Have you heard about cryptocurrency fork? You probably not. Because it’s not popular among newbies.
In today’s post, I’m going to talk about what is cryptocurrency forks and what do we need to consider. Stick with the post.
Cryptocurrency fork can be defined as a protocol update or upgrade done to a specified cryptocurrency, to maintain its technology, transaction speed, and security.
Cryptocurrency forks can be categorized as follows,
- Soft fork
- Hard fork
Where is this name “Fork” came from?
A few bad symptoms can happen to a cryptocurrency during a fork. That is why it is calling a “Fork”
Let’s find out the above two types of forks.
I should better begin with an example. You know blocks in the blockchain, right? If you don’t please read the recent articles that I explained more about blocks.
Let’s say a block is before the update/upgrade is A.
A block after the update/upgrade is B.
During the update, Maintaining the compatibility of each block can be defined as a Soft Fork. (Backward compatible)
Do you understand?
Let’s assume you made a transaction on a cryptocurrency that scheduled to update. The update is happening during your transaction. What should happen?
In a Soft Fork, you don’t face any disruptions to the transaction you made. Which means your transaction will succeed.
That’s how Soft Fork happens. You don’t need to worry about a Soft Fork. But, It can confuse people leading them to sell cryptocurrency. People be like, “Oh god a fork coming! I must sell my coins!” In that situation, the prices could fall before a Soft Fork.
See this image for further understanding.
Here comes the dangerous part
This is dangerous.
In a Hard Fork, the blocks before the update and after are not compatible with each other. Which means, (Non-backward compatible)
The transactions that happen during a Hard Fork, Will fail. even your coins may disappear. I will explain how it happens with an example.
What do you need to take care of during a hard fork?
Mainly, Don’t make any transactions. Because in a hard fork the blockchain will swap to a new blockchain which not compatible with each other so if you made a transaction in the old blockchain, the new blockchain cannot recognize then it will automatically be rejected.
Why is there a price drop during every Hard fork?
People confuse at the hard fork. As-soon-as they heard about a hard fork, they think the price will go down due to the upgrade and they sell their coins.
Actually, A Hardfork lead to price drop?
No! The reason for the price drop is people are selling cryptocurrencies as they heard about a hard fork.
I hope my post helped you.
I would love to know your ideas and opinions.
Share them below.