The upcoming Bitcoin forks are causing quite a stir leading to a bumpy start.
As many are aware the Bitcoin network will again be forking. A fork in terms of the Bitcoin ecosystem is at its simplest a split in direction the underlying software takes. To expand, there are different types of forks we focus on, a Hard-Fork and a Soft-Fork. A hard-fork splits from the software in a incompatible fashion, whereas, a soft-fork is often backward compatible. In terms of development of many applications a soft-fork is usually a new feature release where old clients remain compatible with new clients but may not have all the new features. A hard-fork in this example usually relates to a complete rework of the code, a version bump, often times a new codebase. Clients are usally forced to upgrade to remain functional. The Bitcoin ecosystem, while similar, has it's own set of additional challenges.
The software that powers the acclaimed king of crypto, Bitcoin, has fallen under quite a bit of scrutiny. What's laid out before us is the proposition of two forks of the Bitcoin software. We have BitcoinGold expected to fork October 25th, and the Segwit2x due mid November. Briefly, BitcoinGold goal is set to boost GPU mining by providing a PoW algorithm that can easily be mined via GPU instead of the intensive and expensive asic mining hardware. Bitcoin Gold is kind of doing its own thing, and much like Litecoin, no real contention is involved. Segwit2x on the other hand is a much more contentious fork. Segwit2x is an upgrade to block size that will force a hard-fork of the already segwit enabled chain. 'What is segwit?'. The ongoing scaling debate has been lined up Segwit2x since earlier this year. BIP9, BIP91, BIP141 and BIP148 along with others have all played an important role leading up to the November timeframe. This medium article helps to explain it quite well. Essentially, there is a scaling plan that has been outlined that entails activating segwit and hard-forking to a 2MB blocksize. This approach is similar to the outcome of Bitcoin Cash. We ended up with activation of segwit and a fork allowing a subset of rules. The difference here is primarily the politics... and we won't get into that here.. from the technical aspect, Bitcoin Cash and Bitcoin chains are not at 'odds' meaning there is replay protection so tranasactions can not wind up on another chain. Ultimately the pain from these forks and the back and fourth politics come down to the most important part of the ecosystem, the users.
The act of forking creates additional coins for the users that held any amount of the Bitcoin chain prior to the fork. This means the users, among many things, will have additional coins to trade. The problem is knowing how to handle them especially in contentious times where many orginizations are not willing to support the said fork. These types of events leave users quite uncertain and often worried how things will pan out.
There's quite a few aspects to consider when it comes to the storage, retrieval and trading of any cryptocurrency. By now, most should be aware that if you do not 'own' your private keys you do not own the coins. This is by far the most important step in dealing with forks. If you do not store the coins and maintain the private key and other related data you are at the mercy of the wallet you choose. This primarily means online wallets and exchanges where a service is storing your tokens for you. This leaves us with several options that gives us the security and flexibilty we need during future forks.
Some options are offline cellphone with wallet apps, paper wallets and harware wallets. These options provide more security and flexibilty over keeping your coins on an exchange or online wallet such as Coinbase. The offline cellphone option is great for those that have a device being unused that can be transformed into a offline wallet. There are many wallet options for most of the popular devices today. Some options are Mycellium, Coinomi and even Samourai. While this is certainly an option and you can take additional steps to ensure security, it is not the most secure in comparison. If you do end up using a cellphone make sure you research as much as possible to ensure you take all the steps to secure your coins. A simple one that I will remind you of here is to set the phone in Airplane mode so all network traffic is halted. Not only is this a smart idea to keep people from getting into your device, with the WPA2 vulnerability its pertinent until fixes are released. That said, I would reccomend the other options.
A paper wallet is a bit less convenient as this method is a way to store your information, such as private keys, on actual paper. Though, the term 'paper wallet' has become more generic to mean offline storage in recent conversations. Take a look at this coindesk article for more information. A paper wallet is a great way to ensure no 'online' activity could possibly get to your data. There are other concerns to keep in mind however. Your paper wallet needs to be stored somewhere and if that somewhere could potentially be compromised and destroyed it may be good to store it in multiple places. One example could be a firesafe box at home and at lockbox at the bank. This can be a tedious task and many feel a hardware wallet is superior.
Hardware wallets are currently the most secure and flexible forms of crypto storage. Hardware wallets provide and require similar steps for security that a paper wallet does, but, it also adds additional layers of security. This means you still want to consider housing your hardware wallet in multiple locations, but, you can feel safer leaving it on your desk because of the additional security features. Some options are Ledger and Trezor. Both companies make exceptional wallets, each with their own benefits and quarks that we won't discuss in this article. Some example of the additional security and flexibility is, for starters, your info is not stored directly on a easily veiwable sheet of paper. On top of that, you get password protection, encryption, backups and the support for multiple currencies on one wallet. This along with being able to keep your crypto offline makes it the top choice for securing your investments.
With that out of the way, we will briefly discuss, generically, some steps that can be taken to prepare yourself for the upcoming forks. To begin, and as mentioned above, you must have control of your private keys. If you plan on leaving your keys on an exchange or online wallet, such as Coinbase, you should stop reading this article now and go read how/when/if your wallet/exchange of choice is going to handle the forks on their end. If you follow this route, you are at the mercy of the wallet you choose. Alright, now that those guys are gone and we have our private keys, let's look a little deeper.
The assumptions we're working off of are: We have some kind of wallet where we own the keys and our coins are in the wallet prior to the fork. From there the idea is simple, we want to utilize another wallet (most wallets allow you to create multiple wallets in the same application if using the cellphone method) to SWEEP our keys of Bitcoin. To expand, the idea is to retain the keys that will contain the 'old' chain, or in this case, the keys that contain the forked coins. Doing a 'sweep' is important here. Doing an import will effectively wipe your old keys and give you new ones, thus losing the forked coins. Sweeping will allow us to find the Bitcoins and move those into a new wallet/address/keypair whilst retaining the old keys/addresses. For a bit more of an explanation, checkout this 99Bitcoins article. You can also get an idea of how this was handled with the BitcoinCash fork in my article mycelium-bitcoin-cash-and-how-to-claim-your-coins.
There are several things to keep mind here. The forked coins may or may not have somewhere they can be exchanged or traded, they may or may not recive any support from wallets. This is where it gets a bit tricky and the reasoning this is a 'generic' article. In order for you to retrieve your forked coins from the keys left over after you have swept them of Bitcoin depends on who and what supports those new coins. If a wallet implements support for the forked coins you can follow the article above in similar fashion to again sweep the new coins into a new wallet, and presto! This still doesnt mean exchanges are accepting them yet, but hey, atleast they're in their own wallet now. On the other hand, it's possible the new forks never recieve any 'mainstream' support and finding a sketchy wallet may be your only option, or if none of those are available, they just sit stagnant as they are until something crops up. This part of the process requires you to stay in tune with the daily ins and outs to find out when and if someone or something supports extracting those coins.
As a TL;DR This is a very basic and generic article just to give you an idea how to go about handling future forks. If we recieve enough requests we will gladly write future articles explaining how to accomlish this on different wallets. That said, the general idea you should have taken away from this article is that there are many options and it's the users responsibility for staying on top of it. Following some of the tips and ideas in the article should help us reach the goal of extracting our Bitcoin so we can either securely store or begin trading them again while preparing to also extract the new coins.