Fear Not The Fork But The Fear Itself: Bitcoin Wisdom
The fear of the potential fork of Bitcoin has got the market in a panic, but currency forks are nothing new, going back as far as 1963.
There is no denying that the initial fear of the Aug. 1 fork, which was quelled with BIP 91, and the Bitcoin Cash potential fork are playing havoc with Bitcoin price. However, the bark could well be worse than the bite when it comes to currency forks, if history is anything to go on.
A cryptocurrency fork sounds like something new, and something that can only affect digital currencies because of a technical ‘fork’ of the Blockchain. But this is not entirely true, currency forks have been seen since the 1960s, and they have been seen on currencies as big as the US dollar.
That forking US dollar
In 1963, and again in 1971, the US dollar forked. It existed in two incompatible forms, yet the effect of this fork was not nearly as catastrophic as you would imagine.
The 1962 fork came about when the US passed the Interest Equalization Tax for purchases of foreign securities by taxpayers. As such, in London, the banks created the ‘Eurodollar’ for dollar deposits outside of the US banking system, and this meant that they avoided the tax.
Essentially, another group took a currency and made their own version that was not supported by the originals makers of it. The effect of these two currencies was when the banking sector was booming, the bank-based Eurodollar had a lower interest rate, however, if the banks went through trouble the Eurodollars interest rates skyrocketed as there were fears that the banks might not be able to redeem deposits.
Not the end of the world
These forks and many other smaller ones on the dollar, of course, have not seen the currency abandoned. In fact, the Eurodollar fork actually aided the US dollar at times, strengthening the original currency when the Eurodollar became unstable in certain circumstances.
In the new and uncertain world of cryptocurrencies, the fear is, of course, more linked to the fact that Bitcoin could drop to zero. It is a legitimate fear, but again, it is not something that is unique to digital currencies.
Currency evaporation happens
Across the last century, the GB Pound has depreciated by 98 percent, the US dollar by 95 percent, and the best performer against this hyper inflation over a century is the Swiss Franc at 75 percent depreciation.
However, 95 percent over 100 years is only a three percent loss per year. The reasons for this fall in value is hyperinflation, government defaults or expropriation or war. But the reason they are still used and function is because people can use them today, not because they have faith in their long-term survival.
Bitcoin has protection
The contributing factors that are driving currencies towards being valueless are absent from Bitcoin. The only thing it could do with is some sort of authoritative stamp of approval.
So, can Bitcoin follow the trend and have a three percent chance of dropping to zero? Even if it had a 10 percent chance of becoming valueless this year, it would put it on par with the average currency.
Well designed digital currencies almost have a better chance of survival or at least being bought out at a high value, then the average fiat currency.