does It Mean When a Cryptocurrency Forks?
- Forking a cryptocurrency means fundamentally changing something about a certain cryptocurrency. This could result from a huge hack within the system or a dispute between the cryptocurrency community, just as what happened with Bitcoin Cash and Bitcoin.
- What does it mean when a cryptocurrency forks? In other words, forking is changing the protocol of the blockchain that is used by the software to validate the transaction.
- Two types of the fork could happen in a cryptocurrency.
- The first one is the soft fork, which refers to a backward-compatible fork. This means that when a soft fork occurs, the system’s older noodles can still detect and recognize a new certain transaction as valid. However, any future blocks mind will be considered invalid when the node is updated.
- The second type of fork is the hard fork, which needs the most support from the coin holders with connections to the main coin network. Unlike the soft fork, hard forks cut the software’s backward compatibility. This means that the nodes must undergo an update for a mine to be considered valid.
Effects of Hard Fork Cryptocurrency
It is important to note that hard forks do have a huge effect on cryptocurrency. This type of fork is a result of the cryptocurrency blockchain breaking off. The new set protocol is different and is not so well compatible with the original protocol. While the splitting happens, there is no transaction between the blockchain. What are the possible consequences of cryptocurrency hard fork?
Here are some of the implications of hard forks:
This Can Potentially Influence the Market
Individuals with a huge sum of the invested money in cryptocurrency are called Whales. The people and organizations are always waiting for certain opportunities where they could have the chance to prosper their digital riches.
So, when a certain cryptocurrency goes through a hard fork, each of these investors will have the chance to own the exact amount of money or coin set on the new fork. They intentionally raise their coin investment exactly a day before the hard fork happens.
This kind of investment in the cryptocurrency industry gives them the chance to manipulate the market. In this way, this will affect the price of the coin they invest in.
Makes the Network Run Faster
A hard fork potentially affects the network’s speed by increasing its speed. The network will surely experience a certain boost in speed when a cryptocurrency splits in two, just as what happened to the Ethereum miners’ case.
Affects the Price of the Coin
Hard forks can certainly change the value of cryptocurrencies around the world. Failed upgrades from a cryptocurrency company can potentially lose both traders’ and investors’ trust. This made them drop their price significantly to attract more people to invest in them.
On the other hand, if one company successfully goes through a hard fork, the demand for this cryptocurrency would surely increase. If there’s an increase in the demand and their value rises too, the price would also increase.
How to Claim Cryptocurrency Forks Safely
If you want to achieve the full benefit of cryptocurrency forks, you need to make sure that you are qualified enough and are carefully doing the transaction. Here are some of the safest practices that you can observe to make sure you are qualified to claim a fork:
- Make sure that you are in a very secured wallet where you have the power to control all your keys before the fork happens.
- After the forking takes over, you need to make sure that you move all your funds to a new and safe address. However, you must still remember the key to your old address to gain access to it.
- Once the new wallet is available for download, you must install it then.
- After you have downloaded the new wallet, you must import all the important keys of your account to the system’s new forked wallet.
- You also need to remember that some of the new forks are scams, and some contain malware launched along with your wallet. This also means that you need to be extra careful about selecting new forks.
- To ensure that you transfer your funds to a safe fork, wait until that certain fork is confirmed by the developers and have a “replay protection” label. So, if the new fork does not have a “replay protection,” there would be a possibility that your coins could easily be transferred from one wallet to another even without your permission.
- The safest way is not to do anything unless you do not feel the need to claim a fork.
You have just grasped important information on what it means when a cryptocurrency forks. Exchanges and digital money saving platforms have their drawbacks too. You need to become a wise and careful investor when you decide to make your way in this transaction type. Discover more about cryptocurrency here!