Advantages and disadvantages of cryptocurrency forks
Fork is neither a positive nor a negative phenomenon in the world of cryptocurrencies. Like many other actions, they have their pros and cons. Let's talk about them.
Any project in the cryptocurrency sphere cannot be perfect. Even a blockchain that looks great at first glance can show its shortcomings already during operation.
For example, this was the case with the ether, which was not designed for such interest and load. It’s the same with forks. Consider the advantages and disadvantages of cryptocurrency forks in order to form our attitude towards this phenomenon.
Pros of crypto forks
The positive aspects of branching blockchains for different projects are:
- Correction of errors in the exploited project. Sometimes the flaws can be so significant that they affect the further development, as well as the popularity of the coin. And only a fork makes it possible to fix them.
- The emergence of new assets. Thanks to forks, new coins for investment appear in the cryptocurrency market. Successful options quickly gain in price, which allows beginners to earn. But you need to analyze the forks and choose those that can potentially be in demand among investors.
- Technology development. Each fork makes some changes to the blockchain. As a result, distributed ledger technology is constantly improving. Transactions are carried out faster, the platform becomes more reliable, developers get new opportunities to implement their ideas.
- Increasing competition. Due to the “technology race” and the increase in the number of coins on the market, competition between projects is increasing. But the main rule of the market economy is that users benefit from competition.
Disadvantages of Cryptocurrency Forks
But there are downsides to branching and modifying existing cryptocurrency projects. These include:
- The emergence of a new crypto increases the volatility of assets on exchanges. Due to sharp fluctuations in the exchange rate, these financial instruments are difficult to use for investment, as well as capital storage. In addition, volatility reduces the attractiveness for large savers.
- Many forks are fraudulent projects. That is, people invest money in them and lose them. As a result, most users have a negative attitude towards this area as a whole.
- Community shrinking. After the hard fork, blockchain participants are divided into two groups: those who supported the change, and those who did not support it. As a result, support for each of the forked blockchains is reduced.
As you can see, the fork cannot be assessed unambiguously. The task of the investor is to determine the prospects for branching and make the right investment decision