Episode 15: Fork Yourself
What happens when a chain splits?
Forks, or chain splits, are some of the most dramatic events in cryptocurrency. In this episode we untangle how we think about them. Are they like stock splits? Dividends? Or is it more like owning a cow that gives birth to a surprise and potentially unwanted baby? From great schisms to evolutionary theory, we’re covering everything you need to know about what to expect when your protocol is expecting.
What’s in a fork?
When you fork a software project, you create a new branch of it. You take a copy of the source code and start independent development on it. Often this results in not just a new development branch, but also a new development community. A schism, if you will.
One of the beautiful things about open source software is that it can be forked without permission. This happens all the time. It’s not just a cryptocurrency thing.
BUT in the world of cryptocurrency, forks tend to be particularly dramatic. Why? Two reasons: first, with cryptocurrency money is quite literally at stake. And second, as with religion, there’s a lot ideologically at stake.
They raise questions of vision. What is the true purpose of this software? Is it digital gold or digital cash? Is it more important to maintain integrity and reliability or is it better to be innovative?
They also raise questions of governance. Who gets to decide whether a fork is the right move? Well, it turns out every individual holder, trader, and node can decide that for themselves. But this isn’t free of complication: which fork gets to keep the original branding? Which developers will follow which fork?
Forks tend to raise 3 major issues that we outline:
- Illiquidity: Hard forks tend to fragment markets. All those tokens, coins, and cryptocurrencies created by way of forks are fighting for speculators, users, and above all liquidity.
- Inefficiency: Whether they just serve to highlight it or whether they help exacerbate it, cryptocurrency market inefficiency is rarely as visible as it is when it comes to newly created assets by way of hard forks. Just take the bitcoin cash hard fork for example, in which $6 billion in market cap materialized from one moment to the next out of a wholly predicted event.
- Confusion: I’ll never forget my mom turning to me and asking me “What is this bitcoin cash thing that’s appeared in my wallet?” For those who don’t spend their days following the nuances of crypto markets, forks create confusion, particularly when there are scuffles over names, logos, and URLs.
Ultimately, forks serve to demonstrate the importance of governance in cryptocurrency protocols. As Arthur Breitman, creator of the Tezos protocol, has put it: “forks are like revolutions.” They are disruptive, they can cause chaos, but they might just have their place for creating change.