Should I Claim These Forking Coins?
One question we often get at Exodus is, “How do I claim X forked coins?”. While we do have an easy way to claim Bitcoin Cash and Bitcoin Gold, two early forks from Bitcoin, there are no plans to provide in-wallet claiming functions for any future forks, such as Bitcoin Private. This is a decision Exodus made due to the nature of these other forked coins as well as the fact that we are just unable to accommodate all of them.
Of course, you can still claim your coins through other methods but this process comes with risks and concerns.
Why fork at all?
Creating a hard fork is one way to change the software protocols (or rules) of a blockchain. For example, Bitcoin Cash increased the blocksize from 1 MB to 8 MB which allows for more transactions to be processed and more quickly. This tries to solve the scaling issues that plague Bitcoin, leaving users only to wait minutes or hours instead of days or weeks. While forks such as Bitcoin Cash and Bitcoin Gold are not without faults, they have a notable amount of community and miner support, unlike coins that have come after them.
Issues with Forks
1) They are prone to scams and difficulties
Due to the hype and the possibility of ‘creating’ wealth, there are many scams that happen around forks. Bitcoin Gold, for example, which was a legitimate fork of Bitcoin, was the target of a fraudulent wallet that took more than $3 million from users who disclosed their private keys. While these scams are not unique to forked coins, they tend to be more successful here as there is often a lot of hype and little reliable information.
Furthermore, creating a forked coin means that developers can spend little to no time marketing their coin as they piggyback off of the market knowledge of larger coins such as Bitcoin by including it in their title. Ill-intentioned developers who control the new protocol could give themselves a large amount of their own coins to sell when they open on exchanges and further benefit from this easy marketing, allowing them to manipulate prices and give themselves an unfair advantage.
The forks themselves can also be scams, a major problem also found in many recent ICOs. For example, Bitcoin Platinum was a Bitcoin fork scam created by a teenager in South Korea. The creator of Litecoin, Charlie Lee has even gone so far as to say that “any fork of Litecoin, calling itself Litecoin something or other, is a scam IMO [in my opinion]”.
Claiming coins, even legitimate ones, could also result in losing the original coins due to ‘replay attacks’. This happens when someone copies the transaction data from the forked coin onto the original coin network or vice-versa, leaving even careful users without their assets and with significant losses.
2) It’s not really ‘free money’
Forks generally give one forked coin for each original coin held at that time with no cost to the owner. While technically ‘free coins’, they don’t necessarily result in ‘free money’.
In the run-up to a fork, the price of the original coin often goes up rapidly as more people buy it with the intent of selling off the forked coin for a profit. This generally results in both coins being overvalued, which results in losses for all but early investors once the price corrects.
Not only are the coins usually overvalued by the hype, but also by greed. Many forks have failed to offer any effective changes at all and often look incredibly similar to each other or even the original coin. Forks which bring no practical value to the crypto ecosystem that reach astronomical highs when first released before correcting to a much lower price do so because of exploitation of buyers without any understanding of the inherent value of the coin through hype. These extreme over-valuations create an unhealthy market and encourage further exploitation of this system.
3) They affect the original coin
For those who care about the growth and development of digital assets and their original purpose, forks cause problems at a fundamental level. This is because forks change the rules and history of the original coin, for better or for worse, requiring a discussion at the community level as to which to choose. These discussions can often become political between old users and new, investors and cryptogeeks, and so on.
For Ethereum, this came to a head after the DAO hack resulted in a loss of $50 million. Some wanted to reverse the hack by making it invalid and did so by creating a hard fork which effectively erased the transaction and continued under the name ‘Ethereum’. Others argued that “code is law” and that the immutability of the blockchain needed to be kept as it is fundamental to the crypto system, continuing on the old chain but now under the name ‘Ethereum Classic’.
The ‘civil war’ between Bitcoin and Bitcoin Cash is the most recent example of these fundamental discussions. Some argue Bitcoin is the best choice to help global adoption of cryptocurrencies as it is older and more popular. Others argue that Bitcoin Cash should take the lead as they believe it is more effective as a payment system. This moved from a philosophical use argument to a practical one as miners moved from Bitcoin to Bitcoin Cash network in November 2017, taking transaction times from under thirty minutes to even as high as twelve hours.
While these arguments are not immediately important for everyday trading, forks created for the sole reason of creating a fork may cause significant issues that should not be ignored or tolerated.
So Should I Claim My Forked Coins?
As it currently stands, there is little regulation in the space though there are a lot of promises, hype, and superficial white papers. Even for those with a technical background it can be difficult to fully understand what is happening, leaving many vulnerable.
A few things to look at when deciding whether to claim a forked coin:
- Thoroughly research the coin. What is it trying to do? How is it trying to do that? Are there any known scams surrounding it? Do I want to support this?
- Find out about the developers. Is there any information on them? Have they been part of any successful projects? Do they reasonably have the knowledge to complete this project?
- Look at the roadmap and any publications. Is their code in Github? Is there replay protection? What are their long-term plans? Does this coin bring something beneficial to the community or is it just a profit exercise?
It is always best to do your own research, weighing the risks and benefits, and stay safe by protecting your computer and your private keys.
Comment below!
What do you think about forked coins? Is there a coin that you prefer over the original coin? Do you have a personal checklist you follow before claiming a forked coin?
Please reserve the Medium comments section for lively and honest discussion about the article! If you have technical issues with Exodus, our Community Support team will be happy to speedily assist you if you send a descriptive email to: support@exodus.io
