Companies that wanted to raise funds to develop their projects in cryptoworld traditionally did so through Initial Coin Offerings. Now, another trend has emerged for those who want to do it – the hard fork
Not strictly a fork
A fork, in its strictest sense, involves a modification of the cryptocurrency protocol resulting in an old version and a new version. Developers who fork a cryptocurrency have no real monetary benefit, because they implement only a modification of the protocol. Holders of the original cryptocurrency (eg Bitcoin) keep coins on both branches and can spend them as they please.
This was true in the case of Bitcoin Cash – a real fork of Bitcoin with larger blocks. While developers have increased the size of the blocks, they have not benefited financially from the creation of Bitcoin Cash. However, other forks like Bitcoin Gold have a premix element included. The developers start with the Bitcoin blockchain at some point, but extract a number of blocks for themselves.
Benefits – established user base
The advantage of splitting an existing cryptocurrency is that you inherit an established user base. Users have nothing to do to claim their parts. This can be a two-edged sword if these users decide to throw their “free” pieces. For developers interested in collecting money through a combination of premine and fork, this can be a disaster. The price of their mined coins would go to zero. For pure ideological forks, it does not matter. The market determines the relative value of their coins and then promotes them.
Regulators should have few problems
ICOs have been attacked by regulators around the world because they raise money from investors without any guarantee. Given that hard forks are in fact a free distribution of chips, regulators should be more accommodating. Of course, investors can still lose money if they buy these coins during trading, and then prices fall.
Regulators would be more concerned that overnight operators are collecting money through country offices and are disappearing. The SEC took action against several ICOs, arguing that their chips were securities. Other countries like South Korea have also severely regulated ICOs, while leaving cryptocurrency trading alone.
The many faces of Bitcoin
When you have the choice of forking a cryptocurrency, it makes sense to fork out the one with the largest user base and the largest market capitalization. The success of Bitcoin Cash has spawned many new imitators – Bitcoin Gold, Bitcoin Silver, Bitcoin Diamond and Super Bitcoin. Imitation might be the best form of flattery, but Bitcoin certainly does not need so many bands. The problem will only get worse if the price of Bitcoin increases and imitators seek to benefit more from the brand “Bitcoin”.
Sol Lederer, Blockchain Director at LOOMIA, agrees:
“These ranges are very bad for Bitcoin, we are looking at a possible fork on October 25th with Bitcoin Gold and another for next month for SegWit2x.To saturate the market with different versions of Bitcoin is confusing for users and discredits the claim according to which there is a limited number of Bitcoins – since you can always fork it and double the offer. “