Bitcoin is going to undergo a hard fork.
What is a Hard Fork Anyway?
A hard fork in cryptocurrencies is when one cryptocurrency effectively becomes two and the number of units of currency is effectively doubled, albeit existing in two separate, incompatible blockchains. This has already happened to the second largest cryptocurrency by market capitalization: Ethereum.
Ethereum underwent a hard fork back in 2016, so there are now two blockchains, Ethereum and Ethereum classic, which both trace their origins back to the 30 July 2015 launch of Ethereum in a modern day Ship of Theseus paradox.
More information about hard forks.
Hard Forks are Logically Bad for the Price of a Cryptocurrency
As I’ve written about in the past in What I Dislike About Cryptocurrencies cryptocurrencies, like Bitcoin, aren’t scarce.
More correctly, cryptocurrencies are not very limited in supply.
There are currently 16,475,250 BTC in circulation and that number will continue to grow by design until 21 million are mined, at which point the supply of BTC will cease to grow.
So while only 21 million Bitcoins will ever exist on a given Bitcoin blockchain because of how the cryptocurrency is programmed, if Bitcoin forks, there will eventually be 21 million units of Bitcoin A and 21 million units of Bitcoin B.
In one sense the number of Bitcoins that will exist is 42 million. Now certain places might only accept Bitcoin A and not accept Bitcoin B and the price of Bitcoin B could drop to a low value and no one uses it. So in that sense there are still only 21 million Bitcoins. But when a cryptocurrency hard forks, some people favor one fork over the other and the price is lower than it otherwise would be if there was only one blockchain.
If Ethereum had not forked there would only be around 93 million ETH in existence right now. But because Ethereum did hard fork there are now 93 million ETH and 93 million ETC. The market capitalization of ETH is currently around $18.3 billion and the Market cap of ETC is around $1.3 billion. It’s beyond the scope of this article to posit how much the hard fork impacted the price of ETH, but I think it is logical to believe that the price of ETH would be higher if not for the hard fork.
Bitcoin Hard Forks
On August 1st Bitcoin is also going to fork, forming two separate and incompatible blockchains: Bitcoin (BTC) and Bitcoin Cash (BCH).
The market does not seem to care and Bitcoin is trading near all time highs around $2,800.
Time will tell what kind of impact this will have on the network and the price of the cryptocurrencies. If the hard fork does not go well and the network is adversely impacted I could see short term price drops. It’s possible (although I would guess unlikely) that Bitcoin Cash becomes more popular than Bitcoin and overtakes it in price. It’s also possible (and in my opinion much more likely) that it becomes a somewhat niche cryptocurrency like Ethereum Classic.
Bitcoin currently has a market capitalization of $46,622,650,965. It’s certain that after the fork both Bitcoin Cash and Bitcoin will not both have a $46.6 billion market capitalization.
While we wait and see what unfolds I’ve taken one important step. I had my modest BTC holdings at Coinbase. Coinbase is NOT supporting the hard fork.
So I’ve moved my BTC to Kraken. Kraken IS supporting the hard fork. By moving my BTC to an exchange that does support the fork I will get Bitcoin Cash in addition to Bitcoin.
The reason for this is because if one were to hold one BTC (Kraken uses the abbreviation XBT) at Kraken during the hard fork, Kraken will award the holder of that BTC one BTC as well as one BCH. Whereas if BTC is held at Coinbase no BCH will be credited.
I like Coinbase and I plan to move my BTC back to Coinbase after the hard fork takes place.
If you don’t currently own any Bitcoins and are interested in purchasing some, check out my easy to use walkthrough guide How to buy Bitcoins on Coinbase. Using my affiliate link when buying Bitcoins on Coinbase to get $10 worth of bitcoins free when you buy at least $100 worth of Bitcoin.