Over the past two weeks, the bitcoin community has been discussing the possibility of a hard fork in the near future. Furthermore many industry exchanges and bitcoin-based businesses are already making preparations for such an event. A couple of questions bitcoin holders are asking are; Whether or not their bitcoins will be safe and what they should do during a blockchain split.
Bitcoins You Possess Will Be Safe
The first and foremost piece of information all bitcoin holders should know is that in the event of a hard fork that splits the blockchain, bitcoins you possess will be perfectly safe.
Over the past year or so hard forks have gotten a bad reputation for political reasons, but in actuality, most types of forks are merely protocol upgrades. A blockchain split occurs during a hard fork which in turn branches the chain into two parts. If this happens, there is nothing a bitcoin holder has to do but wait and watch the fork unfold.
The folks at the subreddit r/btc have compiled a very well written frequently asked questions post concerning protocol upgrades and how users are affected. The thread gives details about the hard fork process and what to expect.
When the blockchain branches into two there will be two digital assets immediately after the hard fork. Bitcoin holders who possess their private keys will have access to assets on both chains after the split event occurs. So, if you “keep your money” in a local wallet on your computer or on your phone you can just stay put and watch the fork happen.
If you hold money on a bitcoin exchange, then it will be up to the exchange’s discretion on how they choose to disperse both token assets to customers. Most of the well-known industry exchanges have already pledged to support both assets if a blockchain split event takes place.
Storing Bitcoin On Exchanges
Users should remember that holding cryptocurrency on an exchange is not recommended even during non-eventful times. As explained above, after a blockchain split customers storing bitcoin on an exchange will have to succumb to the rules of that specific trading platform. For instance, it’s highly possible that exchanges will pause withdrawals for 24-48 hours during and after the fork. Most reputable exchanges should and will likely disperse both assets to their customers sometime after the event, but users should expect a waiting period while the businesses assesses the situation.
The bitcoin exchange Coinbase explains the company’s current contingency plan to its customers concerning a hard fork and possible blockchain split which includes pausing deposits and withdrawals;
“Ensuring the safety of customer funds is our top priority,” explains the San Francisco-based exchange. “In the event of a hard fork of the Bitcoin protocol, it is likely that Coinbase will temporarily suspend the deposit and withdrawal of bitcoin from the platform pending our assessment of the technical risks posed by any fork, such as the possibility of replay attacks, network instability, or other factors. Customers should take note that they will not be able to withdraw bitcoin from or deposit bitcoin to Coinbase for a period of up to 24 hours or more following the fork. In the event of a hard fork of the Bitcoin protocol, Coinbase may suspend the ability to buy or sell on our platform during this time.”
The other twenty or so well-known bitcoin exchanges that revealed their hard fork contingency plans last week will also list both digital assets (creating another account for their customers, for the “new” forked coin). Yet it is safe to assume these exchanges will also pause deposits and withdrawals during a split event. Customers will have to follow the rules of the exchange they store their funds with, and each business will have different guidelines.
Individuals Who Possess Their Keys
Users holding the private keys to their funds will have access to both chains after a split occurs. Depending on where the user stores their bitcoins they will have the means to access both digital assets by either waiting for wallet support or moving their funds to a different wallet platform that support both chains. For instance, the hardware wallet manufacturer Ledger explains what happens to people who possess their private keys using a cold storage device;
First of all, it is very important to understand that hardware wallet users control their private keys. So whatever happens, you will always have the possibility to export your keys and use your bitcoins on any software running on any chain or fork. Whatever happens, you do not need to move your funds prior to a fork, nor do you risk losing access to your coins on any side of the split.
This logic applies to every user utilizing an application that allows exclusive bitcoin key possession. There is no risk of losing bitcoins during a hard fork, and over a period of time after a blockchain split, users will be able to access both chains.
Control Your Private Keys and Stay Informed
Forks are a part of most open source software protocols that mature, and many people believe bitcoin will experience a number of them in the future. Users should always consider possessing their own private keys at all times, so they have the ability to use their funds when they want instead of having to follow the guidelines of an exchange.
There is plenty of material online for people to research what will happen during this type of event and many Bitcoin businesses have detailed their hard fork plans. Bitcoin developer Gavin Andresen has also written an informative blog post in regards to what may happen to a majority and minority chain. Andresen speculates what may happen within the market as far as price value, but also assures bitcoin holders their assets will be safe in the event of a blockchain split.
How do you envision a hard fork taking place with the possibility of a chain split? Let us know what you think in the comments below.