Hard Forks and Their Impact on the Cryptocurrency Industry

Hard Forks and Their Impact on the Cryptocurrency Industry

In general, two terms may be regarded as synonymous, the first being Cryptocurrency and the second being Hard Fork. Generally speaking, the former refers to any digital asset that can be used as money. The latter suggests a change in the existing virtual supply of money, which may include such things as a change in the value of the Euro against the US dollar, or of the Chinese Yuan against the US Dollar. But why would anyone want to change the existing supply of money?

There are two primary motivations for changing the supply of money in Cryptocurrency. One is to correct a perceived lack of safety in the virtual transaction history of Cryptocurrency. The other is to provide an increased degree of security to the underlying asset, and thus increase the value of that asset. In both cases, changing the supply of Cryptocurrency can have an effect on the cost of that particular virtual currency – and therefore on the income of the investor. A hard fork in the transaction history of Cryptocurrency could have the same effect.

Some would argue that if a company implements a hard fork that effectively changes the amount of money in circulation, then that change should be reflected in the cost of the product. It would seem that a company could choose to either implement a hard fork that has the same effect as a change in the supply of Cryptocurrency, or it could choose to implement parallel but opposite hard forks. If the company implements one fork and the community observes that fork, the community may decide to implement a second fork. If they observe a second fork, and the company implements that fork, the community may decide not to implement that fork and to move towards a new supply of Cryptocurrency.

It is not always necessary to wait for a hard fork to occur. A problem with a particular implementation of Cryptocurrency could be discovered and corrected prior to its use by the general community. Or, and here is an interesting scenario; a business may decide that it needs a specific type of algorithm for computing the future values of the leading Cryptocurrency pairs. Without going through a hard fork, it could take years for that technology to be released and in use by the general community. Then, suddenly, someone discovers an algorithm which provides the exact solution to this problem, thus “pioneering” the algorithm and giving the business the ability to provide that type of solution.

While I am all for hard forks whenever possible, we must recognize when a fork makes sense. The most important thing to remember is that we must always be cognizant of the potential long-term consequences of our actions. In the case of Cryptocurrency, the consequences could prove to be quite significant. So, we must evaluate the strength of any proposed hard fork. And we must closely examine potential disadvantages that could result from the hard forks.

As we look at the Cryptocurrency industry, we must keep in mind that change is a natural part of the process. Hard forks are sometimes necessary to maintain industry functionality in a niche market. However, we must also realize that the long term outcome of such changes may have a negative impact on the overall integrity of the economy. Therefore, we must never forget that the current discussion is all about the future of the economy, and the long term health of the economy will directly impact the future success or failure of Cryptocurrency businesses everywhere.