Yes. But also no, and in general– sometimes. Want some real answers on how any of the latest forks could affect your favorite trading platform? You’ll have to keep reading.
Cryptocurrencies have long been the face of technological innovation in finance. While Fintech has seen a small share of the headlines, nothing has shifted the way we think about and use finance in the ways that cryptocurrencies have. But with near constant innovation, comes change. And in crypto, with change comes forks. Don’t start counting tines just yet, as many of the forks that cryptos employ go largely unnoticed. Which means that your holdings and your favorite crypto trading platform will go largely untouched.
Platforms like Bitvavo snag and retain their clientele by helping to guide newer users through the often confusing avenues of crypto. Helping to get novice buyers and retail investors a more solid footing in the market. So when it comes to new types of innovation, these crypto trading platforms are some of the best to look towards when you need more continuity and less continual change. Moreover, many of these newbie focused platforms will also trade in forked coins and still interface with original systems and protocols. Which is super helpful to anyone who wants to enjoy both the way things were, and all the ways they could be.
What is a Crypto Fork?
A crypto fork is simply a change in the existing protocol of a given cryptocurrency. The design of any crypto is based off of a protocol– a digital set of instructions that tell a crypto how it works and what it should be doing. These rules establish how data is shared, how the blockchain or other associated ledger system is structured, and how validation systems work. When a cryptocurrency wants to advance their existing structure, or change the way a given network works in order to better keep up with evolving technology– they have to create a fork.
Crypto forks are more akin to a ‘Fork in the Road’ than they are related to the ones you eat your dinner with. In the world of digital finance, there are two types of forks you’ll want to concern yourself with: Hard forks and soft forks.
Soft forks are changes to the protocol that don’t really affect how the network functions. These are considered ‘backward compatible’, where the new protocols will still be able to interact with older protocols. This means that any block (or chunk of transactional information) that is validated under the new protocols, will still be recognized by the old nodes (validating computers) connected to the network. However, the information processed by old nodes will not be recognized as valid by newly updated nodes. So in order for soft forks to eventually become accepted by the entire network, the majority of the nodes connected to the network will eventually update to the new protocols. Like going from Windows XP to Windows 10.
Soft forks happen all the time and generally include changes to the protocols that look to add security updates or attempt to address any scaling issues the original protocols may have presented. However, sometimes, soft forks aren’t embraced by the majority of the network. This is how hard forks happen.
Hard forks happen when the majority of a network decides to stick to old protocols, meaning that nodes that have opted to pick up newer protocols will eventually become invalidated by the majority of the network still functioning under old protocols. Remember that new nodes don’t recognize old protocols. So if the majority of your network is functioning under old protocols, the spare few that have upgraded will become the anomaly, and the information they process will be useless to the network as a whole.
When this happens, new protocols are either abandoned, or the nodes that have decided to keep the upgrade will essentially branch off and become a new type of crypto token. This is what happened with Bitcoin and Bitcoin Cash. When a hard fork occurs, it can be a blessing or a curse for the network, depending on how the newly minted token performs. In the case of Bitcoin Cash, the hard fork performed very well. Offering a new token for investors to consider.
Can They Affect Your Trading Platform or Habits?
So as you can see, most soft forks are unlikely to affect your crypto trading platform, or any network you engage with, by much. It’s really the hard forks that you need to keep a keen eye on. For some networks, a hard fork can signal the end of a lucrative token. For others, it can mean the encouraging enterprise of two new investment options.
Perhaps most recently, the ethereum networks hard fork has presented the crypto world with one of the most anticipated hard forks ever recorded. “The Beacon Chain” is the long anticipated next step in the evolution of Eth2.0, or “Serenity”. Serenity looks to completely overhaul the way that the ethereum network functions, hoping to improve many security and scalability issues that have long plagued the original blockchain model.
The network hopes that eventually, the original ethereum platform will be entirely absorbed by Eth2.0, integrating the original Ethereum blockchain into the new ledger system that Serenity uses. Which means that there won’t be any big changes for investors or trading platforms to worry about, but it could mean that there will be new and innovative ways to invest in crypto in the future.