Hard forks, the changes of the protocol can destabilize cryptocurrency’s value and they are hazardous to the stability of digital currencies, says a research. The hard forks are the changes in a protocol such that the software authenticating as per the old rules will see the blocks created as per the new rules as invalid. In a hard fork, all nodes are meant to work in accordance with the new rules which need to upgrade their software.
Research says that these hard forks can divide a cryptocurrency into two rival groups. They can destabilize a given cryptocurrency’s value, and inject a low confidence environment in the capacity of a cryptocurrency to survive as a dependable bridge of exchange. So, it is necessary for the cryptocurrency community to improve their governance system and limit the potential for hard forks to occur.
Researchers further explained that hard forks create a new blockchain that is discordant with its original rival—promoting two technologically irreconcilable cryptocurrencies. As such, hard forks may force governance failures that divide cryptocurrency users into two distinct groups: one that accepts a new technological change and one that rejects the status quo.
According to researchers, hard forks show symptoms of cryptocurrency governance failures that have the greatest potential to decrease trust and coherence amongst Bitcoin’s users. Further, the number of Bitcoin hard forks has been projected to increase in the coming years, raising the urgent need for improvement of the cryptocurrency’s governance in a manner that is consistent with the decentralized software environment that Bitcoin and other cryptocurrencies utilize.
A new study published in Springer’s Environmental Systems and Decisions journal called Cryptocurrency: governance for what was meant to be ungovernable further said that,
To ensure the survival and growth of cryptocurrencies, it is imperative for participants in the Bitcoin network (miners, wallet operators, and exchanges) to generate an anticipatory approach that preemptively addresses governance challenges before they arise. Such an approach should be designed in a manner that respects the decentralized nature of distributed ledger-based cryptocurrencies, yet also emphasizes the desire to retain community consensus for software improvements where possible.
It further elaborated that only finite reviews of cryptocurrency forks have been published or documented. Also, many forks from the Bitcoin blockchain are never publicly recognized or accounted for, while others only exist for a few days or weeks. This includes more recent abilities for people to create their own fork from Bitcoin’s blockchain via software such as Forkgen. It makes very difficult to track all such forks.
In this, researchers have reviewed all direct and indirect forks of Bitcoin. This contains hard forks, soft forks, and source code forks/altcoins. Direct forks contain those that fork primarily from the Bitcoin blockchain. Similarly, indirect forks are either
- (A) Those which fork from a pre-existing offshoot of Bitcoin, yet still operate using Bitcoin-based software, or
- (B) Altcoins whose software was inspired by Bitcoin source code, yet retain independent genesis blocks that do not share transaction history with Bitcoin’s blockchain.
The study said,
At a minimum, hard fork growth presents a potential roadblock to the mainstream adoption of select cryptocurrencies and, potentially, a threat to the cryptocurrency’s ability to maintain a stable and predictable operating platform that is essential to its use as a guarantor for daily financial transactions.
The researchers further suggested that it would be negative to the decentralized nature of cryptocurrencies to require a central decision-making body to guide governance decisions on hard forks, people in the Bitcoin network can create or develop components of anticipatory governance by verifying potential software limitations early on, and identifying through various actors.
There have been several forks in the Bitcoin blockchain, resulting in the birth of several cryptocurrencies like Bitcoin Cash, Bitcoin Gold, Bitcoin Diamond being some of the more prominent examples. Every time there is a fork in the Bitcoin blockchain, pre-existing Bitcoin holders receive a similar amount of the forked currency in their wallets.
This research mainly focused on the governance limitations of cryptocurrencies. Far more study is required to address the software and engineering problems for cryptocurrencies. It is necessary for people within the Bitcoin network and similar networks within other cryptocurrencies to create greater foresight regarding the environments by which software changes are justified.
Although some of these circumstances may be unpredictable or uncertain, others such as the scalability challenges can be properly planned to find the conditions when Bitcoin’s software protocol should be updated. One significant example includes Bitcoin’s SHA-256 PoW algorithm, which must be updated over time to ensure the continued security and privacy of Bitcoin addresses and transactions.
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