Bitcoin (BTC) has experienced several forks over the course of its lifespan, the most recent was a Hard Fork on Tuesday, August 1st, 2017.
What is a Hard Fork?
A hard fork occurs when the administration of a blockchain splits into two separate, incompatible groups. The result is two separate and distinct currencies. One, neither, or both of the new currencies may succeed. Past bitcoin forks have resulted in several viable cryptocurrencies including:
- Bitcoin XT
- Bitcoin Classic
- Bitcoin Unlimited
- Parity Bitcoin
- Bitcoin Cash
Prior to the August 2017 split, Litecoin was the most prominent currency created in this fashion. Within a day of the hard fork, Bitcoin Cash reached a market capitalization of $6 billion USD, or roughly triple that of Litecoin.
Historically, forks are nothing new. The history of traditonal currency forks goes back to the beginning of money. When people first made coins out of precious metals, the first fork occurred when their neighbors made their own coins, stamped or carved with unique signatures.
So long as coins were made with precious metals equal to their value, forks were nothing to fear. Today, however, currencies are not based on anything more or less than trust. These are called fiat currencies, and a crisis of confidence can destroy the value of a fiat currency.
Cryptocurrencies also rely on confidence and trust to preserve their value. There are fears that not one fork, but many, is the future for Bitcoin. In a doomsday scenario, this would lead to chaos, a loss of trust, a loss of value, and even the end of cryptocurrencies.
While many people believe that Bitcoin will weather the current storm, there is legitimate cause for fear. A collapse in trust could lead to another price crash. If Bitcoin were to ever fork into a large number of competing yet similar currencies, the resulting chaos could have a similar effect.
Trust and Value
First-year business students are told that the key to success is to create value. Over the course of their studies, this lesson is repeatedly hammered into them, time and time again.
Blockchain technologies have demonstrated the ability to add value to the marketplace. Cryptocurrency transactions are transparent, anonymous, and secure. Their value is largely immune to outside meddling, unlike traditional currencies whose value depends on the whim of central banks, interest rates, and money printing.
If cryptocurrencies continue to add value, they will continue to grow. So far this growth has been hampered by wild fluctuations in value. These fluctuations damage the reputation and trust of cryptocurrencies, which has hampered their adoption and growth in global markets.
Despite these concerns, cryptocurrencies have found enough adopters to spur their value beyond $100 Billion, equivalent to the 63rd largest country in the world, or the 44th largest company on the S&P 500.
None of these facts are proof that cryptocurrencies will survive. Large corporations and even entire countries have failed and gone out of existence in the past, and they will continue to do so in the future. In order for cryptocurrencies to survive, they have to compete in a very difficult marketplace.
Bitcoin and the Future of Value
Past forks in the cryptocurrency markets have so far led to innovation, the creation of new products, and the demonstration of robust survivability. Many analysts believe Hard Forks can be more of a blessing than a curse.
Ethereum, while not technically the result of a hard fork, was inspired by and based on Bitcoin, and as such could still fall under a broad definition of a fork. The Ethereum platform goes beyond Bitcoin and standard cryptocurrencies by including a scripting language that allows contracts to be embedded in and executed by the Ethereum Network.
Other platforms like Ripple, Monera, and Dash have introduced radically different technologies capable of serving specialized markets as well as the more generic market served by Bitcoin.
Initial Coin Offerings, or ICOs, happen almost every day now. While some of these are mere copies of existing currencies and still others are cryptocurrency scams, many of them are experiments in new technologies and services that can add still more value to the rapidly growing and expanding marketplace of cryptocurrency trading.
Will Bitcoin Hard Fork in the Future?
While it is impossible to predict the future, especially in a marketplace as turbulent and volatile as Bitcoin’s, it seems likely that there will be several – if not many – forks down the road for Bitcoin
If cryptocurrencies continue to innovate and expand, it is likely that they will become more stable, making it possible for them to enter more risk averse markets.
At present, it is impossible to know how digital currencies will go, but as long as they continue to add value and improve in stability, they will continue to grow and bring competition to new markets.