Hard fork: what does it mean for cryptocurrencies? Who is interested in the death cross: is the collapse of cryptocurrencies possible?

Cryptocurrency has become incredibly popular in Lately, which is why more and more people are entering this industry every day. However, not everyone manages to make money from this, because, despite all the promise of this area, it is quite complex and requires some technical knowledge. Without this, it is impossible to sensibly assess the situation on the market, which means it will not be possible to invest your funds correctly.

There are a lot of terms in the crypto industry that can be incomprehensible not only to an ordinary person, but also for an experienced programmer. One of these is a “fork”. This is a fairly common and very important phenomenon for every cryptocurrency, so it’s worth talking about what a fork is in more detail. But first you will need to understand some technical points.

Blockchain

In order to understand what a fork is and what the essence of this phenomenon is, you need to start with how cryptocurrency works in general. The mechanisms by which it is regulated are fundamentally new in the financial world, but they have already proven their validity and effectiveness, and therefore deserve more detailed study.

The technological basis of any cryptocurrency is a mechanism such as blockchain. You can guess the operating principle of this technology by its name. Block in in this case- this is a certain amount of information about transactions in the system. The block has limits, and its size differs in each cryptocurrency. Blocks are made up of completed transactions, recording them one after another in chronological order. A certain number of transactions completed in a row is considered a full block. "Chain" means "chain". It is not difficult to guess that a blockchain is a chain of blocks that follow each other.

This is the basic principle of how cryptocurrency works. All transactions are recorded one after another in blocks, and the blocks are included in one large chain. Thus, the chain continues, collecting new transactions. It is important to note that a transfer can only be considered completed when information about it has been included in a larger chain of transactions. Before that it is invalid.

The essence of the fork

Now that it has become clear on what principle the blockchain works, we can start talking about what a fork is.

The chain of transactions is continuous and straightforward. This means that it usually does not branch. At the word fork The translation literally sounds like "fork". This is the name of a phenomenon in a system in which one large chain branches into two, and after separation they continue to work independently of each other.

How does the system work after this?

After a fork (branching) has occurred, one cryptocurrency becomes two, since there are now two chains of transactions. This happened in 2017 with the largest cryptocurrency in the world - Bitcoin.

The chain was straightforward, but at the beginning of the year it received a branch. This does not mean that Bitcoin itself no longer exists. He continues to work independently of anyone, according to the same rules as before. However, now another independent cryptocurrency has appeared, which is called “Bitcoin Cash”. Thus, the word fork the translation very well characterizes the essence of this phenomenon.

Difference between soft fork and hard fork

In order to better understand this difference, let's return to the example of Bitcoin. What happened in 2017 is called a hard fork. This implies that after the chain split, a new, completely independent cryptocurrency emerged, which was completely separated from its “parent”.

Bitcoin and Bitcoin fork have completely different rates, different specifications and different development teams. In addition, this currency has different clients and wallets, which is fundamentally important in the crypto industry.

If we talk about a soft fork, the separation here is softer, and its purpose, as a rule, is to correct the operation of the system. Cryptocurrency technologies are evolving, and developers sometimes decide to upgrade their system. To do this, they specially create a fork, which is a more advanced clone of their currency. In this case, the user does not need to install new client, and the system does not change the basic principles of operation. This is simply a technical modernization of the Network.

Reasons for the fork

It is impossible to understand what a fork is and why it is needed unless you know the specifics of how the Network works. The main reason The emergence of both hard fork and soft fork is, of course, the development of technology. As a rule, branches are already more advanced from a technical point of view. They have larger size block, large throughput, lower commission.

However, in some cases, conflict arises between developers. One part believes that the system should be left unchanged, the other insists on technical transformation. This happened with the second most popular cryptocurrency in the world - Ethereum.

A large number of developers and Internet users were dissatisfied with the new characteristics of the system after its update in 2016. The cryptocurrency fork has become more convenient for smart contracts and crowdfunding projects, but has lost a number of advantages that it had before.

The new Ethereum was very successful and began to gain momentum quickly. However, the developers decided to carry out a hard fork in order to please all users and leave old system unchanged. Thus, the Ethereum Classic currency was born. The Bitcoin fork appeared for the same reason, but the essence of the transformation was that new currency received an expanded block size and greater throughput.

What does this mean for miners?

In fact, whether a new fork will be successful or not depends to a very large extent on the miners. They decide whether to support the new cryptocurrency or not. As for Bitcoin Cash, it started quite successfully, and many miners devoted their power to maintaining its operation. However, its prospects today are a moot point.

This is an indicative situation for all currencies, because although the new Bitcoin received a larger block size, it also received greater Network complexity, which means for miners extra costs. Thus, in the future, they will only support currencies that will generate income. And how much a fork will help in this, no one knows until the sale of tokens begins and the rate is established.

Finally

Cryptocurrency is gaining momentum very quickly, so now is the time to start studying this area. At first it all seems technically very complex and confusing. It is difficult for a person to understand what a fork is in mining and how the blockchain works, but over time it becomes clear that this is real innovative technologies, which are designed to simplify our lives.

The end of the first quarter made analysts nervous - many foreshadow the collapse of the cryptocurrency, considering a capitalization of 270 billion to be too high for an emerging market. Despite today's slight increase, prices have remained at the same level for several days.

Bitcoin charts show a potential death cross. If the double bottom is broken, the value of major cryptocurrencies will decrease. Who is spreading the news about the collapse and what are the reasons for the protracted crisis?

General state of affairs

At the beginning of the year, market capitalization reached 813 billion, but in December, when it was noticeably lower, the creators of cryptocurrencies talked about inflated expectations from digital assets. Charlie Lee got rid of LTC, saying that he did not want to listen to accusations of manipulation, and Vitalik Buterin warned of collapse on December 13:

The capitalization of cryptocurrencies today has reached 0.5 trillion, but do we really deserve it?

The downward trend put everything in its place. Common reasons:

lack of positive news;
attention tax services to cryptocurrencies;
first-time investors who got burned in December and now believe they invested in a pyramid scheme;
cartel collusion and bitcoin futures;
the emergence of hard forks;
collapse of unreliable ICO projects;
gradual monopolization of the market by billionaires;
hacker attacks.

Are cryptocurrencies about to collapse?

Negative news about the position of regulators, manipulations, and fraudulent schemes played a role - investors are in no hurry to believe in optimistic forecasts. Some fear there is a kernel of truth in reports of a possible cryptocurrency collapse.

They started making money on digital assets when the creators of many projects did not release a finished product, problem solver consumers. The media started talking about Bitcoin after the rapid increase in value. Buyers who showed up in December weren't particularly interested in technology. As a result, a bubble is most often talked about by those who got burned by buying cryptocurrency at its maximum values shortly before the crash.

Those who do not want to sell assets under any circumstances cause confusion among professional traders. Peter Brandt follows a simple risk minimization strategy - sell all positions that turn out to be unprofitable on Friday, and not wait for a crash:

I have the utmost respect for the people who were the first to recognize the potential of BTC. Early long-term investors who suffered during the downturn are also sympathetic. But to think that losses of 70% bring honor to someone is absurd. I don't understand this.

No one can predict the collapse of cryptocurrencies. If whales decide to crash market prices, regular participants will not be able to do anything to counter this. The most sensible thing, according to analysts, is to develop a strategy and try to make money on the decline, rather than watch the portfolio gradually decrease.

Are inflated expectations the reason for the collapse of cryptocurrencies?

Many people do not understand that every market participant will not receive 1000% profit in a year. Now they regret that they did not sell their assets at a profit. When asked when the bears will retreat, Peter Brandt said:

This will happen when the bulls, who remained arrogant during the fall, insisting that they would never give up their positions and increase them at discounted prices, admit defeat and sell every last coin. Only then will the market bottom out.

The general consensus is that despite the impressive drop, there has not yet been any panic selling. Although some experts are convinced that the cryptocurrency market does not obey normal laws, during speculation no one is immune from collapse. It is important to remember that after it a new cycle will inevitably begin.

Do you believe in the collapse of cryptocurrencies? Write about it in the comments to the article.

The price of Bitcoin began to rise after the hard fork. But the value of newly created Bitcoin gold has fallen by more than 60 percent. Bitcoin fell to a low of $5,374.60 on Wednesday. The price drop followed a hard fork that occurred on Tuesday.

What is a hard fork?

It is important to understand how the bitcoin system works and what a hard fork is. User transactions are collected into “blocks”, which turn into complex math problem. So-called miners, using powerful computers, determine whether a transaction is possible. Once transactions are approved, they receive a reward in bitcoin. It can be concluded that mining is controlled by a small group of people with powerful computers.

Jack Liao, CEO LightningASIC, a company that sells mining hardware, came up with Bitcoin Gold as a way to change this dynamic. The idea is to allow more people with less powerful computers to mine bitcoin gold. This will contribute to the decentralization of the network and expand its user base. For this purpose, a code was invented that creates a hard fork or split in the Bitcoin blockchain. This happened on October 24 and led to the creation cryptocurrency bitcoin gold.

Didn't the hard fork happen earlier?

In August, the cryptocurrency underwent a similar hard fork, which led to the creation of . The price initially surged to a record high of $914.45, but it has steadily continued to fall, according to Coinmarketcap.com. On Wednesday, bitcoin cash was trading at just above $330. Bitcoin Cash's market capitalization - the total value of the cryptocurrency in circulation - is US$5.5 billion, compared to more than US$93 billion for Bitcoin.

Each bitcoin owner will receive bitcoin gold. It is issued on a one to one basis.

After the release of Bitcoin gold, its price fell by more than 66 percent. According to Coinmarketcap data, it amounted to $161 per coin. The drop was caused by investors dumping the cryptocurrency, signaling a lack of faith in the newly created coin.

The new cryptocurrency has encountered some problems. The website has been affected, which occurs when the server is overloaded with requests. Many major exchanges have not yet started trading the new digital currency.

What do experts say about hard fork?

There is currently controversy regarding the hard fork and its benefits.

“Hard fork is very harmful for bitcoin. Market saturation different versions cryptocurrencies confuse users. It discredits the claim that there is a limited supply of bitcoins,” said Saul Lederer, director of Loomia.

But some say that a hard fork is a good part of any cryptocurrency ecosystem.

“If the crypto community has irreconcilable differences, then you can go different ways, and that's fine,” said Bob Summerle, chief developer of Sweetbridge.

CNBC conducted a poll last week. 23,118 people took part in it. Everyone was asked the question in which direction the price of Bitcoin is moving. The survey results showed that 49% are confident that .

(26 ratings, average: 4,42 out of 5)

So, friends, as I promised, let’s talk about a possible hard fork of Bitcoin, what it could lead to and how it will affect us, ordinary users this cryptocurrency.

First, let's define the term. Hard fork is a change program code, which changes the block structure or allows previously invalid blocks to be used, i.e. changing the Bitcoin protocol.

On this moment You all probably know that due to the relatively small block size, the speed of the Bitcoin network has noticeably decreased and recently, more and more often, some transactions hang in the system for more and more time. Sometimes up to 2 or more days, which of course is annoying.

The future of the hard fork

The main change that programmers are going to make to the network is expanding the block to 20 megabytes. According to all forecasts, such a solution will speed up the network and reduce the transfer fee to almost zero.

Does it seem like a sound decision and everyone is happy? However, not everything is so good

Firstly, this will lead to a sharp increase in wallet volume. If now full wallet weighs hundreds of gigabytes and many network participants can afford to keep it, then with its sharp increase we will only talk about individual large players. Bitcoin will no longer be decentralized and will be controllable over time.

Secondly, miners who are already having a hard time will disappear from the market. Only the largest pools will remain, which will greatly influence the cryptocurrency rate.

The latter began to actively support Bitcoin Unlimited (BU) - new project, which allows miners to adjust the block size, and this in turn will allow them to earn more by cutting off small blocks for the time being. As they say - pure business, nothing personal. Everything would be fine, but in the end BU united a lot of pools, especially the Chinese, which account for about 40% of all mining.

Bitcoin hard fork today

Just recently (March 7), the first block of Bitcoin Unlimited was mined. Almost immediately, many leading exchanges listed BU as a separate asset and they are already trading on it, albeit small ones.

The cryptocurrency community is now in a difficult situation, due to the fact that miners have turned away from the classic cue ball and began to mine Bitcoin Unlimited. A little more and this state of affairs can lead to a complete split of the network into 2 parts.

Apparently, things are really heading towards a split, because Bitcoin is a very tasty pie for everyone, including governments. The result of the split can be seen on the recent Ethereum and Ethereum Classic.

A hard fork of the Bitcoin network will at least lead to a 2-fold, and possibly 3-fold, drop in the price of the bitcoin, as users will rush between two equivalent systems, choosing which to choose.

Conclusions on the Bitcoin hard fork

It is already clear that many far-sighted investors are beginning to transfer some of their assets from Bitcoin to other cryptocurrencies. This can be clearly seen recently by the increase in the power of the Ethereum, Dash and Zcash network.

What to do? Those who have a small amount in bitcoins have nothing to worry about, they can simply monitor the development of the situation, but those who have large amounts of money in their hands should probably take a proactive step and transfer at least part of the bitcoins to other cryptocurrencies.

Soft fork, hard fork - these words have often been heard in the news lately. For those uninitiated in the intricacies of how cryptocurrency networks work, they at least cause bewilderment. Therefore, today we will analyze the meaning of these concepts, explain in simple words why they are carried out, we will give real examples the most high-profile hard forks that rocked the cryptocurrency community.

Each cryptocurrency network operates according to certain rules. From time to time, minor changes may be made to them, for example last blocks. In this case, the system is rolled back to a clearly designated point, overwriting the last payments. This process is called a soft fork. No fundamental changes are being made to the network rules themselves.

When it comes to what a hard fork is, the situation is different. Here they are already encroaching on the very essence of the operation of the cryptocurrency platform, changing source systems. New rules are built into it that are incompatible with the old ones software. As a result, the network forks (literally, a hard fork) and users have to choose which path they are willing to follow next.

Nodes on one branch support the new rules, nodes on the other remain faithful to the old and familiar ways of functioning. Ideally, the overwhelming majority agrees with the new rules.

Harfork could split the cryptocurrency network into two independent branches

Thus, after a hard fork there are two ways - either one of the branches dies off, or they continue to coexist as two independent systems parallel.

Why do they carry out a hard fork?

There are many reasons for why hard forks are carried out. Most often, significant shortcomings begin to appear in the system, which slow down the operation of the network. Even a banal increase in block size already requires a hard fork.

Let's take Bitcoin for example. In the first years of the network’s existence, there were no problems with making payments. 7 transactions per second were quite satisfactory for the community. Dissatisfaction began to surface as the number of users and the popularity of cryptocurrency grew. The issue of network scalability has become particularly acute.

Recently, transactions could freeze not just for a few hours, but even for a couple of days. Commissions have also increased significantly - in August of this year they could even reach $9, and this completely cut off the attractiveness of using the network for many. Users began to either pay attention to other cryptocurrencies or return to traditional payment methods. And only a hard fork can solve the problems.

Who can carry out a hard fork?

Developers, miners, active participants communities - anyone can become an initiator and carry out a hard fork of the network. The main thing is to gather like-minded people around you and get them interested in your ideas. When differences in views are critical, this can lead to a total split in the community, and there are many examples of this.

The creators of hard forks are often well-known personalities in the crypto market, and they can put forward ideas and bring them to their logical conclusion anonymous groups developers. An example of the latter option is Bitcoin Diamond.

Advantages and disadvantages of hard forks

Hard forks have both positive and bad influence for the development of cryptocurrency systems. We focus on the main points.

Advantages:

Properly carried out hard forks decide current issues networks that slow down its work.
Hard forks often increase the capital of token holders of the original networks - they additionally receive coins from new branches.

Flaws:

In fact, no one ever knows how the branching of a network may affect its further operation, which network will remain the main one, and how this will affect the current value of tokens.
A hard fork often causes a split in the crypto enthusiast community.
Hard forks can trigger high volatility.

History of hard forks

The most high-profile hard forks occurred on the Bitcoin and Ethereum networks. Some of the branches have firmly established themselves in the market. However, there are also those that, as a result of certain shortcomings, never gained much popularity. So, who, when and why tried to divide the network and rule over it.

Bitcoin

Bitcoin split for the first time in August 2015, when Bitcoin XT appeared. the main objective Its initiators were to remove limiting factors in the operation of the system and increase the block size. The project was harshly criticized and did not receive much support from the community, although it is believed that its creators are Bitcoin Core developers.

The second attempt was made six months later - at the beginning of 2016. The new fork is called Bitcoin Unlimited. The intention is the same - to increase the block size. However, this time the developers took a different path and invited the nodes to decide for themselves what it would be like. It was assumed that the system would eventually settle on an average value.

However, after thinking for some time, the community came to the conclusion that large pools could begin to impose their vision of block sizes and then decentralization would come to an end. Likewise, Bitcoin Unlimited did not gain much support.

However, supporters of forks did not give up and within a month they put forward new idea, which was called Bitcoin Classic. This time the proposal was clear and specific - to increase the block size exactly 2 times to 2 MB, and to 4 in two years. The crypto community greeted the project with great interest, and there was practically no criticism towards it.

The problem turned out to be different - the discussion of the implementation process dragged on so long that Bitcoin Classic simply lost all meaning at the end of the summer of this year.

On August 1, 2017, the next and, as it turned out, the loudest harfork occurred. After lengthy and heated debates in the cryptocurrency community, the updated SegWit protocol was activated in Bitcoin, which moved the signature of transactions beyond the block into a separate structure. As a result, in contrast to this soft fork, a large branch of the network appeared - Bitcoin Cash.

Bitcoin Cash has radically changed the block size to 8 MB

In addition to increasing the block size to 8 MB, it also has high-quality protection against failures during transactions. In particular, now the input values in them are signed.

Inspired by the success, the Bitcoin Cash developers promise not to stop there and will continue to branch out new network in 2018.

In October 2017, Bitcoin split again. The result of the fork was the emergence of Bitcoin Gold. The name itself testifies to the intentions of the initiators of the idea. new cryptocurrency- the developers plan to turn their Bitcoin into “electronic gold”. To do this, they changed the operating algorithm to Equihash, which returns miners the ability to mine tokens on video cards. According to the authors, such a decision will make Bitcoin network Gold will be truly decentralized, as it will significantly expand the ranks of miners.

Bitcoin Gold has returned to miners the ability to mine tokens using GPUs

In mid-November, everyone was expecting the previously planned SegWit2x hard fork, which was supposed to continue the initiative of the already implemented SegWit mechanism and increase the block size of the original Bitcoin to 2 MB, as well as reduce transaction fees. However, at the last moment, the initiators of the division refused to carry it out. The main concerns were that it was unclear which network would ultimately become the main one - the existing one or new Bitcoin SegWit2x.

Bitcoin Diamond appears on November 24th. It has implemented a number of major initiatives, including changing the mining algorithm to the optimized X13 and increasing emissions by 10 times. It also retains 8-MB blocks, as well as support for SegWit.

There were fears that the latest Bitcoin forks would not be particularly popular. However, in reality the fears of the skeptics were not justified. Today, Bitcoin Cash is in third place in terms of capitalization, behind only Bitcoin itself and Ethereum and is trading at a price of about one and a half thousand dollars. Bitcoin Gold, as a later fork, is located lower - in 8th place in overall rating cryptocurrencies and in value is an order of magnitude behind its more famous relatives - only about $280 per token.

Cryptocurrency users do not lose anything from the latest Bitcoin hard forks, but on the contrary, they even gain, since they receive an equivalent amount of bitcoins in the new branches.

Ethereum

The second most popular cryptocurrency after Bitcoin, Ethereum cannot boast of so many hard forks. And the only one that led to a split in the system happened due to forced circumstances.

In the spring of 2016, a decentralized venture capital fund, DAO, was created on Ethereum in the form of a global smart contract. With its help they planned to finance all subsequent distributed applications(DAPPS) created on the basis of the network. At the same time, DAO token holders could influence the development of DAPPS. The idea turned out to be attractive and thousands of investors from all over the world rushed to invest money in the fund.

In mid-summer, using a loophole in the DAO, which the developers considered insignificant, about a third of the capital was withdrawn from the fund to the accounts of a subsidiary company.

The trick was that the hackers had withdrawn the money, but they could only use the tokens after 28 days - this is the condition of the smart contract.

Heated debates began in the Ethereum community about what to do next - conduct a hard fork, a soft fork, or even leave everything as is. As a result, some users settled on the latter option - this is how Ethereum Classic was born. Others advocated rolling back the system and returning what was stolen - this fork remained original name without Ethereum additives.

As time has shown, Ethereum has gained great popularity, which consistently holds an honorable second place after Bitcoin. The classical branch of Ethereum Classic today flew out of the top ten and is located in 11th place in the ranking. The difference in cost between them is also significant - $450 and $30 per token, respectively.

This seems to be not the last shock for Ether. Carried away by the active division of Bitcoin, the Bitcoin Gold team is currently threatening to carry out another hard fork on the Ethereum network. Their goal is to solve the problem of system security and unlimited emissions.

Conclusion

As we see, hard fork is different from hard fork. The cryptocurrency community accepts some proposals, voting with the dollar and other currencies for the innovations they bring. Other forks face severe rejection and disappear, losing their former supporters.

Be that as it may, most hard forks allow cryptocurrencies to get rid of the initial restrictions and make them more convenient for users. If the developers left everything as it is, cryptocurrencies would not be able to cope with the load and would lose active supporters - they would look for more convenient means of mutual settlements. In some situations, they are simply inevitable and help not only to correct mistakes, but also to take into account the interests of all parties, as happened in the situation with Ether.

However, the Bitcoin community currently seems to be infatuated with hard forks, and the end of 2017 will be remembered for a continuous series of hard forks. Thus, for the near future, forks called Lightning Bitcoin, Super Bitcoin, Bitcoin Cash Plus, Bitcoin Platinum and even Bitcoin God are already planned. The latter is threatened by Chinese entrepreneur Chandler Guo.

Experts advise coin owners to transfer them to their own before the upcoming hard forks. personal wallets and do not keep money on exchanges. This will allow users to protect as much as possible, and sometimes even increase their assets.