One Big Danger of Hard Forks

By beachbummer | CryptoBeach | 12 Sep 2019

When a cryptocurrency has a hard fork, it means that the blockchain has split into two. The original cryptocurrency still recognises the original blockchain while the new cryptocurrency has deviated into its own blockchain. What this can also mean is that the hodlers of the original cryptocurrency at the time of the hard fork may now possess both the original cryptocurrency as well as the new one! This was precisely what happened in the case of BCH, where BTC holders possessed both BTC and BCH at the hard fork. Sounds like a good deal right? Free coins!

However, what if I told you it was possible to lose the original cryptocurrency and end up with a worthless forked currency? This can happen when the hard fork involves a copy of the original blockchain and "forking" team then releases a new wallet in order for you to access your new cryptocurrency coins. In order to access the coins from the hard fork, you will need to prove your entitlement based on the data in the blockchain. How to do this? By proving that you are the rightful owner of the coins behind the public address in the ledger. Again, how to do this? By keying in your private key into the new cryptocurrency wallet.

Did you catch that? If not, here it is again in bold: By keying in your private key into the new cryptocurrency wallet.

You will be taking a leap of faith in the new cryptocurrency team and hoping that their wallet does not send your private key out. Once you lose your private key, you can probably say goodbye to whatever you stored there.

If you really, really want to get the new cryptocurrency coins, you can take some measures to protect yourself. First thing to do is to transfer your original cryptocurrency coins out to a new address post-hard fork, which means that you now have a new private key. Then you should install the new cryptocurrency wallet into a new PC or VM and observe it for a few weeks in case there is any malicious intent. You can then key in the old private key into the new cryptocurrency wallet because the coins should still be residing in the old address based on the blockchain snapshot. Even if malicious actors manage to get their hands on your old private key, they will not be able to do much as you have already moved the coins away.

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