Ethereum hard fork and your positions on exchanges
Image: ETH, the centralized mutable digital token.
Image: ETH, the centralized mutable digital token.
The event that is by some pegged as the end of mETH as cryptocurrency is actually hapenning. The response to the DAO hack will, after all, be the hard fork. This is a solution that some say could have happened after the MtGox collaps during the first years of bitcoin, it didn’t happen though since it effectively undermines the most valuable asset of a blockchain based token - it’s immutability.
The immutability of blockchain - It’s not a dogma, folks
There is a misconception that blockchain is immutable by some kind of magic that has no way around it.
The very simplistic explanation of blockchain immutability is the hash that is generated for each blockchain block mined. The hash contains among other data also a reference to the previous block’s hash - which contains a reference to the previous block’s hash, and so on. Because of this the blockchain is internally consistent, there can be some checks run on this. If a block shows up that contains the wrong reference it will be disregarded as invalid.
To create a tampered blockchain therefore needs to effectively rebuild the blockchain from the modified block on. This is something that is difficult and won’t occur with no one noticing it, nevertheless it is possible.
It is presumably more difficult with bitcoin since the governance is (in spite of all tryings) still more decentralized. There was a hard fork on bitcoin blockchain once, during the very early stages of it when Satoshi Nakamoto was still the lead and also one of the very few people who actually knew bitcoin.
ETH is far more widespread than BTC during the time it was forked, but it still revolves all about Vitalik Buterin and Ethereum Foundation. There are many other people on /r/ethereum or /r/ethtrader but if you’ve read them for a while you see they look up to their leaders a lot. It is even now relatively easy for them to just “give a green light” to a decision like this.
To be fair, it should also be mentioned the ETH hard fork will not have the effect of erasing all transaction history to the point of the fork. (More on this in next paragraph.)
What it means for an altcoin trader?
There are many speculations as to the USD and BTC value of Ether and TheDAO.
Unlike Bitcoin, an Ethereum hard fork will not involve a wholesale rollback of the blockchain state. It will involve only a surgical strike to convert theDAO to a withdrawal only contract, allowing theDAO tokens to be redeemed for Ether. That’s it. It will not effect any other transaction history or balances.
~ This is a very good news since your positions on exchanges will not be affected. There will be a brief period of instability during the actual fork. Because of this, exchanges will freeze withdrawals and deposits for a few hours but trading will carry on as usual. The hard fork will occur and a winnign blockchain will be chosen but all past transactions wil be transferred onto it.
It is recommended to record your ETH positions - profits, losses, funding costs and maintenance margin - in case of a glitch on behalf of the exchange. Make a screenshot or write them on paper and check after the fork if all is OK.
Another smart argument that speculators will like to see is that ETH hard fork might be very well received by the general public. Forking a coin to mitigate a downside, a bailout effectively, is something most people like to see since it gives them a sense of security. Much like insurance and pension funds. It’s a fact that there are very few people who prefer to really take care of themselves, think through possible risks and manage them - while all this doesn’t make for a good reputation because it is something not quite common among people, making one unpredictable and un-see-through-able for others, which is frowned upon.
After the hard fork, it’s quite likely ETH will be seen as the legit digital token used for benevolent app development while bitcoin will be seen as the drug money.
It is quite ironic that a token that has security holes and nothing new about its governance (which is centralized) will come better off out of this but as for trading, there is no truth - the price action depends on if most traders share the same opinion.
Official statements of exchanges
Here is the official blog of Ethereum foundation. It’s more about the technical details if that’s what you are interested in.
Poloniex press release assures customers they don’t need to do anything. Deposits and withdrawals will be paused around the hard fork but all ETH balances will be automatically transferred to the winning blockchain.
Bitfinex also released an announcement, similar to Poloniex. If you have more questions you can try support or Reddit, where Bitfinex’s product manager resides at /u/zanetackett. He has already been talking about this - browse through his posts before asking. There will be status updates on http://bitfinex.statuspage.io/ which you can subscribe via email.
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About the author
Written by KarlVonBahnhof
KarlVonBahnhof also on Reddit, Chris belongs to the crypto trader class of 2013. Located in the Americas most of the time, you're most likely to meet at r/BitcoinMarkets though.
Opinions are author's own.