Bitcoin Hard Forks: Claiming Best Practices

Hard forks! They are all the rage these days and people love them, hate them, or simply do not understand them. Nonetheless, a hard fork will most likely generate a new coin — although this is not true with all hard forks. So let’s discuss what you can do in case there is a new coin and how to manage that correctly.

Please remember the number one rule for claiming coins: Always follow the instructions that are officially released by the exchange or wallet developers.

I’m here to help you and give you general advice, but each kind of wallet and exchange will have a separate and nuanced process to follow. This post will not cover what a hard fork is, how to set up a wallet, or where to trade your coins. Also, DO NOT give your information to a website that claims to ‘do it for you’ or ‘give you free coins’ as they are scams. There are only two ways of getting your new coins: exchanges or wallets.

Exchanges and you

Not all exchanges will support the new coin at the time of the fork, so you should move your funds off that exchange before the fork. Here are a few options on how to do that:

• Move your Bitcoin to another exchange that will honor the new coin and will credit your account — this is more convenient but it still puts the exchange in charge of your funds and keys.

• Move your Bitcoin off your exchange, which doesn’t support the fork, into a wallet that will credit you with the new coin — another convenient option, but the wallet decides when to credit you.

• Move your Bitcoin off your exchange, which doesn’t support the fork, into any private wallet. Whenever you create your own private wallet, you will know its public and private keys. The private key is necessary to access your coin balance on any wallet. Then claim the new coins at your behest.

Wallets and you

OK, so the basic premise for claiming coins through a wallet goes like this: After the fork, use your primary wallet’s private key, which allows access both coins now, to generate a new Forked Coin Wallet. The Forked Coin Wallet will extract the new fork’s coins from the key and credit you. Easy as that!

Buuut before doing all that, it is highly recommended to move your Bitcoin balance from your primary wallet, wallet A, to a new Bitcoin wallet, wallet B, to protect your Bitcoin balance from possible hacks or theft. You can use the same Bitcoin wallet provider for A and B, but the Forked Coin Wallet will be a completely different wallet. I’ll explain how this works below.

Knowing all this let’s look at an example where we have Bitcoin, BTC, and a new forked coin, XYZ coin. Things we will need:

• Wallet A and keys — this is your original wallet and holds your Bitcoin

• Wallet B — this will be your new wallet for your Bitcoin

• Forked Wallet — this wallet will hold your forked coins, XYZ coin in this case

As you can see in Wallet A, one key has access to two different coins:

First, move your BTC from wallet A to your new BTC wallet, Wallet B

You are doing this first to protect your BTC balance. It is now safe and sound in a brand new wallet with a brand new private key. This new key was generated after the fork, so it has nothing to do with the fork’s new coins.

Now you can claim the new coin, XYZ. Use the same private key from Wallet A and use it to generate the new Forked Wallet. The wallet will extract the new fork’s coin from the key:

Got it? Hmmm. Let’s talk about what just happened.

The fork happened after wallet A was created, so now wallet A’s keys can be used to access your funds on the Bitcoin blockchain and on the new forked XYZ blockchain. One key holds the balance to two different coins! Mind blown. Given that one key holds the balance to two coins, you want to take every precaution with that key and avoid risky business.

Risks and you

Exchanges can make hard forks and claiming new coins seem painless, but this comes at a cost. The exchanges hold your private keys and ultimately have full control of your funds. The biggest risks with exchanges is that they could be hacked — being a honeypot full of Bitcoin makes them attractive targets — they could shut down and abscond with your funds or they could deny you access to your funds among other things, but they are convenient.

The fork’s coin wallet is most likely going to be an online/mobile type of wallet, which has its own drawbacks — they are discover-able on any network and vulnerable to attacks. Furthermore, you will be exposing Wallet A’s keys, which hold your Bitcoin, when you generate the new fork coin wallet to all these risks too, so it is recommended that you move your Bitcoin into a new Bitcoin wallet after the hard fork, but before you claim the new forked coins.

In summary, if you want to claim your coins you have two options: exchanges or wallets. Exchanges are great, convenient and all that, but they could decide not to support the coin and leave you out of the game until they say it’s ok to play. Wallets are the best option and allow you to have the most flexibility. Sure, it takes a few extra steps — i.e. generating multiple wallets and moving funds around — but that is a small price to pay in order to enjoy your coins when YOU want to.

Hope you got all that! As always, please confirm all transactions yourself on a Bitcoin block explorer and on the new coin’s block explorer. This way you can rest assured that all is safe and sound. Until next time, good luck!