Forks can be confusing, both on a Blockchain network and on a dinner table (I guess?). A fork occurs when a digital currency community is split into two factions. One faction wants to change the rules of how the asset operates on the network, the other faction believes that the digital asset should just stick to its core developers’ plans. A lot can happen during a fork — it’s possible for you to increase your wealth from the newly forked coin, and it’s possible for you to lose wealth through replay attacks. Here are four CryptoTips that will prepare you for a fork in a Blockchain network.
Cryptotip #1: You could have access to more money through the forked coin
What happens during a fork is that there is one group of people within the coin’s community that want things to be run in a way that a second group of people in the community believe is drastically different than the original Blockchain and its planned progressions. The disagreement among these factions may cause enough developers supporting the “drastically different” faction to create a new Blockchain network that abides by a different set of rules — the rules that are in their opinion more appropriate than the set of rules on the original Blockchain network. Because a new Blockchain will be splitting off from the original Blockchain, the new Blockchain copies all of the data from the original Blockchain up until the block height that the fork occurs. This means that if you have 15 coins on the original chain at the time the fork occurs, you will have 15 of the newly forked tokens on the Blockchain that forked off of the original chain — let's call it Blockchain 2.
Cryptotip #2: Always take your tokens offline
When there is an upcoming fork in a Blockchain network, there is sometimes controversy regarding which Blockchain will be the “true” chain for the coin. People often refer to the “true” coin as the digital asset that is on the Blockchain network with the most support. However, it could take a few days before it becomes clear which chain has more support. That is why it is best to put your tokens into cold storage during a fork. A cold storage wallet is a wallet that is not connected to the internet at all times and you own the private keys to the wallet. When you own your private keys, you can be confident that your money is safe. If your tokens are on an exchange’s wallet, it could be possible that the exchange will not support the new token for trading. However, the exchange could reap the benefits of your new forked tokens that were created as mentioned in Cryptotip #1, and trade them themselves on an exchange that does support the forked token.
Cryptotip #3: Beware of replay attacks!
Be cautious of forks that do not incorporate replay protection. A replay attack is when a cryptocurrency transaction is valid across both the original Blockchain and the new Blockchain that has forked off of the original chain. If Alice sends Bob 10 forked coins on Blockchain 2, and there is no replay protection, it is possible for an individual to broadcast that same transaction on the original Blockchain. So instead of Alice only sending Bob 10 forked coins on Blockchain 2, a replay attack will cause Alice to send Bob 10 forked coins on Blockchain 2 and 10 original coins on the original Blockchain. Alice would be sending Bob 20 coins total instead of 10 if a replay attack occurs.
Cryptotip #4: Wait a few days before transacting
Because it is possible that a replay attack could occur, it is often advised that individuals wait a few days before transacting on either the original Blockchain or the forked Blockchain to avoid technical issues and replay attacks.