The electronic ledger backs cryptocurrency and is responsible for maintaining the legitimacy of every transaction on a particular network. You can sign up to get started with bitcoin and Fintech Insight with the help of artificial intelligence and experts of cryptocurrency trading. Therefore, cryptocurrency forking is essential in relating to this electronic ledger or blockchain.
Digital currency experts have classified cryptocurrency forks into two different types. The first is a hard fork, and these sustain for a more extended period on the blockchain; the other is a soft fork existing on the blockchain for a shorter period. Some famous hard forks in the History of digital currencies are bitcoin gold, Ethereum London fork, and bitcoin classic. Here is all you should know about cryptocurrency forking.
Understanding a cryptocurrency hard fork!
Investors who wish to change a particular digital currency protocol are the main reason for forking a cryptocurrency. Cryptocurrency developers behind the fork are involved in altering the protocol of digital currencies to increase speed, security, or scalability. Unfortunately, the cryptocurrency market is volatile, and investors have lost their money in digital currencies due to hard fork; this is why hundreds of digital currencies seem to have failed.
A hard fork is a procedure that should have conduction after all the participants’ decisions regarding a cryptocurrency network. The first major hard fork in the History of bitcoin occurred on August 1, 2017, known as Bitcoin Cash.
In this case, nearly all bitcoin holders could claim 1:1 bitcoins with Bitcoin Cash. In addition, others who did not want to accept Bitcoin Cash had the opportunity to exchange their Bitcoins for any other digital currency that supported such practice at the exact exchange rate offered by others who wanted to accept it.
How are cryptocurrency hard forks changing the dynamics of the market?
In the case of Bitcoin Cash, bitcoin holders tend to accept the protocol modifications or suffer the consequences. Unfortunately, this can also happen with other cryptocurrencies that seem to be profitable; if the crypto community does not accept a fork, then there is a possibility that it will fail.
Many digital currencies, such as DogeCoin, reversed themselves when they experienced a hard fork. However, there are two instances in History where a cryptocurrency did not change its decision on an imposed hard fork: Monaro and Zclassic.
How to protect yourself from failed hard forks?
You should understand three things about an imposed hard fork: difficulty rate, the hardware requirements for mining, and forking estimation. First and foremost is the difficulty rate of a new cryptocurrency that a developer has just created; miners who mine in this crypto will automatically switch over to the new crypto while on their way.
Therefore, it is up to the person who released such digital currency to decide how he will handle such a situation. The second thing you should understand about an imposed fork is the hardware requirements of a network; if there are new hardware demands, then the network can process more transactions than they were previously able to handle.
If a hard fork requires you to use special equipment or software, then you must pay for it for your digital currency coins to be processed accurately. Lastly, it would be best if you understood that there is no exact estimation of the time it will take for a digital currency to hard fork; this depends on several factors, such as the market price of cryptocurrency at the time.
Why do so many hard forks occur?
Several reasons a digital currency can undergo multiple hard forks, including improving security, developing additional features, and expanding its products. However, only one last reason can justify why a division happens: no one wants to accept a change in their cryptocurrency.
Brief History of bitcoin hard forks!
- In the year 2014, 21 Bitcoin hard forks took place in the same year. All of them were considered to be failed, with one exception called Bitcoin Cash.
- In 2016, only one fork took place; this is known as bitcoin unlimited, as it had over 9,000 nodes and nearly 100,000 wallet addresses.
- In August 2017, after the block height of 478558 was mined, there was a massive increase in the mining difficulty rate in bitcoin cash; it reached a 50% growth approximately within 6 hours after the creation of hash power.
- Although the number of forks has decreased considerably since then, this cryptocurrency was forked more than 212 times by October 2018 for various reasons.
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