Hard Fork?? Soft Fork?? How Do They Impact The PRICE?!!

6 Ara 2020

If you're a fan of cryptocurrencies, you may heard the news about CARDANO (ADA) is going to have a HARD FORK in following days..
Let's check it out together what is a HARD FORK (or a SOFT FORK), and how is it going to impact the price???

What is a FORK???
As you probably know, the information recorded on the Block-chain cannot be modified. When a Block-chain is operating, as long as it has user's acceptance, no one can stop it. There are certain rules for each cryptocurrency for each one. It is called a protocol set by programmers and a Block-chain will be working forever based on the protocol.
Bitcoin (BTCUSDT) has such rules for example:
Time per block is 10 minutes, each block has a capacity of 1 Megabyte and etc...

The question is, what happens if someone is against the rules of Bitcoin or any other Cryptocurrencies??
What if something bad happens to the Cryptocurrency's network??

The solution is simple!!! Updating or creating a new Block-chain called a FORK.
When a group of programmers are dissatisfied with the terms and conditions of a Cryptocurrency or if the network is facing problems that need to be resolved, there is a solution called FORK for these people.
The term FORK is came from programming projects. In fact, by copying the source code of a project and making changes to it, new programs emerge from the heart of the previous program. Therefore, FORK are used in Cryptocurrencies with the same meaning and with some of their own complexities.

What causes FORKS to happen??
The main scenarios that cause forks to occur are as follows:

Resolve the technical disputes:
Bitcoin Cash (BCHUSDT) is one of the Bitcoin FORKs that was made due to widespread disagreement about the scalability of Bitcoin. Dissatisfied with the speed and fees of transactions, a group of large Bitcoin developers and miners introduced extensive blockchain rules, a blockchain, and a new version of the protocol.

To return the lost funds:
In 2016, there was only one Ethereum (ETHUSDT), but after the DAO hack and the loss of millions of dollars in user's capital, the Ethereum community was forced to provide a FORK in order to gain public trust. Ethereum (ETHUSDT) was FORKED, most of the community moved to the new network. The name of the previous Ethereum was changed to the Ethereum Classic (ETCUSDT) and the new Ethereum is now being traded in the market.

To add new features and capabilities:
A Block-chain network needs technical updates over time to protect the network from the dangers ahead.

Types of FORKS:
What is a SOFT FORK?
SOFT FORK is a software update that is backwards compatible with older versions.
This means that participants who have not updated their software can also participate in the validation and verification of transactions. SOFT FORK is relatively easy to implement because you only need to update the majority of your software participants. All participants, whether they have updated their software or not, can identify new blocks and their activities are network compatible. The point to consider is that the performance of a participant who has not updated their software is affected.
An example for SOFT FORK is that the block size has changed from 1 MB to 800 KB. Nodes from the network that have not updated their software can see new transactions in SOFT FORK. The problem arises when a miner who has not updated his software wants to register a new block and his block is rejected by the network. Therefore, SOFT FOTK shows a step by step upgrade mechanism, that people who have not updated their software, with limited capabilities, find enough motivation to do so.
Real examples for SOFT FORK:
BIP66: A SOFT FORK for validating the Bitcoin (BTCUSDT) network signature.
P2Sh: A SOFT FORK to add the ability to use multiple signatures for bitcoin (BTCUSDT) networks.

What is a HARD FORK?
HARD FORK is related to software changes that are not backwards compatible with older versions. In this FORK, all participants must update their software to be able to participate in the verification of transactions and their validation. Nodes that have not upgraded are disconnected from the network and cannot approve new transactions. This FORK causes permanent blockchain splitting, and as long as users are in the old chain, the two blockchains will exist separately and simultaneously.
Bitcoin Cash (BCHUSDT) and Ethereum Classic (ETCUSDT) are the most popular examples of a HARD FORK. Of course, HARD FORK does not always create a new digital currency, but the whole community agrees on it.

Types of FORKS:
Planned Hard Forks:
Planned HARD FORK is a protocol update that is initially considered in the project roadmap. Because this update is in line with the capabilities and features of Block-chain, all participants, led by major developers, go to the new chain and update their software as these changes take place at the basic coding level of the network. In this fork, the previous chain is broken and there is no reason to support it. There will be no new coin in this fork.
Monero (BINANCE:XMRUSDT: In January 2017, a HARD FORK on Ethereum (ETHUSDT) Network took place to add a new feature called RCT to improve network privacy and security.

Contentious Hard Forks:
The contentious HARD FORK occurs due to disagreements between members of the network and causes some participants to create a new chain that they think is better with major code changes.
Contentious HARD FORK Examples:
Bitcoin Cash (BCHUSDT): HARD FORK created by a group that wanted to increase the scalability of Bitcoin (BTCUSDT) by increasing the block size from 1 MB to 8 MB. This allowed the network to process more transactions, reduced network fees, and etc... . This HARD FORK led to the birth of a new currency called Bitcoin Cash.

Spin-off Coins:
Because the Bitcoin protocol is open source, anyone can access its base code, modify it, and create a new currency with different features. Litecoin (LTCUSDT), for example, was a FORK of bitcoin that came with the following changes:
Time to create a block: The time to create a block in Litecoin (LTCUSDT) is 2.5 minutes. It's about 10 minutes for Bitcoin.
Algorithm: Litecoin (LTCUSDT) uses the "Scrypt" algorithm instead of "SHA256".
Max Supply: This number is 84 million for Litecoin, while it's 21 million for the Bitcoin blockchain.
Below are some of the Spin-off Coins from the Bitcoin blockchain:
Namecoin - Peercoin - Dogecoin - Auroracoin

What is the impact of FORKS on the PRICE of cryptocurrencies?
Anyone can offer a new FORK by changing the Bitcoin source, but our focus is on the important FORKS supported by a large number of cryptocurrency giants. Like Bitcoin Cash (BCHUSDT) and maybe Bitcoin Gold (BTCUSDT). Big FORKS can change the fate of a cryptocurrency forever. Destroy it or consolidate its power for coming years.
Suppose "person A" has 35,000 bitcoins. Assuming each bitcoin is priced at 5,000$ (funny!!! huh?), his assets would be worth 175,000,000$. This person follows the news and events related to cryptocurrency because of the impact they have on his/her position in the market. Person A knows what a FORK is and a new currency like Bitcoin Cash (BCHUSDT) will be created. Since this person has a wallet that supports Bitcoin Cash FORK, he/she earns 35,000 Bitcoin Cash tokens for his/her assets of 35,000 Bitcoins. This motivates him/her to buy more Bitcoins before the FORK, because with this FORK he will have a bigger share in this market. In addition, the more Bitcoins he/she has, the more Bitcoins he/she will receive. If person A is an well informed investor or trader, he/she decides to increase his position in the Bitcoin market and, for example, increase his assets to 50,000 Bitcoins before the fork occurs. As a result, he/she will earn 50,000 Bitcoin Cash.
Prices usually rise before a FORK, but when a FORK occurs in a cryptocurrency network, it's value also spreads in the FROKED chain. For example, on July 23, 2017, the price of Bitcoin dropped from 2,800$ to 2,700$ due to the Bitcoin Cash FORK.

---Conclusion---
Although HARD FORKS are an inevitable part of cryptocurrency, some of them have been real scams. But we must respect the rights of the community to develop such projects when we are in a decentralized and open source environment.
If one understands the principles of HARD FORKS, he/she realizes that society is responsible for its own evaluation. Perhaps Satoshi Nakamoto had this idea when he was making bitcoin and that is why he disappeared.
There is a lot of misinformation and misconceptions about HARD FORKS, their nature, and their implementation and acceptance by investors. But keep in mind that some of these projects are legitimate and sometimes improve the network.
Despite all the criticism to the HARD FORKS, they are good for the crypto community. These FORKS are voices of all members of this community and their criticisms and suggestions that should be heard. Investors and miners can oppose coin's development team. But always keep in mind that we all came here from the original idea of Satoshi Nakamoto and his Bitcoin. Satoshi Nakamoto himself owes many of his ideas, including the Proof Of WORK (POW), to earlier thinkers.

I hope you enjoyed this educational idea about HARD FORK and SOFT FORKS. Feel free to ask me any question you like about the subject. Don't remember to follow my profile, so you can catch up with the upcoming ideas..