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Comment by Waterluvian | Hacker News Reader

That helped but I do not understand the economic compatibility of a fork. How do they not wreak havoc and chaos on that coin's economy? Do I get coins for each of the new coins or do I have to pick? It all feels really risky and that risk feels foisted upon me. Can I cash out before the fork?

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A fork is just a protocol upgrade that is non-backward-compatible and where both the old and new protocols have significant amount of validators (in PoW, this means miners) operating with that protocol. Since the protocols are not compatible, they have a different transaction history after the fork. Since they used to be compatible, if you had 1 BTC before the fork, after the fork, all validators still agree that you have 1 BTC, but 1 BTC on one chain is not the same as 1 BTC on the other chain, so it's equivalent to having (say) 1 BTC and 1 BCH.

Everything else is just supply and demand, ie what's the market-clearing price for 1 BTC and for 1 BCH and how does it compare to before.

Could I trade with that btc on both forks at the same time?

After the fork you have 1 BTC which you can use only on the BTC chain, and 1 BTH which you can use only on the BTH chain. And these are completely separate.

Think about it using my definition of fork, the answer should be clear

I wouldn't use expression 'protocol upgrade', that implies it's mandatory and that current protocol is rendered obsolete. I think 'fork' better explains the mechanics.

Realistically, the value of the chain pre-fork should equal the value of the two chains post fork.

However, this is not always the case - due to people thinking they can get 'free coins' from the other chain (price goes up), people being afraid of a fork (price goes down), etc

When a fork occurs, you do not simply split the assets and community in two, you form 2 better-aligned independent groups pursuing currency success under two different sets of operative rules. Therefore new value is potentially created both in alignment and in the greater chance of one of these currencies hitting upon the set of rules that is ultimately successful in the space. Obviously this has limits - eg when the rules are already being exhaustively explored, there are no takers for the new currency, or developer attention is already the limiting factor.

Sort of like when a company splits and the two parts are more valuable than the whole. Not common, but I believe Ebay and PayPal were more valuable post split. It idea floated at the time was PayPal growth was being held back by Ebay management.

Conservation of value. The first law of forkodynamics.

"The only winning move is not to play" is always great advice.

Tell that to my 8000% returns.

More like the only losing move is to not play.

https://en.wikipedia.org/wiki/Survivorship_bias

Fully aware of that, it was meant in jest.

I don't either. Fiat currencies don't fork - you can simply exchange one for another. Another close comparison is a traded equity having a 2:1 split, except shareholders technically lose nothing. Another case would be stock dilution - though, I have never heard of a public stock diluting to 50% value... that seems unlikely. If a specific commodity were to suddenly decide it had an unreported surplus on the order of 100% of current market estimates, the consequences on valuation would be pretty significant (maybe not a 2x loss...).

I guess the closest comparison to bitcoin is; oil price is at $60 / barrel today and speculators believe there is a 30% chance that they mis-estimated the number of barrels by 100% - but you won't know for sure for another 3 months. What's should the price of oil be tomorrow?

That's not a close comparison at all.

When a cryptocurrency forks, you keep the same amount of coins on both sides but the 2 are wholly incompatible with one another.

A closer comparison is that you it's like 2 simultaneous futures, but with different consensus rules.

Oil futures exist and option prices are usually tied to speculation of quantity. If the price becomes wholly detached from scarcity; it's not a commodity or a currency, it's just means for speculative gambling.

> Fiat currencies don't fork

There was an interesting situation after the fall of the Soviet Union. Because most of the states didn't have economies strong enough to support their own currency, they remained a unified currency union as part of the CIS

The only problem was that each state then started printing the money like mad and then sending it to other states to be sold / traded. Some of the states then introduced what was a quasi two-currency system - to buy local currency or to exchange it, you required both the old Soviet Ruble and a new "permission" note from the state to exchange.

In theory this placed a cap on the inflation but the result was almost like a currency fork. A lot of these states ended up establishing their own currencies but still had problems with "swaps" from the old currency - so they were constantly reissuing new notes and new coins that needed to be exchanged - but many of the old notes or permission slips would have value on the black market

> Fiat currencies don't fork

Another situation: in Brazil 90's, inflation was rampant and a new currency was being planned. But, until BRL was printed as the final currency, a few "forks"/new money were introduced, like URV (for one year), which set the market value for the new BRL, something like 2500:1 old-money:URV then 1:1 URV:BRL. So, the analogy: a fiat fork did happen and a two-currency system was put in play, until the "miners" decided to ultimately put the hash power into just one fork.

I forgot about that! Interesting point.

A lot of European currencies changed to Euro in 2002. A "fork" would've been if e.g. Deutschmarks were still accepted as legal tender, indeed some nostalgia shops/events like a "90's party" would accept this currency, but not the general economy. And indeed Deutschmarks can still be traded to Euros, but at a fixed rate. If a Bitcoin fork had happened and neither currency crashed, you can still trade each other like Dollars to Euros, as long as you can find someone who wants to sell you Dollars (BTC) and be paid in Euros (BTH) or the other way around.

For the analogy to hold, wouldn’t each holder of a Deutschmark also need to be given a (portion of a) Euro? That wouldn’t be easy to do with physical currency, since there’s no easy way to mark each Deutschmark currency as having been awarded.

When a chain splits, your full previous balance exists now on both child chains. The price of each chain's coins is set by supply and demand.

Typically people prefer to hold on to both coins after a split. So there's not actually that much sell pressure, meaning both coins can tend to exist together.

Yes, if you hold during the fork you get coins on both forks. Yes you can cash out before the fork.

You get coins for each of the forks. It's literally a fork in the timeline of the currency, as if you're exploring 2 simultaneous future timelines.

You can "cash out" whenever you like, obviously.

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