After a dramatic and admittedly scary selloff, the Bitcoin price is now hovering just under the $4,800 level. Roughly a month-and-a-half ago, billions of dollars evaporated as its price tag fell briefly below $3,000. But just when you thought it was safe to re-engage the virtual-currency market, we have yet another Bitcoin fork coming.
Before we get into the details of the “Bitcoin gold” offshoot, let me first review what a Bitcoin fork is. At the core of every cryptocurrency is the blockchain, a “database where entries and transactions are verified without needing central administrators or third-party intermediaries.” The process, called “mining,” involves decentralized agents competing with each other to verify blocks of transactional data, essentially operates the blockchain.
For any number of reasons, usually to address a security vulnerability, blockchain participants will propose a protocol change. Depending on the proposal’s magnitude, a fork could either be a “hard fork” or a “soft fork.” In short, hard forks are permanent changes to the blockchain architecture, and therefore they spark mainstream interest.
Specifically for the this fork, cryptocurrency users have two options: jump onboard the newly-created pathway, or stick to the original road. Either way, the Bitcoin fork is a dichotomy. You have to choose one or the other, as one path’s algorithms won’t be valid for another iteration.
This is the primary controversy over Bitcoin gold: it’s yet another offshoot of the namesake cryptocurrency. More than two months ago, the first fork occurred, creating “Bitcoin cash.” Proposed as a solution to the original blockchain’s scaling problems, the derivative digital coin caused quite a stir.
Primarily, fears erupted that Bitcoin cash would sink the price due to cannibalistic competition. Instead, those fears were more hype than reality.
But what impact will the new Bitcoin gold have?
Breaking Down what Bitcoin Gold Is, and Isn’t
As it usually goes for anything involving cryptocurrencies, details of the next fork are rather cryptic. Deemed a “friendly fork,” Bitcoin gold is scheduled for an Oct. 25 introduction. Hong Kong-based entrepreneur Jack Liao leads a developer team (many going by pseudonyms) responsible for the spinoff currency.
Developers for Bitcoin gold have a far more complementary tone than Bitcoin cash proponents. Instead of creating a competitor currency, they offer an accessory that hopefully protects the Bitcoin ecosystem.
As much of a revolution that cryptocurrencies are, the original blockchain features programming that makes life difficult for miners. This difficulty caused Bitcoin to have relatively few miners, essentially centralizing the currency’s operations. Bitcoin gold integrates new programming that encourages mining decentralization.
Furthermore, the upcoming Bitcoin fork features complex algorithms that are very similar to Ethereum’s system. Ethereum mining soaks up a large portion of mining-centric processor units, such as those produced by Advanced Micro Devices, Inc. (NASDAQ:AMD) and Nvidia Corporation (NASDAQ:NVDA). Thus, the hard fork will compete with Ethereum not only in the markets, but also for hardware allocation.
I find the details significant as the prior Bitcoin fork was extremely combative. Within crypto circles, miners, investors and various interested parties deemed the conflict a “civil war.” Bitcoin cash promised to speed up transactions, a major sticking point for hardcore users. But having two “Bitcoins” could cannibalize user engagement and threaten their future prospects.
Fortunately for the original currency, none of the fears panned out. At time of writing, the Bitcoin price is just under $4,800, or inside 5% of its all-time high.
Don’t Worry about the latest Bitcoin Fork
In theory, Bitcoin gold shouldn’t negatively impact the Bitcoin value as it’s not intending to usurp power. Instead, Ethereum proponents should raise some concerns. While the price increased nearly 4% over the past 24 hours, Ethereum dropped 2.5%. In fact, over the last few days, the two rivals have opposite-trending charts.
But in the bigger picture, I recommend not fretting about the upcoming fork. As my InvestorPlace colleague Dana Blankenhorn points out, more forks are on the way. While the forking concept is a foreign one to traditional investors, the process has been ongoing for quite some time. Remember, we have over 1,100 digital coins traded in the virtual markets: hard forks are just the name of the game.
Like its predecessor, Bitcoin gold could simply end up being more style over substance. Blankenhorn refers to the offshoot as “Chinese miners and a programmer operating under a pseudonym building a new sandbox.”
Of course, on the flipside, Bitcoin gold could be the new gold standard. But given the history of hard forks, I’d keep expectations in check. The Bitcoin value will rise or fall on its fundamentals, not because random programmers want an upgrade.
Josh Enomoto is long Bitcoin and Ethereum.
