How Does a Crypto Fork Affect Your Coins?

No, it’s not the eating utensil. We’re talking here about a split, a single path that divides into two or more. In this case, in the digital world, and for a cryptocurrency chain in particular. However, this isn’t exclusive to the crypto world. Indeed, the act of “forking” a code is fundamental for any kind of open-source software.

Basically, a fork occurs when someone makes an identical copy of an already-existing piece of software/source code. In case you didn’t know, cryptocurrencies are software too, and most of them are open-source software; which means that literally anyone can make a fork (a copy) of any of them to start their own project or apply new features.

Then again, that doesn’t mean everyone will accept those changes and use that version of the software or cryptocurrency. Multiple versions of the same software can exist independently of each other, and have their own developers, features, and communities, even if they share an early history.

Why make a crypto fork?

In the recent past, a fork used to imply a schism in the development team. For instance, some of the members abandoning the project, or having “creative differences.” Currently, it could mean that too, but it’s widely expected that open-source software can be forked by default, just to accept contributions from others. The open-source software is mostly developed by a whole community of volunteers, and its license is free to use and share.

Cryptocurrencies often fall into the realm of open-source software. For instance, Bitcoin, Obyte, and Ethereum are open-source and free to use and “fork” for any purpose —even to sell it. On repositories like GitHub, anyone could fork a source code with a button. However, again, only the community (including wallets and exchanges) decides what version to use, and that’s often the oldest one, maintained by the original team or their successors.

This way, the “forking” feature is often used by the programmer’s community to test new functions and make improvement proposals to be applied by original developers into the main “branch” (the older or main version). On the other hand, the main team can also apply a fork into the “real” chain, in real-time. This could be done to fix security issues or to apply previously tested changes, including tokenomics, consensus algorithm, or scalability attributes.

It could be a schism, too. This is what happened to create Ethereum and Ethereum Classic, and Bitcoin and Bitcoin Cash. Founders and developers of these coins had strong ideological differences in both cases, so they split the software to start their own paths in the form of totally new coins and chains.

Soft vs. Hard Fork

There are two main types of forks —applied to cryptos. They could be irreversible (hard forks) or, let’s say, “parallels” (soft forks). A hard fork involves a fundamental and irreversible divergence in the chain, often requiring all participants to upgrade their software to continue participating in the network. Those participants are often miners, validators, nodes, wallets, exchanges, or, in summary, “big players” instead of average users —who may benefit or not from their providers, barely updating their apps or doing nothing.

This type of fork can result in the creation of a new and separate cryptocurrency, with distinct rules and history. For its part, a soft fork is a more backward-compatible upgrade that introduces new rules while maintaining compatibility with the existing protocol. So, it’s a “parallel” update. Participants who have not upgraded can still interact with the network, although they may not benefit from new features. Upgraded and non-upgraded nodes can coexist on the same network.

Examples of a hard fork involving a schism in their communities are Ethereum Classic (ETC) and Bitcoin Cash (BCH). But it’s important to note that hard forks don’t always lead to the creation of a new coin. For instance, Bitcoin (BTC) has passed through several hard forks over the years to make updates or patch bugs. A famous one occurred in 2010, when someone exploited a vulnerability to mine 92 billion BTC (much more than the supply). The hard fork was made to fix that issue.

Soft forks have also been present in Bitcoin and other chains. A popular example is Segregated Witness (SegWit) for BTC. This is a feature that rearranges the block data to occupy less space and improve transactions, but it’s optional to apply for nodes.

What happens with your coins in a crypto fork?

That’s likely the most important question here, and it has easy answers. In a crypto soft fork, absolutely nothing should happen to your coins. After that, maybe, you’ll even enjoy new features. In a hard fork, on the other hand, several things could happen and you should pay attention to them.

First of all, it’s likely that your providers (wallets, exchanges, custodians) recommend or directly ban you from doing transactions during the event, due to the network instability at the moment. Wait and see is the standard procedure there: it’s usually not safe to make transactions for some hours.

Next, everything might be back to normal and nothing else happened, or the hard fork had given birth to another chain and its respective coin. This could be good news for you, because everything is copied in a hard fork, including the whole transaction history and users’ balances. In other words, if you had some tokens in chain A, you’d acquire the same amount in the new chain B.

Is this free money, really? Well, yes and no. If token A was valued at, let’s say, $100 per unit at the moment of the split, that doesn’t mean the new token B will have the same price. It could even have no price at all. You’ll acquire the same number of coins, but not at the same value, because they’re not the same anymore.

Different Coins, Different Values

Back in 2017, when a hard fork created Bitcoin Cash, each BCH started to be traded at about $300, while BTC was priced at around $4,000 [CMC]. So, if you had 1 BTC at the moment of the split, you also acquired 1 BCH, but not exactly $8,000 in funds. Just $300 more, if traded the same week. The hard fork doesn’t imply that your coins will be forever cloned in both chains, either. This just happens once, at that exact date and time. If you had nothing at the moment of the fork, then no coins were multiplied.

The paths of both coins have been definitely apart from there. Bitcoin applied SegWit, and Bitcoin Cash increased the size of its blocks and suffered more hard forks and schisms over the years. Their development teams are different, their roadmaps, ideologies, prices, and market caps. They do have different communities and their own set of users. That’s what a hard fork may do.

However, users still can use both coins, without choosing between the two of them. Software forks were created to add value, not to take it away, and they’re another important way of decentralization. Just as Linus Nyman and Juho Lindman said in a paper about it:

“On a software level, code forking serves as a governance mechanism for sustainability by offering a way to overcome planned obsolescence and decay (...) On a community level, code forking ensures sustainability by providing the community with an escape hatch: the right to start a new version of the program. Finally, on an ecosystem level, forking serves as a core component of natural selection and as a catalyst for innovation.”

Forks may create different coins, chains, and versions of those chains, but as they say, the more, the merrier. In the end, the decision is only up to the users.

Forks in Obyte

Obyte, being a Directed Acyclic Graph (DAG) with a unique consensus system, doesn’t have soft forks. That’s because there are no powerful players to approve or disapprove such protocol changes without the consent of all other users. Instead of miners or “validators,” Obyte counts with Order Providers (OPs).

They’re reputable users or organizations whose transactions serve as mere waypoints for ordering all others and are selected by community votes. So, all updates in this ecosystem are applied as hard forks after being discussed and thoroughly tested with the community of developers.

By the way, anyone can participate in the Obyte development via GitHub, where its code is publicly available to fork if you want to. In this context, forking is a process that involves creating a new repository, referred to as a fork, which shares code and visibility settings with the original "upstream" repository.

Users can fork a project to suggest fixes for bugs, make improvements, or even start their own Obyte-based software project. This collaborative method aligns with the principles of open-source software, fostering the creation of better, more reliable applications through code sharing.

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