One of the more confusing topics to anyone entering into the cryptospace for the first time is the concept of a "hard fork" or a divergence in the current underling code of a cryptocurrency. When you talk about something that is open source (free for all to modify and use) and decentralized you realize no one person has full control so what's to stop someone from changing Bitcoin how they want it? Nothing. That's kinda the whole point. Upgrades and improvements must be made to software in order for it to advance and compete over time. The same goes for cryptocurrency, and sometimes it is friendly and everyone involved agrees and sometimes it's under not so friendly terms...
United We Activate, Divided We Fork
So we know that a "hard fork" is just a change to the open source code of a cryptocurrency like Bitcoin, but what happens when everyone doesn't agree? Well, you get situations like what we had in mid 2017 with the Bitcoin Cash hard fork. Disagreements between different factions of miners and pools on how to upgrade, or to upgrade at all, led to a new currency called Bitcoin Cash where anyone holding Bitcoin at the time in a supported location also got the same amount of Bitcoin Cash (yes, basically free cryptocurrency just for holding Bitcoin).
Looking ahead, Bitcoin may be due for another one. Come October 25th we may see another hard fork of the Bitcoin code to create Bitcoin Gold (BTG). This new faction basically wants to change the way Bitcoin can be mined, from a predominantly ASIC format over to GPU's instead, in an attempt to keep the control with the masses and not a few massive mining operations. This latest hard fork is a bit mysterious and the information about it is scarce and confusing (here is their website). Will you get free Bitcoin gold if you are holding Bitcoin in a supported location? If they pull it off, yes... but this is a great example of what happens when people stop agreeing on a mutual direction for a project.
What happens when the community all support a change to the code of a cryptocurrency? You get a hard fork that doesn't result in a new currency!
From The Shores Byzantium To Skyscrapers Of Metropolis
That actually bears some repeating; Not all hard forks will result in a new currency like Bitcoin Gold or Bitcoin Cash. Changes to code like this are very necessary and all software works like this, that's why we have to keep paying for upgrades for EVERYTHING! A great example of an upgrade that everyone seems to agree on is the upcoming Ethereum upgrade (well part 1 of 2) called Byzantium. This is scheduled for a node wide release (all the people running Ethereum software switch to the new Byzantium version at the same time) on October 16th. This fork of Ethereum is the first part of the Metropolis upgrade which will support a host of new features and security to take ETH to the next level.
Upgrade, Good; Greedy Man, Bad
While there is an absolute need to be able to upgrade software for better versions, many see it as a cash grab situation and try to take advantage. This is also how a lot of consumers see it too. As the Byzantium hard fork shows us, if everyone can agree then things can go smoothly. A hard fork can be a great thing if it is done right and with entire support of the community. For cryptocurrency to survive in this hostile fiat world it needs to be dynamic and down right fork-able! The fact is that there are a wealth of coins out there that all want your money. Some are legit projects and some are just out right scams. If anything, cryptocurrency certain keeps you on your toes!
How To Handle A Hard Fork
In the case of some of the aggressive hard forks where a new currency is created, I would still suggest that you hold your coins in a location that will support the new fork. Juuuuussst in case! I laugh as I type that. While yes, it does go against what I feel is an integral part of cryptocurrency, free crypto is free crypto my friends. I won't support it any further then trying to trade it for more Bitcoin, but I certainly won't turn it down something I have no control in stopping either.
If that is your plan too, just make sure that you have your Bitcoin in a wallet or exchange that will support the new coin at least a week before the split. If you try to move it too close to the fork or leave your Bitcoin in a bad location you may end up sorry like I was with Bitcoin Cash (read my previous article about that mishap here!)
Hard forks don't have to be bad and they don't have to create a new cryptocurrency or "free money". A hard fork of open source code is just part of cryptocurrency and something we need to learn to deal with gracefully. While Bitcoin Gold splits off, Ethereum users will all agree on the direction in contrast. A hard fork may seem legit, but it could still just be another cash grab. This is where you MUST do your own research before investing in anything folk, I can't stress that enough. Crypto moves pretty fast, if you don't stop to research a bit you might miss Gold!