For investors who missed earlier hard forks in bitcoin, there might be plenty more opportunities in 2018. A Bloomberg report states that the cryptocurrency’s blockchain is set to undergo 50 or more forks this year based on estimates by Lex Sokolin, director of research at Autonomous Research. (See also: Bitcoin's Biggest Unresolved Tax Question: Hard Forks.)
Forks achieve two objectives for bitcoin. First, they increase money supply without breaking bitcoin’s original cap of 21 million coins, which is necessary to maintain its attractiveness as a store of value.
Second, they bring new investors to the cryptocurrency ecosystem through the introduction of cheap coins that offer differing value propositions. For example, an August 2017 fork resulted in the introduction of Bitcoin Cash, a coin that has variable block size length of up to 8 MB and has positioned itself as an alternative to bitcoin as a currency for daily transactions.
Since its introduction last year, Bitcoin Cash’s price has climbed rapidly and reached a high of $3,654 on December 21, 2017. As of this writing, it is the fourth-most valuable cryptocurrency in the markets. (See also: Bitcoin Vs. Bitcoin Cash.) According to Ari Paul, CEO of BlockTower Capital, 10% of all value of bitcoin resides in its forks.
Forks Used as Funding Mechanisms
There is also a third objective that forks serve for developers. Increasingly, they are being used as a funding mechanism by programmers to finance their cryptocurrency vision. The Bloomberg article cites the case of Bitcoin Gold, which was introduced in November 2017, and has established an endowment foundation with the invested money available to it after being listed on exchanges.
Some developers are also in it for the money. This is because a new coin generally attracts the attention of speculators who inflate its price and dump it after booking profits.
Forks are generally crafted by developers dissatisfied with functionalities offered by existing blockchains. As such, they required an extensive understanding of bitcoin and technical chops. But that might change in the future. Forkgen, an automated bitcoin fork generator, might make it easier for others to develop their own cryptocurrencies.
But the deluge of forks will not necessarily translate into quality investment opportunities. Much like the cryptocurrency ecosystem which has its share of joke coins such as Dogecoin, the new forks are an eclectic bunch. Cryptocurrencyfacts.com lists 25 forks, among which are Bitcoin Pizza and Bitcoin God.
According to Rhett Creighton, a developer with Bitcoin Private - a fork off the Zclassic coin, bitcoin forks will replace some of the top 100 altcoins in the future. That statement is not such a stretch when you consider that several top cryptocurrencies today, such as Litecoin, started off using some form of bitcoin’s original code.
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