Bitcoin forks, a cancer that can destroy Bitcoin

Money can not be created out of thin air

I wrote many times that Bitcoin community should get together and decide the future of Bitcoin. While, at first glance it might seem that new coins are being created and you can sell for profits, or to buy new bitcoin coins, long term effect might not be as good as one might see.

Satoshi Nakamoto vision for Bitcoin was to create a world currency that can not be manipulated by a central government or inflated to infinity. Within the code, there will be a limit of 21 million bitcoin that can be ever create. Meaning that Bitcoin can not be inflated. Still code can not block the number of forks, every time the chain split, there will be double number of coins in both splits.

Most governments increase the amount of currency in circulation by a few percentage every year, and that caused great inequality. 200% increase in one year alone, not including the number of bitcoin mined, won't have good long term effects.

It all started with Bitcoin cash

Bitcoin Cash was a successful Bitcoin fork, which laid the first nail in the coffin. No doubt whoever bought Bitcoin made a great deal of money. In theory forks are just like stocks splits. When stocks split, it means that there will be double number or shares, with half the price. There is no gain during splits. On the other hand when bitcoin splits, the total value of Bitcoin main chain plus value of splitted chain should be equal to whatever was before the split. To simplify it, if new forked coin is valued $500, bitcoin should drop by $500, so the total should be the same.

This did not happen with Bitcoin cash, and I knew that it is not a good sign. Bitcoin miners and holders will have incentive to fork Bitcoin again for free profits. My fear came true, not even two months later, Bitcoin forked again, bitcoin Gold.

Long term effects of Forks

As I mentioned earlier, forks will not have good long term effects on cryptocurrency. There are many reasons, the main one is that most of the time forks are not beneficial, they don't bring anything new. It's the same chain. I'm not a technology expert, my understanding is that a new fork has just a few different parameters. It does not bring something revolutionary.

Other reasons are that a new chain split has to be mined the same way as the old one. There is a limited number of miners so the new fork will draw mining power out of main chain, making cryptocurrency vulnerable from network attacks.

Other reason is economics and psychology. When people invest they want security. New splits make it harder to chose which chain is the real deal and which one is not. Which to sell and which to keep. This can lead to serious investors moving away from Bitcoin and investing in more stable cryptocurrencies where development team works together for a better future.

All I can say to forks is this

Image source Bitcoin.com

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Disclaimer: The information contained herein is author's opinion, does not purport to be comprehensive and is strictly for information purposes only. This is not a financial advice. It should not be regarded as investment/trading advice.