Essentials for the Coming Bitcoin Hard Fork
There's no denying that the Bitcoin fork that happened back in August was pretty exciting.
At the time of the fork, Bitcoin's price was hovering in the low $2,000s. After the fork, the price rocketed up, breaking $5,000. And these were just the gains seen from Bitcoin. Investors were also introduced to Bitcoin Cash (BCH) and had to rapidly learn about a whole new cryptocurrency.
Since the introduction of Bitcoin Cash, the market has cooled off.
Bitcoin dropped from its high of over $5,000 as investors unloaded over 40% gains.
But now, we are about to enter round two.
Even though Bitcoin Cash caused a lot of buzz in the digital currency world, it was actually not the main show. Bitcoin Cash was the proposed radical solution of a very small group of miners for Bitcoin's scaling issues.
Prior to the fork that resulted in Bitcoin Cash, the rest of the Bitcoin community had already decided on another solution known as SegWit2x (or the New York Agreement).
On November 18th, the second part of the SegWit2x solution is going to be implemented through a hard fork that has a majority of the Bitcoin community's support.
And investors should be paying attention...
Note: This article was intended to be educational. Individuals should perform their own supplemental research as the fork gets closer. We will update this article as necessary through editorial notes.
What Investors Need to Know About the Bitcoin Fork
In the world of digital currency, things are constantly changing. On October 16th, Ethereum is going to hard fork with a scheduled upgrade to its current code.
The Bitcoin family is also going to grow by one, with Bitcoin Gold tentatively scheduled to hit exchanges on November 1st.
All this considered, it's easy to see how investors could lose track of certain events. But the November Bitcoin fork is certainly something that investors should be aware of. And this is mainly because it could influence the price of the digital token and could also potentially produce a new token, adding a fourth member to the Bitcoin family.
Let's take a look at some of the most common questions...
Why Exactly Is This Fork Happening?
This hard fork should not come as a surprise to investors who have been paying attention.
In July, the Bitcoin community was struggling to come up with a solution to Bitcoin's block size issue.
Over the years, the number of users who are actively using the Bitcoin network has grown dramatically. And this has caused some issues.
For those new to Bitcoin, the Bitcoin network operates on something called blockchain.
Each transaction that takes place in the network is grouped into a block and added to the overall chain. With the current Bitcoin interface, each block is only 1 megabyte large, limiting the number transactions that can take place. In order for Bitcoin to keep up with its growing user base, the block size needs to be increased.
A majority of the Bitcoin community decided that the best way to do this was through an option called SegWit2x. The first part of this process, called SegWit, allowed some transactions to be conducted off the chain and in a group. This freed up space within each block.
In the second part, which will require a hard fork, the block size is going to be expanded to 2 MB.
This decision was what spurred a portion of the Bitcoin community to hard fork the code and to create Bitcoin Cash, which was a more radical solution to increasing block sizes.
Will This Fork Produce Another Bitcoin Token?
In this case, the answer is yes.
Whenever there is a hard fork, there are two sets of code — one with modifications (the new) and also one without (the old).
In order for there to be a new token, miners must continue mining the old fork. This is what happened with Ethereum Classic when Ethereum hard forked in 2015.
In this case, the majority of the Bitcoin community supports Segwit2x and, by using it, will not mine the old fork anymore. This being said, there is always a chance that a facet of the community will not support the fork and will continue mining the old code.
In a blog released on October 6, 2017, Coinbase stated:
We operate by the principle that our customers should benefit to the greatest extent possible from hard forks or other unexpected events. This is essential in our mission to make Coinbase the most trusted, safe, and easy-to-use digital currency exchange.
Customers with bitcoin balances stored on Coinbase at the time of the fork will have access to bitcoin on both blockchains. There is no action required from customers and bitcoin can be securely stored on Coinbase before, during, and after the fork.
The token might not be available to investors immediately, but once Coinbase develops the necessary infrastructure, the exchange will release it to investors. At the time this article was published, there is no name in place for the new blockchain. Bitcoin will still be known as BTC.
Will Investors With Bitcoin Receive the New Token?
If they take the right steps, then they should.
And if you want those new tokens, the same rules apply as they did for Bitcoin Cash.
First, you need to research how the software wallet, hardware wallet, or exchange you are using is planning to approach the fork.
Like Coinbase, many exchanges and wallets have policies already in place for telling users whether or not they will support the new token.
If the exchange you are using doesn't plan on supporting the new token, then you'll have to move your bitcoins into an offline wallet or to a different software wallet that is planning to support the token.
If you don't do so, you won't receive any tokens after the fork.
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What Does This Fork Mean for the Long-Term Stability of Bitcoin?
Hopefully good things, but the truth is that no one knows for certain.
Over the last year, the Bitcoin community has faced a lot of internal conflicts — the block size issue and solving it were the sources of most of the confrontations.
That being said, in the process of remedying the block size problem, three coins have been introduced to the Bitcoin family: Bitcoin Cash, Bitcoin Gold, and the newest token that is going to be coming in November.
And all those tokens have generated a lot of confusion — especially for new investors who don't understand how Bitcoin works. And this could end up causing issues for user retention.
On the flip side, with SegWit2x successfully activated, the Bitcoin network is going to be able to process transactions faster, easing some of the issues that were frustrating users.
This is good for the token in the long run, which will need to offer faster transaction and confirmation times in order to be successful in our global economy.
What Could the Fork Mean for Bitcoin's Price?
The answer to this question is pure speculation.
As we learned back in August, a fork has the ability to initiate a lot of media coverage and to increase buying. Before Bitcoin Cash, the price of Bitcoin was hovering around $2,000. Afterward, it went up over 40%. Investors seemed more certain after the fork, with the decision of Segwit2x on the horizon.
Experts at CNBC said that, though it's likely we'll see a $6,000 Bitcoin by the close of the year, investors should brace for volatility.
Just like with Bitcoin Cash, a group of investors could choose to reject SegWit2x, creating the second token that I mentioned above.
Aside from that, there are other factors that could influence Bitcoin's price post-fork. Coinbase plans to release Bitcoin Cash to investors sometime in January. This could have investors liquidating Bitcoin Cash for Bitcoin, pushing the price of Bitcoin higher.
These are all factors that investors should be watching closely as we approach the close of Bitcoin's most momentous year. From the start of 2017 to the time of this article, Bitcoin is up over 380%.
If you like Wealth Daily's Bitcoin coverage, make sure to sign up for our free e-letter below. For those who are looking to capitalize on digital currency but are uncertain about how to start navigating the space, we are going to be releasing our digital currency education service on October 19th.
Editor's Note: This article was intended to be educational. Individuals should perform their own supplemental research as the fork gets closer. We will update this article as necessary through editorial notes.
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