Recently, I was having a general talk with a cryptocurrency investor. Then the discussion shifted to Bitcoin hard fork and its aftermath in the cryptocurrency world. I mentioned that if there is going to be another hard fork, then it shouldn’t lead to any form of coin split. He looked at me as if I was asking for the impossible, and he told me that he is actually looking forward to something like that because the last Bitcoin fork which birthed Bitcoin Cash was of great benefit to him.
He said, and I quote: “As soon as Bitcoin forked and Bitcoin Cash was birthed, I was skeptical initially, but when Bitcoin Cash was integrated by the exchange I used at that time, I was over the moon because this was free money on a platter of gold. But I wasn’t stupid, I knew there was going to be a drastic fall in both the parent coin and the hard forked coin in the nearest future, so I quickly dumped more than 80% worth of Bitcoins and Bitcoin Cash. Of course, this was logical given the volatile nature of cryptocurrency. In the end, it was a win-win situation for me. So tell me why shouldn’t I anticipate another hard fork?”
I can bet my life that my crypto pal wasn’t the only one who saw the Bitcoin fork that birthed Bitcoin Cash as a goldmine. He was obviously one of the lucky few that was able to sell his coins immediately, given that some exchanges had boycotted it initially. Even though at its inception, many were filled with doubts and uncertainties, it was only a matter of time that things played out to their advantage and it seems that almost every crypto Whale, Dolphins, and the likes are now anticipating another major hard fork which could provide some ‘free coins’. And why not? After all, if the new coin turns out to be a success, that would mean more money, right?
But the question is, is hard fork the answer, and must every hard fork lead to a coin split? Yes, a hard fork is definitely the answer due to the solution it provides in terms of scalability. Many have also argued that hard forks have led to the emergence of more solid coins, and there has been a lot of diversity in the Bitcoin community due to hard forks.
Whilst these may not be far from the truth, a brief history of the events which were recorded during the Bitcoin hard fork and the Bitcoin Cash hard fork will provide an insight as to whether hard forking into two separate coins is the best.
Bitcoin Hard fork
While there have been some notable Bitcoin hard forks with the first-ever hard fork recorded in 2014, giving rise to the creation of Bitcoin XT, others like Bitcoin Classic and Bitcoin Unlimited followed suit in the proceeding years. Unfortunately, these coins seem to have lost their value, and cryptocurrency investors have opted for more valuable options.
And one significant option which is evidently the rave of the moment is Bitcoin Cash(BCH), which was officially launched on 1st August 2017 and regarded as the most successful Bitcoin hard fork to date. When Bitcoin Cash hard forked from Bitcoins, the price fell as the major players (miners and exchanges) boycotted the coins.
Increase in price of BCH
Between August and October 2017, the price of BCH rose because many holders were unable to sell their coins which were still trapped in some major exchanges who boycotted BCH at that time. New investors were also skeptical about the coins because once upon a time, Bitcoins sold for as low as $0.003 and the price surged higher over the years. So within these periods, some intending investors argued that the price of BCH was too high for a new entrant into the cryptocurrency world(BCH was considered as an altcoin by many). Some argued that considering the volatile nature of crypto, it may not worth be worth investing in it in the long run.
Towards the end of 2017, more exchanges adopted it and the price skyrocketed from at least $900 to about $4000. The cryptocurrency community was over the moon, but as most exchanges began crediting wallets with BCH(which meant they were now at liberty to sell), prices dropped and the cryptocurrency community began to panic.
The price picked up soon again and many holders rushed off to sell. While this trend continued for some time, more hard forks emerged, but the hard forked coins were not as successful as BCH.
The BCH price fluctuations generated a whole of anxieties and chaos within the cryptocurrency community. This situation affected the mass adoption of Bitcoin Cash by new investors, as it was evident that the majority of the holders were those who did not have to purchase them, but were handed the coins on a silver platter. This situation would later have an effect on the price of Bitcoin Cash as it crashed from about $4000 in December 2017, and as of March 2018, the price of Bitcoin Cash was sold at less than $1000.
Bitcoin Cash Hard Fork
As if what the cryptocurrency community witnessed during the Bitcoin hard fork wasn’t enough, in November 2018, Bitcoin Cash experienced a hard fork and the split led to the creation of two coins: Bitcoin Cash ABC(known as BCH) and Bitcoin Cash SV(known as BSV). I guess at that time, Bitcoin core maximalists must have had a good laugh. But the laugh was shortlived because the split had a crippling effect on the price of Bitcoins as it dropped remarkably. This was as a result of the shift in mining powers of both BCH and BSV from BTC to BCH.
Unlike the Bitcoin hard fork, the Bitcoin Cash hard fork which led to the creation of Bitcoin SV was contentious and characterized by lots of hash war thereby putting miners in a disadvantaged position. Even though both BCH and BSV stabilized, the war between the two coins was phenomenon and losses were recorded by both miners and stakeholders.
What I think
Even though there seems to be a lot of splits within the crypto community and hard forking is inevitable, it must not always lead to a coin split as the instability it generates can have a crippling effect in the cryptocurrency world. Hard forks which result in ‘free coins’ has the tendency to put a lot of power in the hands of the almighty ‘Whales’, as they are capable of driving the price of the parent coin and these power can hold so much weight that their actions can also crash the price of both the parent coin and the hard forked coin. When a handful of players control the cryptocurrency market, their decisions will influence the direction of the market, and this can threaten the general existence of cryptocurrency and its use as a medium of exchange.
So, Bitcoin developers should learn to be more united in their dealings such that, when next there is a planned hard fork, the issue of a coin split will not arise. And that way, the existing coin will continue to fare better.