The global wave of cryptocurrency aimed to revamp the financial world. And the digital currency which is credited to make the starting in fulfilling the said task is none other than Bitcoin. Founded by Satoshi Nakamoto on 3rd January 2009, it was launched to become a substitute for cash in digital form. As time passed by, there came many specific currencies which are also popularly called altcoins. Even though they are known to be the alternative to Bitcoin, but do you know many of them spawned from forking. Now, what is this forking in the crypto world? And will you believe if I say that the cryptocurrency price can be affected by a hard fork? If you are not sure then no issues, as I am going to reveal about this fact in this blog. So please follow it till the end.
Why Does Forking happen?
Now, before we know the exact reason for how hard fork can impact the cryptocurrency price, I would like to brief you about what is the actual reason for the occurrence of forking. The appearance of forking becomes possible when developers come up with an idea of launching a newer version of a specific cryptocurrency to overcome its shortcomings. Hacking which is a common and serious issue in the digital world is also one of the reasons behind the forking. Ethereum, the second-most popular cryptocurrency after Bitcoin is the example to be quoted for this. Another reason that brings the need for forking is when members of the community do not agree with each other. Bitcoin and its popular fork Bitcoin Cash are the best examples for it.
There is a possibility of cryptocurrency being affected by a hard fork. Such instances have been controversial previously and the reason for fluctuations in the price of digital currencies. To know more about why does it happens, let us begin our exploration of forking in cryptocurrency.
Forking And It’s Two Types
The occurrence of forking happens whenever there are changes or split in the digital ledger technology behind Bitcoin and other crypto coins. Whenever the developer feels the need to bring up a newer version of the original cryptocurrency, then forking takes place. What can be the best example other than Bitcoin Cash, and Litecoin? The foundation of these forked cryptocurrencies was kept to overcome the shortcomings of the Bitcoin. There are two wings of forking, one is a hard fork and another one is a soft fork.
If you are inquisitive to know what is a soft fork, then let me brief you about it. The occurrence of a soft fork becomes possible when the transactions which seem to be new are referred to be valid by the older nodes. But newer nodes will not consider mining of any blocks to be valid. For success, the soft fork must acquire the network’s power of hash at the maximum limit. Or else, it will become a minor chain and can be detached or won’t remain to be a part of the network.
A hard fork does not follow the process of backward compatibility and is known to impact the cryptocurrency price not merely based on uncertainty. As I have already mentioned the example of Bitcoin Cash in being the best forking example. It is a popular fork of Bitcoin. The impact becomes possible when a person keeps a parent digital currency but aims to acquire forked coins equivalently in numbers.
Another reason behind the hard fork impact on cryptocurrency is the whales. In the crypto world, whales are referred to as the big players who are behind the manipulating the price of the cryptocurrency. If any of the whales become aware of the possible happening of forking, then it will lead to acquiring a new cryptocurrency for all those real coins already being kept by them.
This becomes the golden chance for them to staking in parent coin. So they don’t skip any opportunity in grabbing all the tokens they search. The reason why they are being compared to giant marine mammal fish is that they know how to manipulating the parent cryptocurrency price to a higher level and devouring all that comes in their trap.
A hard fork represents the time that is not stable for cryptocurrency. The situation will also lead to division among the members of the community.
So this is all about forking and about its two types – a soft fork and a hard fork. In this blog, I explained to you about the forking concept and how its two wings work. After briefing you about the forking and its two types, I also mentioned how hard fork affects cryptocurrency adjoined with the major factor that is whales. These crypto whales are just similar to marine big fish ruling and devouring the opportunities on their way. These big players manipulate cryptocurrency prices as and when they feel like doing so. You should better sell your investment before forking or whales taking up the opportunity.