On Wednesday, the bitcoin community saw another bitcoin fork that again proved doomsday forecasts were very off the mark. The latest fork gave birth to a new version called Bitcoin Gold at block 491,407 on the original blockchain.
Although it is too early to call the impact on the price of bitcoin, modest predictions have put them at stable for now. There might be small price drops but the price will be back in the swing. Only last week BusinessDay found that rather than shed off their bitcoin risk, investors actually intensified transactions on the cryptocurrency which saw volume rise to N1.2 billion in Nigeria.
A bitcoin fork does not mean the end is near.
“A fork is another version of the (bitcoin) network,” Tim Akinbo, founder of Tanjola.com, a bitcoin exchange based in Nigeria told BusinessDay. “What happened is that previously they had the same history but the point came when the rules changed and a diversion emerged. That means they moved off the normal path. It is like you are going on a road and you get to a junction where the road splits into two ways; you either go left or right.”
October 25, will not be the last time bitcoin will be seeing a fork. Another one called SegWit2X is scheduled for the month of November.
Do forks make bitcoins more unstable?
Volatility is a word that is closely associated with cryptocurrencies like bitcoin. The way to understand forks is to think of them as two separate entities with different rules even one spins off from the other. Bitcoin Cash was a spinoff from bitcoin on August 1st. A virtual currency’s existence is dependent on the rules that created it.
“Bitcoin was created in 2008, but the first version came out in 2009. Shortly after that, we had litecoin, dash and the over thousand digital coins. Each of these is an altcoin, different versions of crptocurrency and they all serve their own purpose.
“Think about it like, there is Twitter, Facebook and LinkedIn. These are all social networking websites. They all do different things but you can say that they are all platforms where people can connect with each other,” Akinbo said.
Every forked crypto goes on its path and it does not affect the main chain.
What happens to investors coins during forks?
An investor that refuses to sell his or her bitcoin before a fork stands the chance of earning an additional altcoin if the fork is successful. Another way to look at it is, if you had one bitcoin before October 25th – when the fork took place, you will still have your one bitcoin and one Bitcoin Gold.
Akinbo said it was one of the major reasons price of bitcoin have been up prior to the fork.
“This is a different reaction to what happened in August 1st. Shortly before August 1st, the price of bitcoin went down. The reason why it went down is because people were scared that the spinoff will affect the network. But the fork happened and the fears were not confirmed. Bitcoin continued to work and Bitcoin Cash continued to work. So people realised that the people who took the risk and did not sell their bitcoin got extra Bitcoin Cash. That is like having extra money, so people call it a dividend. The same people are also realising there is going to be another fork again called Bitcoin Gold, so they are buying instead of selling because they believe they will get free money,” he said.
The chance of earning an extra altcoin and the potential to grow wealth is rubbing off positively on most investors’ confidence in the market.
“Imagine that I have one bitcoin and then I get on Bitcoin Gold, one Bitcoin Gold can be converted to give me at least half a bitcoin. It means I now have 1.5 bitcoin instead of one,” Akinbo said.
What are the downsides of forks?
Like everything, forks can go terribly south if the rules that creates them are not clearly spelt out or confusing. Ahead of the bitcoin fork on Wednesday, some exchanges like Luno announced they were not going to support the fork.
But Tanjola.com has no such warnings for now, according to the founder Tim Akinbo, Bitcoin Gold looks “safe”.
“Safe forks are like what happened to Bitcoin Cash. It was safe, that was why it did not disrupt the market. There was no problem with transactions after it happened. Bitcoin Gold is also going to be safe. It is also likely that SegWit2X which is happening next month might be safe. We are still watching it,” Akinbo said.
He also explained what will make a fork unsafe.
“Every time you create a transaction what you do is you create a message that may say I want to move one bitcoin from my address to this address. Remember that the coin you had on the main chain is also the same coin on the secondary chain. If you click a transaction and you only want to send a transaction on the main chain, there is this risk that the transaction could get replayed on the secondary chain. This will cause an unexpected consequence.
“Let’s say you wanted to move coins only on bitcoin but you realise that the transaction also moved your transaction from Bitcoin Gold because there was no replay protection. Replay protection dents the ability for you to take a transaction from one chain and replay it on the other chain and moved the coins as well on the other chain.”
