How to Evaluate Imminent Hard Forks
Hard forks in cryptocurrency have become more and more common and usually arouse excitement as crypto investors hope to gain free coin. But how should we understand and evaluate such a split in a cryptocurrency network?
In the wake of an expected hard fork of privacy coin Monero, Cryptonews.com spoke to industry experts to find out the most important things to look for when evaluating such a split.
For those unfamiliar with this situation, a split, or hard fork may occur due to a deliberate change in a network’s consensus rules, as an independent team of developers seeks to develop the forked cryptocurrency in their own way. Once all procedures are completed, the two chains emerge independently. For example, Bitcoin Cash cryptocurrency was born after a hard fork from the Bitcoin Core network in August 2017.
What is the team behind the Monero hard fork trying to achieve? This fork on April 30 is backed by promises to deal with a scalability issue. In addition, Monero V, the forked coin, will be in limited supply. The team behind the fork has also promised to release a simple Monero V full node GUI (graphical user interface) wallet and a web wallet.
So, are hard forks really necessary?
Galia Benartzi, co-founder and head of business development at Bancor, a Swiss-based non-profit focused on solving the liquidity challenge in asset exchange, has seen a number of hard forks and explains that those are one of the many features of blockchain, allowing communities to vote with their feet.
“You can propose any governance structure you want, but membership in any decentralized ecosystem is voluntary, and the cost of switching is low. We’re entering a technological era in which value is created not by locking users in, but by setting users free,” Benartzi said.
According to her, these forks are an example of users taking a codebase they believe to be valuable and optimizing it to their specifications.
Understanding the hard forks in the pipeline
Noam Copel, CEO of the DAV Foundation, a blockchain-based transportation platform, explains that there are some heuristics he uses to analyze pending hard forks.
“I always ask myself: 1) Does the fork solve a real problem? 2) Is the team behind the fork credible and competent? 3) Is there a healthy community and open discussion surrounding the fork? If the answer to any of these three questions is a "no", it raises a red flag for me. I also realize that the pressures created by hype and "fear of missing out" could drive a given coin's price up despite the lack of solid fundamentals,” Copel explained.
Sergey Shenderov, co-founder and CEO of Mom.life, an app with a focus on new technology and human behavior, added that the fundamental success of any hard fork is mainly defined by the prospects of the lead developer team and the new currency value – growth in both is evidence of community and market support.
Shenderov says: “Arguably, everything else – including transactional activity and miners getting on board – are consequences driven by demonstrated product quality and ensuing market forces. Bitcoin forks also offer the prospect of solving the base chain's specific technical "shortcomings" at the expense of greater centralization, as any fork is led by specific individual teams.”
Also, when a hard fork happens, cryptocurrency owners might expect to receive some free newly created coins. However, Graeme Moore, vice president for marketing and communications at Polymath, a developer of the securities token platform, warns that users should be extra careful when attempting to claim forked coins and always ensure that there is replay protection and no malicious code. Replay protection makes sure that transactions on one chain are invalid on the other chain.
Moore says: “The cost of creating a hard fork is essentially zero, so we will continue to see more and more hard forks that attempt to create a user base via forking coins to an already established community.”