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The Overall Influence of Bitcoin Forks Explained

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Bitcoin fork

In the Cryptocurrency World, a “fork” is a modification to the software of the digital currency that results in the creation of two separate versions of the blockchain with a shared history. When any software change is proposed to a digital currency protocol, users need to show their approval for the new, upgraded version. A fork takes place when many people agree to the need for an upgrade. Bitcoin bifurcated in two when the digital currency officially forked creating bitcoin cash. Bitcoin forked again creating bitcoin gold. The current scenario is dominated by the SegWit2x fork.

The Bitcoin Gold Fork and its Effect

Recently the bitcoin economy went through the bitcoin gold fork and made some interesting market moves as a result. For instance, on Oct. 20, 2017, bitcoin’s value reached the $6,000 mark before quickly hitting $6,200. In such instances, it is quite normal to encounter a chain split, which refers to a break from the Bitcoin network.

In simpler terms, a chain split usually occurs after a fork.  Token holders can suddenly find themselves owning several split tokens which are equivalent to the number of tokens on the Bitcoin network.  The main reason for this is the fact that the new chain is an exact copy of the bitcoin blockchain, till the point the fork occurs.

The chain split for the Bitcoin network is explained in the pictorial below.

Fig 1 Bitcoin fork

Effect of Forks on User’s Wallets

For token holders who use crypto-wallets that support the forked chain’s software, the holder automatically becomes the owner of both digital tokens. In this instance, the chain results in the creation of two digital tokens: the original bitcoin (BTC) and bitcoin cash (BCH).

This results in double ownership of tokens, where existing bitcoin owners became the owners of an equivalent amount of bitcoin cash following the split. For example, if a person owned 10 BTC (bitcoin) before the split, s/he will now hold 10 units of both BTC (bitcoin) as well as BCH (bitcoin cash).

Investor Reactions after the Fork

There are many ways to handle an upcoming fork in the Bitcoin network. As an example, we will take the following scenario:

Person X owns 35,000 BTC which is valued at $5,000 per bitcoin. Hence, his total asset worth comes to $175,000,000.  To remedy the situation, X follows the news and real-time events that may affect his position in a particular market.  Suppose X has knowledge of the fork beforehand and knows that a new token (bitcoin cash) will be created. Coincidentally, X also learns that the crypto wallet that he uses will also support the supposed fork’s software. As mentioned earlier, this means X will get both the 35,000 BTC as well as the same amount in bitcoin cash tokens.

This may result in X creating a “buy” wall to drive the price up since X now is a large player in the market. Hence, whatever amount X increases will result in the increase of bitcoin cash tokens under his ownership.

In a case where X turns out to be an educated trader or investor, he may choose to increase his position in the bitcoin market. This is done so that X can amass 50,000 bitcoins before the fork occurs.  As a result, X will have 50,000 BCH in addition to the 50,000 BTC he already owned.

Effect on Value after Fork

When a fork occurs in the Bitcoin network, the value also split into the forked chain. On July 23, 2017, the value of bitcoin dropped from $2,800 to $2,700, following the fork. This resulted in the creation of bitcoin cash, which at the time of launch was valued at $555.

Opening and Closing Prices of Bitcoin (July 21st, 2017 from Coinbase)

Instances of Past Forks and Their Effect on Bitcoin Values

The bitcoin cash fork took place on August 1, 2017, and the SegWit took place on August 23, 2017.

Bitcoin Gold

Ideally, the user transactions are gathered into blocks that are turned into a complex math solution. The block miners operate high-powered computers and work out solutions to verify if the transaction is possible. Once other miners determine that the puzzle is correct, the transactions are accepted and the miners are rewarded in bitcoin. The need for high-tech machinery has necessitated the mining process to be controlled by a small group of people equipped with powerful computers. Bitcoin gold was invented to change this process. The idea is to allow more people to mine bitcoin and with less powerful machines. This would allow the process of further decentralization of the network so that it can be accessed by a wider user base. The collective minds behind bitcoin gold designed a code that creates a fork or split in the bitcoin blockchain. This split took place on Oct. 25, 2017. As a result of this fork, bitcoin gold came into existence. However, it quickly plunged 60%. Bitcoin hit a low of $5,374.60 before recovering nearly $300.

Five days prior to the bitcoin gold fork, the price of BTC reached a new all-time high; on Oct. 20, the valuation of bitcoin surpassed 6$,000 for the first time before adding another $200. There are 21 million solutions to the bitcoin encryption puzzle. Each solution represents a coin or token which affects the bitcoin price. Coinmarketcap reported that on a weekly basis BTC was up by 3.3 %, while on a monthly basis, BTC had increased by 55%. After the bitcoin gold fork, the price of BTC fell to a five-day low. Other than the creation of bitcoin gold, the drop from the record high can be blamed on overbought conditions.

Since its circulation, bitcoin gold has been getting traded at just over 161$ per coin, as per reports of Coinmarketcap data. Investors started selling-off the cryptocurrency, which indicated a lack of faith in the market about the newly-created bitcoin gold. The fork had other adverse impacts on bitcoin as well. The website for the new version of the cryptocurrency i.e. bitcoin gold, suffered a denial-of-service attack. Many cryptocurrency exchanges have not even started trading in bitcoin gold yet, signaling a lack of faith in the protocol. By comparison, the current value of the BTC/USD exchange rate is roughly $17,000.

Bitcoin Cash

Bitcoin had undergone a similar fork, which created bitcoin cash. As a result of the fork, the newly- created bitcoin cash witnessed an initial surge in price. The price hit an all-time high of $914.45. However, prices declined steadily after the surge and subsequently traded at only $330. Backers of SegWit, also known as the Bip141, opposed bitcoin cash on ideological grounds. Instead, they proposed SegWit as an upgrade for the following reasons:

  1. SegWit could effectively increase the volume of transactions that fit into each block without raising the block size parameter. This means more transactions per second can be registered on the blockchain. Thus SegWit can elevate the transactional capacity of bitcoin.
  2. SegWit removes transaction malleability, which is the result of a cryptographic trick to change a signature without changing what it stands for. If this issue is resolved a number of network improvements could take place.
  3. SegWit has the potential to decrease the data need for bitcoin nodes.

The SegWit2x hard fork and its effect on Bitcoin value

On Nov. 8, 2017, bitcoin recovered recovered north of $7,400 after briefly falling below $7,000. This dip was caused by the market’s sustained support for the original version of the cryptocurrency over the SegWit2x. Several analysts have stated recently that this subsequent surge in the price of Bitcoin should be credited to the allocation of funds from investors hoping to obtain B2X from the SegWit2x hard fork. However, it might be an exaggeration to claim that the recent upsurge in the price of bitcoin is prompted by the SegWit2x movement. That is because the majority of investors do not have the technical expertise to understand the implications of SegWit2x.

After dipping below $6,000 earlier in November, the price of bitcoin skyrocketed recently to a level as high as 8040 dollars on one of the largest exchanges in the world called Bitfinex. Bitcoins prices have made their gains since falling to a level of 7829 dollars on Bitfinex. This price was slightly lower than the globally weighted average high price.

As most readers are no doubt aware, bitcoin’s value has skyrocketed over the past month. This recent surge has triggered primarily by expectations of rising institutional interest in bitcoin. Established investors are increasingly foraying into the territory of cryptocurrency. The rise in the price of bitcoin has also been credited to the anticipation regarding the SegWit2X fork.

Featured image courtesy of Shutterstock. 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 9 rated postsHira Saeed is a tech geek girl with a passion to write on latest technology trends. She is the Founder of Tech Geeks community in Pakistan and also runs her copywriting and social media agency, Digital Doers. Follow her on @heerasaeed.




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Analysis

Crypto Update: Coins Drift Sideways as Trading Activity Plunges

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Liquidity dried up in the cryptocurrency segment in recent days, as trading volumes have been declining progressively, while the major coins got stuck in tight ranges. Only a few coins show signs of activity, and the bearish short-term patterns continue to dominate the market. With a group of currencies, namely Litecoin, Monero, Dash, and Bitcoin itself clearly dragging the segment down, the short-term trend will likely continue, as the previous leaders are now showing strength either.

While all of the top digital currencies are showing some gains today, and the total value of the market edged close to $290 billion, major resistance levels are still towering above. The fact that the effect of the Bithumb hack faded away quickly is a positive here, but until signs of bullish momentum and a clear leadership forming, the short-term outlook remains bearish.

BTC/USD, 4-Hour Chart Analysis

Bitcoin continues to trade near the $6750 level, edging ever closer to the declining short-term trendline, in a bearish consolidation pattern. Bulls would need a sustained move above $7000 to negate the declining trend, but for now at least a test of last week’s lows is likely with a possible move towards the key long-term zone between $5850 and $6000.  The short-term zone around $6350 level provides support, while further resistance is ahead near $7350.

Ethereum Nears Trendline as ETC Attempts Breakout

ETH/USD, 4-Hour Chart Analysis

Ethereum has been among the strongest coins in the last few days again, and coupled with its long-term relative strength, the second largest coin is still the best candidate to lead a recovery. That said, the coin still faces strong resistance between $555 and $575, and bullish momentum is suspiciously weak. Primary support is found at $500 with further zones near $450 and $400.

ETC/USD, 4-Hour Chart Analysis

Ethereum Classic has been positively diverging compared to the rest of the market, together with Binance Coin, and to a lesser extent Tron ever since its inclusion to Coinbase, and the coin moved above the key $16 resistance yesterday in late trading.

While ETC is slightly overbought from a short-term perspective, a consolidation above $16 and a subsequent move higher could confirm a trend change. For now, the short-term trend signal is only neutral, and traders should remain cautious given the broad downtrend in the segment

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 279 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

Calm Prevails in Crypto World as Bitcoin Runs Up Against Resistance

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Cryptocurrencies resumed their rangebound trading Thursday, as bitcoin’s relief rally showed signs of stalling while Ethereum and the major altcoins were held to break-even.

Market Update

The combined value of all coins and tokens in circulation is $287 billion, virtually unchanged from the overnight hours.

Bitcoin touched a session high of $6,790.25 but was unable to extend its rally past $6,800. The bulls have been rejected at this level on at least three occasions since Tuesday, a sign the relief rally was losing steam.

The largest cryptocurrency by market cap bottomed around $6,133 on June 13. At the time, the short-term technical indicators supported a further breakdown in price, with $5,900 seen as the next likely target.

Ethereum prices were up a mere 1% Thursday to $534. ETH/USD values reached an earlier high of $542.74, which was not unlike the high from Tuesday.

The major altcoins ranked between nos. 3 and 10 by market cap were virtually unchanged compared with 24 hours ago.

Digital currency prices have shown remarkable progress in terms of stability, as total market values fluctuated within a $4 billion range through the overnight session. Twenty-four hour trade volumes have held just above $12 billion, according to CoinMarketCap.

Bithumb fell to the no. 9 spot based on total volume after the exchange shut down deposits and withdrawals in the wake of a $31 million cyber heist. The exchange has processed $181 million worth of cryptocurrency trades since early Wednesday, which is roughly half of the previous day’s turnover.

In Search of Direction

While cryptocurrencies have exhibited rare price stability over the past nine days, it is too premature to conclude that the bears have relinquished control of the market. The total market is down a whopping 38% from the April swing high and volumes have declined by more than half over that period.

With the exception of the recent attacks on South Korean exchanges, the latest crypto headlines have been mostly positive. If they can be summed up in one theme, it would likely be the growing institutional interest in cryptocurrency.

The San Francisco-based Coinbase exchange has been leading in that capacity by announcing the arrival of crypto custodial services. Goldman Sachs-backed Circle and BitGo are also in negotiation with regulators about launching similar services. Meanwhile, Wall Street custodians JPMorgan Chase & Co and Bank of New York Mellon Corp are reportedly working on custody services that could facilitate digital currency transactions.

While promising, these developments alone won’t be enough to generate the next crypto bull market. For institutional capital to be the driving force of the next major market uptrend, actual custodial services and not merely the promise of them must be deployed.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 462 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Bitcoin

Cryptocurrencies Poised for a Comeback Despite Bithumb Hack, Says Charlie Lee

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The latest hack of a South Korean cryptocurrency exchange does not change the market fundamentals for bitcoin or other digital currencies, Charlie Lee told CNBC in an interview on Wednesday. What’s more, the Litecoin founder believes cryptos are poised for a comeback – the only question is when.

Charlie Lee Weighs In

Cryptocurrency prices declined by as much as $8 billion Wednesday on news that South Korea’s Bithumb exchange was attacked. As Lee pointed out to CNBC, investors’ initial reaction was typical given the sentiment-driven nature of the market. The hack of Bithumb or any other digital currency exchange does not affect bitcoin’s underlying value.

“If the exchange does not protect the coins well enough and gets hacked, it doesn’t really change the fundamentals of the coin they are protecting,” he said.

With respect to security, exchanges still have “a lot to improve,” Lee said before adding that strides were being taken to prevent further attacks from taking places. In the case of Bithumb, the company reportedly spent 10 billion won on new security measures recently and beefed up its IT staff far beyond the threshold required for financial institutions.

The latest Bithumb heist resulted in the loss of nearly $31 million of cryptocurrency. The exchange halted deposits and withdrawals and shifted existing balances into cold storage as it investigated the matter. The attack caught the attention of South Korea’s financial regulators, who announced plans to expedite stricter regulations governing digital currency exchanges.

Typical Bear Market

Despite bitcoin’s massive correction over the past six months, it is still doing “really well,” Lee said, reminding investors that bear markets in cryptocurrency are nothing new. However, the difficulty with bitcoin is determining how long the bearish reversal will last.

“This one could be a three to four year market or it could recover tomorrow,” he said.

Analysts have offered a multitude of explanations for bitcoin’s half-year price collapse. Some are convinced that it was caused by the introduction of futures contracts, which allow traders to more easily short the market when this option was virtually impossible before. Others have pinned the blame on bitcoin whales, whom they say have been gradually winding down their positions since the futures contracts launched in December.

Speculation that Tether (USDT) has been artificially inflating bitcoin’s value through Bitfinex has also been posited as a potential cause for the six-month price collapse. The company’s recent audit, which has been labeled “phony” by many in the blockchain community, has only fueled accusations of impropriety. However, as Hacked’s James Waggonner pointed out, Bitfinex would have had to spend millions just to inflate bitcoin’s value by four basis points.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 462 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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