Blockchain fork - what is it and how does it affect the price of Bitcoin?

There are two trader camps on the cryptocurrency market. In one you are very meticulous and very familiar with the topic, while in the other total laymen, focused on quick or spectacular profit. Of course, the latter group seems to be more numerous.

Most retail investors usually do not delve into their concepts, treating them as a financial instrument of a very speculative nature. It is true that times in which Bitcoin blessed triumphs are long behind us. He still has a large crowd of supporters who acquire him directly through Cryptocurrency exchanges or money exchange, whether indirectly through contracts for exchange rate difference (CFD), hoping for dynamic growth "as in the old days." Are there any chances for this? Today we want to introduce you to the subject and the concept of blockchain fork.

What is blockchain fork?

Blockchain fork in direct translation is a kind of division appearing in the blockchain network. Its software looks interesting. Speaking in a transparent language, it is based on open source solutions, which means that the code is publicly available. In theory, anyone can improve it and modify it in any way. Such operations help in updating the network, but they have a disadvantage for people involved in Bitcoin mining. The main division appears when two "miners" use different software. Then there is a discrepancy and they must decide which version to use. At this point, BTC prices may be volatile on the market.

How does fork work?

Without going too much into concepts closely related to the IT industry. Nevertheless, forks work through changes in the software protocol. Why are such changes made? Often, fork is used when creating new tokens. Instead of creating the token code practically from scratch, you can paste the existing one and modify it in any way. That's how it came about Litecoin, which can now be called the Bitcoin thumbnail. There is another alternative way to "produce" the token. It involves forking the blockchain chain. Two versions of the chain emerge from such a procedure, which arise as a result of network division. The best example of this surgery is Bitcoin Cash.

Hard fork and soft fork

Both of the above-described modifications require some updates from the network users, and thus acceptance, to be able to carry it out. The chain fork (example from Bitcoin Cash) is the hard fork representative. Why? First of all, it is a very intrusive change in the software, which obliges users to update their software, therefore accepting the introduced changes. The previous version of the protocol will no longer be valid and cannot be returned. If users do not agree to such modifications, we will have two blockchain chains on the same software.

Softs, on the other hand, differ in terms of updates. Users who have not made it will still consider (their software) the new blocks as correct. The upgraded system will not recognize blocks that have not been updated.

How does fork affect the BTC price?

First of all, it is worth keeping in mind the general dependency, which says that all upgrades and updates related to software temporarily destabilize Bitcoin. If we look at the regulatory records of brokers on forks, we will notice that they often reserve the right to suspend trading when operating a hard fork on the market. This entry should shed some light on the issue of instability, which we wrote about above. The forks and upgrades they cause are usually carried out on such a scale that may suggest problems and difficulties in the context of the cryptocurrency market price. Blockchain branches carry a lot of risk. We should remember that they usually lead to the creation of a new currency, which may not have any market value until it becomes marketable on a massive scale.