Don’t Focus on Bitcoin’s Problems; Focus on the MANY Forks Instead
Between 2017 and 2018 there at least 20 Bitcoin forks planned, if not more. Each fork potentially nets Bitcoin holders “free coins” based on their current Bitcoin holdings.
Sure, Bitcoin has some temporary issues in terms of price, fees, and speeds… but those who hold through Bitcoin’s current woes stand to be rewarded with many forked coins.
An Overview of the MANY Bitcoin Forks
- In 2017 we saw three forks go live: Bitcoin Cash, Bitcoin Gold, and Bitcoin Diamond.
- By the end of 2017 just under 20 forks had been scheduled or occurred. Those included two forks that are live here in January 2018, SuperBitcoin and BitcoinX.
- As of January 25, 2018 over 20 Bitcoin forks have occurred or have been scheduled.
- One could expect this trend to continue or even ramp up. Some have estimated that there will be at least 50 Bitcoin forks… but the reality is there could end up being more than that. That doesn’t mean there “will be” it means there “could be.”
- Even if only some forks end up being legitimate, and further even if only some retain value, this could still mean a big pay day for those who held Bitcoin through the current uncertainty. Meanwhile, if a range of these forks retain value over time, then it could mean an even bigger payday down the road. Meanwhile, if Bitcoin loses value, these forks could potentially offset those losses later.
- Thus, when thinking about Bitcoin as investment, one should remember to account for potential forks (not to mention segwit and the lightening network which have already started to address Bitcoin’s issues of speed and fees).
Understanding Bitcoin Forks
What is a Bitcoin fork? In simple terms, a “hard fork” in Bitcoin is when developers make a copy of Bitcoin’s software to create a new coin and new blockchain. The new coin is a copy and paste of Bitcoin’s existing code and ledger, and from there changes can be made to the code (but not the ledger). The result is everyone holding Bitcoin during the fork owns equal parts of the new forked coin once it goes live (see details below).
The Implications: Put everything above together and it means Bitcoin holders could get free coins up to 50 times between 2017 and 2018. Past forked coins include Bitcoin Cash (currently $1,600), Bitcoin Gold (currently $200), and Bitcoin Diamond (currently $20). If the new coins have values like that, one can see how that 50 times over could be a really big deal.
How to get free coins from a Bitcoin fork: When a fork occurs, a few things happen:
- A group of people with the ability to create a Bitcoin hard fork announce their intentions to do so at a specific block height.
- A snapshot is taken at a specific block height. All holders that hold Bitcoin during that snapshot block are privy to the fork (although they must hold in a wallet where they control their own keys or on a platform that supports the fork).
- Later, generally a few weeks later, the developers of the new coin launch the new chain (a copy of the old blockchain with whatever changes they have made).
- Then, after the new chain is live, anyone who held during the snapshot block can claim their coins using the new coin’s wallet and their private keys or a third party wallet that supports the fork. Users who have their coins on an exchange or with a third party service like Coinbase meanwhile have to wait until that entity decides to support the fork (which could mean it never happens, or it could mean it doesn’t happen for months).
TIP: A good chunk of time between a coin being announced, the snapshot, the coin going live, and the coin being considered stable. It can be tempting to want to claim you free coins right away, but those who control their private keys generally need to wait and those who don’t generally need to wait even longer. Then, it can take months for traders to determine a fair price for the coin. We really won’t know how this all plays out until a good while after many of these forks have occurred. That means a call has to be made about how and if you will hold Bitcoin before the potential rewards are fully known.
NOTE: In general forks offer a 1:1 ratio of Bitcoin to the new coin. However, some forks increase the supply, in these cases it might be something more like for every Bitcoin you get 100 of the new coin. The point is, holders get “free coins” based on their Bitcoin holdings.
We don’t know how many forks will end up being worth anything or stable, we don’t know how entities like Coinbase will react, we don’t know if the forks will retain value, we don’t know if Bitcoin will retain value, and we don’t know if cryptocurrency will continue.
However, imagine a world in which the forks do end up being stable, Coinbase supports all stable coins, the forks end up being valued like past forks, Bitcoin retains value, and the crypto craze isn’t anywhere near over.
In that world a Bitcoin holder who holds 1 BTC will end up with 20 – 50 free coins as a reward for holding through the current market. There is a lot of potential there.
If a stock you were unsure of was potentially going to pay dividends 50 times in a year, you would probably want to factor that into your investing strategy. Same deal here.
TIP: From around May to July there was a lot of fear that Bitcoin’s rapid rise in price coupled with increasing fees and slow speeds meant that Bitcoin’s era was ending. The Bitcoin Cash fork was announced, and it looked like Ethereum might become the #1 coin. Then, fast forward a few months, and we can see that Bitcoin wasn’t ending at all, it was about to go parabolic in terms of price, popularity, and forking. What I mean to imply is this: Sure, we could look to 2014 and say “this correction might be like that!” However, we can also look to June or September and think “but maybe it is like that… but this time with WAY MORE FORKS.” If it works out well, bulls will be rewarded like mad and bears might be a little mad that they focused on Bitcoin’s problems of price, speed, and fees and not its potential benefits of future price, future fees, future speeds, and forks.