Basically, a Bitcoin hard fork is a phenomenon that will cause a new cryptocurrency to be generated. Let’s discuss it and see differences between a Hard Fork and a Soft Fork.
What is a Fork in the world of Cryptocurrencies?
Bitcoin forks are defined variously as changes in the protocol of the network or when two or more blocks have the same height. A fork affects the validity of the existing rules.
Usually, the price of a cryptocurrency goes up as and when it approaches the ‘fork‘ event. Mostly these up rises can be positive and also sometimes it can go the other way. despite which way it goes, you can make money if you play smart and safe.
What Is a Hard Fork?
A hard fork, as it relates to Blockchain technology, is a radical change to the protocol that makes previously invalid blocks/transactions valid or vice-versa. A hard fork requires all users or nodes to upgrade to the latest version of the Blockchain protocol software. It is an update that isn’t backward adaptable. It means that nodes or users executing the previous software versions will not recognize blocks built by those running the new software and vice versa.
Because of that, hard forks most of the time produce a new Blockchain with a group of users leaving the old network to generate their own cryptocurrency. In the event, the new network takes an exact copy of the Blockchain as it was at the point of the separation, with both versions remaining split thereafter. Users who own Bitcoin at the point of the fork happening will claim some amount of the newly forked cryptocurrency.
What is a Soft Fork?
A soft fork is a change to the cryptocurrency protocol where only previously valid blocks/transactions are made invalid. Since old nodes will recognize the new blocks as valid, a soft fork is backward-compatible. When a majority of miners upgrade to enforce new rules, it is called a miner-activated soft fork (MASF). When full nodes coordinate to enforce new rules, without support from miners, it is called a user-activated soft fork (UASF).
How a Fork influences the price charts
They frequently cause large price fluctuations and have been seen to be controversial in the past.
Should you buy before a Hard Fork?
A hard fork is known to be an unstable time for a cryptocurrency. The public will often be split over the issue and the market will not be stable, even by cryptocurrency standards. How you will respond will largely depend on the balance you have in the currency and the type of fork you are looking at. In the case of a hard fork, where you will be earning free currency, it is reasonable to keep hold of your currency or even enhance your investment. The negative side of this is that other big traders are doing the same. If you are worried that you might not be able to react rapidly enough to sell off before the Whales, you should be warned to sell your investment just before to the fork. You will be deprived of the free currency but you might be able to make some income from the Whales looking to increase their stake. You can then use this to buy a bigger share after the Fork.