What is a Cryptocurrency fork and how you could earn from it

There are numerous cryptocurrencies, some of them are a result of a split of the original cryptocurrency during its software (blockchain) update.This is what is refferd to as a cryptocurrency fork.

If you check on the coinmarket-cap that list all cryptocurrencies, you will find some cryptocurrencies with very similar names, such as Bitcoin, Bitcoin cash; Ethereum, Ethereum classic among others. They are as a result of a split, the process is known as a fork.

In this article, we will discuss more about cryptocurrencies fork, the types, how they occur and how you could benefit from a crypto undergoing a fork. For instance, when bitcoin forked a new coin known as Bitcoin cash was created and  given for free to existing holders of Bitcoin. As at the post time one Bitcoin Cash is worth$519.

A fork occurs when there is a change in the blockchain software or protocol. Blockchain is a distributed database that stores data across decentralized computer nodes referred to as miners. (Read about mining here). For a transaction to be recorded on the blockchain, it has to be verified by majority computer nodes within the network. The verification process is referred to as mining.

When a fork occurs the Blockchain version is updated to a new version, the changes have to be supported by a majority of the users to be successful. As highlighted blockchain network is distributed across numerous nodes, therefore, a change has to be supported by a majority of the users who accept to update to the proposed new version.

There are two types of a fork that can take place:

1.Hard Fork

This is where consensus is reached by the users to diverge from the current version of blockchain permanently. It is a non-backward compatible change because the new chain after the split does not recognize transactions in the old blockchain.

Hard fork thus results in new rules as a result of the modification in the core software. New transactions do not reflect in the old chain neither do the old transaction appear in the new chain. The computer nodes are therefore, compelled to upgrade to the new version to continue mining the new transactions on the new blockchain.

2.Soft fork

This type of fork is backward compatible since the rules allow the transaction in the old blockchain to be recognized by the new chain.

The soft fork does not compel the nodes to update their versions, they can still retain the old version. Soft fork also require majority support from the users otherwise they will be orphaned by the new version spilt and got adopted by more users.

Causes of a Fork

There are several reasons why users of a cryptocurrency may decide to fork (change) the existing blockchain version. The fork can be initiated by the core developers of the blockchain and by any developer with a majority support from the users.

Most cryptocurrencies have their source code as open source, and anybody with programming skills can get them and modify them; however they must be accepted by majority users. A forked coin must also be adopted by most miners, and exchange platforms for it to gain value.

Issue of new cryptocurrencies.

A fork could results into a split of the blockchain which alternatively result into issue of a new cryptocurrencies. For example, the Bitcoin fork that led to the creation of a new cryptocurrency called Bitcoin Cash.

When a fork occurs, the new coins are issued to holders of the previous coin that has forked at a specified ratio. When bitcoin forked, every holder of a bitcoin received one free bitcoin cash. To get the free new coins as a result of a fork, one must have the original coin that is forking in an exchange that supports the fork.

Some of the Major forks that have taken place.

Cryptocurrency forks are going to continue happening as users adopt new ways to scale the existing ones. Among the significant forks include;

Monera hard fork to introduce Ring CT for privatizing transactions. Bitcoin cash that was to address scalability issues by increasing bitcoin block size from 1MB to 8 MB. Ethereum classic from Ethereum. Bitcoin cash will also be undergoing a fork on 15^th Nov 2018.

Capitalizing on a Fork

When a cryptocurrency is going to fork you can benefit from the issue of the free new cryptocurrency. For example, Bitcoin holders received Bitcoin Cash which has appreciated in value to $500 as at post time.

However, a fork may also result in the loss in value of the old coin, for instance when the new coin introduced and more people adopt it abandoning the previous one it may lose its value.

Conclusion

In conclusion, a fork is basically an update of the cryptocurrency software. For the update to be successful, it must be supported by majority nodes since it’s a distributed ledger. Once a fork has occurred users may choose to altogether abandon the old chain (hard fork) of continue recognizing transactions from the old chain (soft fork).