Friday, February 3, 2023

Is Your Bitcoin Wallet Ready for a Hard Fork?

Is Your Bitcoin Wallet Ready for a Hard Fork?

With talk of a hard fork popping up everywhere because of the block size debate, one of the most common questions on the many casual Bitcoin users’ minds is: will they indeed have twice as many bitcoins after a blockchain split (better-known as a “hard fork”)?

Also read: Which Mobile Bitcoin Wallet Should I Choose?

Before we dive in, it’s important to mention that the hard fork (splitting the Bitcoin blockchain into two separate chains, with two separate tokens and prices) is only one of several potential outcomes of updating Bitcoin’s code. It’s possible that Bitcoin will simply upgrade smoothly and we can all go back to rallying the price. There are other possible outcomes too, which is why this situation is so complex.

Do You Actually Own Your Own Bitcoins?

How does a casual user prepare for a hard fork? The answer lies in the bitcoin wallet they choose to use.

Bitcoin hard forkThere many types of bitcoin wallets, but for the sake of this discussion, we can effectively split them into two main categories: custodial and non-custodial. “Custodial” services are wallets where the user’s public and private keys are held on their behalf by a third-party service. “Non-custodial” are wallets where the user holds all the keys themselves.

Note: if your wallet started up by showing you a string of 12-24 random words, or mentions a “wallet seed” in the settings, that’s one sign it’s a non-custodial wallet — the keys are all yours.

Due to the nature of Bitcoin, the custodian of a given wallet’s keys is essentially its owner, so when a user opens an account with say, Coinbase, they are entrusting the control of their wallet and all funds contained therein to that company.

If a Third-Party Company Holds Your Keys

These custodial companies trade on the strength of their reputation, so it’s counter-intuitive for them to intentionally do things to hurt their relationship with their customers, but as a user, you are still outsourcing your hard fork-related decisions to them. If for example, the custodial service only chooses to support one chain, then their users will lose out on any potential gains or losses from the other chain.

The same goes for multi-signature wallets like BitGo, where users hold one or more keys but the company also has one. It will be up to those services to decide what to support.

Earlier this year, Coinbase said it would only support one version of Bitcoin, and that users who wanted to access both chains after a split should move their coins elsewhere. BitGo has said it will support multiple chains — if there is sufficient user demand.

Another note: if your coins are on an exchange, then you don’t have the keys. So it will be up to the exchange to decide whether to support both chains or not. This has happened in the past, when Ethereum forked into Ethereum (ETH) and Ethereum Classic (ETC). Some exchanges gave their users both coins… and some didn’t.

If you’re not sure which type of wallet you’re currently using, then this article was meant for you. Bitsonline also has a more detailed guide for some mobile wallet options.

Types of Bitcoin Wallets: Quick Guide

[vtftable cols=”{0}0:d9d9d9;{/}” ]
;;; Wallet ;;; User Has Full Control ;;; Type ;nn;
;;; Airbitz ;;; ✔ Yes ;;; Mobile ;nn;
;;; Armory ;;; ✔ Yes ;;; Desktop ;nn;
;;; Bitgo ;;; No ;;; Web ;nn;
;;; Bitpanda ;;; No ;;; Web ;nn;
;;; ;;; ✔ Yes ;;; Web and Mobile ;nn;
;;; Breadwallet ;;; ✔ Yes ;;; Mobile ;nn;
;;; Circle ;;; No ;;; Web and Mobile ;nn;
;;; Coinapult  ;;; No ;;; Web ;nn;
;;; Coinbase ;;; No ;;; Web and Mobile ;nn;
;;; Copay ;;; ✔ Yes ;;; Desktop and Mobile ;nn;
;;; Electrum ;;; ✔ Yes ;;; Desktop and Mobile ;nn;
;;; GreenAddress ;;; ✔ Yes ;;; Web and Mobile ;nn;
;;; Jaxx ;;; ✔ Yes ;;; Mobile ;nn;

;;; KeepKey ;;; ✔ Yes ;;; Hardware ;nn;
;;; Ledger ;;; ✔ Yes ;;; Hardware ;nn;
;;; Multibit ;;; ✔ Yes ;;; Desktop ;nn;
;;; Mycelium ;;; ✔ Yes ;;; Desktop and Mobile ;nn;

;;; Spectrocoin ;;; No ;;; Web and Mobile ;nn;
;;; Trezor ;;; ✔ Yes ;;; Hardware ;nn;
;;; Uphold ;;; No ;;; Web and Mobile ;nn;
;;; Xapo ;;; No ;;; Web and Mobile ;nn;

What to Do After a Hard Fork

In the event of a hard fork, the amount of bitcoin under your control will not magically double. Instead, you will have balances in two separate cryptocurrencies. (Some people are calling this the “148 Bitcoin” and the “Legacy Bitcoin,” respectively).

If you don’t spend any of your coins in the first few days after the hard fork, you’ll own coins on at least two of those chains. It’s recommended you wait until the dust has settled before attempting to send your coins anywhere.

You will most likely need to download or update your existing wallet software in order to access the separated chains, since for all intents and purposes, they will be different currencies.

What Will the Price Be After a Hard Fork?

No one knows, but it should be mentioned that this isn’t like a stock split.

two chains soft forkIf Bitcoin is worth $2,000 going into the split, 148BTC and LegacyBTC won’t suddenly become $1,000 each. It’s likely that things will look similar to Ethereum after its 2016 hard fork, which resulted in Ethereum (the new chain, currently around $250) and Ethereum Classic (the old chain, currently around $20). The key difference of course is that Ether was only worth $10 prior to its hard fork, so it didn’t have anywhere near as large a market cap as Bitcoin currently does.

It’s impossible to predict what will happen to Bitcoin after a hard fork, but it’s likely that prices will drop while things are sorting themselves out. There will be very little transaction volume on the network, as people will be loathe to risk using their coins.

There are too many possibilities for the coming months to cover adequately in a single article, but we’ll endeavor to keep readers up to date as they happen.

Where are you keeping your bitcoins at the moment? Feel free to share below.

Images via Pixabay

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