The Risks Associated With Cryptocurrency Hardfork

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Introduction

Typically, cryptocurrency hard forks are tools that are sometimes necessary for protocol upgrades and for ideological reasons this is a few of their benefits, although they also come with disadvantages or negative impact on the cryptocurrency ecosystem and its participants.

In this post of mine I will be exploring and considering some of the disadvantages and negative impact of cryptocurrency hard forks, so please make sure to give me your full attention.

• LEADS TO UNCERTAINTY IN THE MARKET

When implemented into the cryptocurrency network, the hard forks have the potential to introduce and cause uncertainty and volatility to the cryptocurrency markets.

When investors learn about the danger their assets face because of the likely risk that the implementation of hard forks may offer, they panic and start selling their assets under pressure, they also become hesitant to invest their assets next time.

Additionally, when new cryptocurrency coin or token are created through a hard fork, there is a possibility that the price and market value of existing tokens and coins could be diluted or reduced leading to price fluctuations and market instability.

• DAMAGES REPUTATION

Another disadvantage of the hard fork is that, the hard forks have the potential to damage and ruin the good reputation of the affected cryptocurrency token or coin associated in its projects, in any case of scandal or failure.

Take for example forks that are initiated or launched due to contentious disagreements or governance disputes, it will likely tarnish and ruin the image of the project in the eyes of investors and the cryptocurrency community.

Moreover, if a hard fork results in technical or systemic issues, security vulnerabilities, it will erode and destroy the trust, integrity and reliability of the block chain, also leading to reputational damage and ruin which will be very difficult to repair or build back.

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• REQUIRES INTENSIVE RESOURCES

Basically, hard forks require a significant amount of resources to be successfully operated and executed, this is a disadvantage because it might not always get the support it needs from investors, as a result it will likely fail or not startup at all.

For a hard fork to be launched with a proper chance of success, it requires a lot of human and financial resources, the developers must invest time, effort, and expertise in planning and implementing the fork, also they have to communicate with stakeholders, and resolve any technical challenges that are likely to spring up.

Additionally, the stakeholders and node operators are also required to dedicate more resources in form of labour and financial investments to upgrade software so that it can easily adapt to the changes introduced by the fork.

• SECURITY RISKS

Another disadvantage of hard forks is that it can, and tend to introduce security risks or threats to both the original and the forked block chains.

The changes made to the protocol will most likely weaken security measures and leaves the network vulnerable and more susceptible to attacks and fraudulent activities, such as double spending.

Additionally, during a hard fork, users of the original block chain network may become number one target for scammers who aim to exploit the confusion and uncertainty to steal funds and spread wrong information.

Conclusion

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In conclusion, cryptocurrency hard forks have proven to be necessary tools for protocol upgrades or ideological reasons although, they come with several disadvantages that can have a negative impact on the cryptocurrency ecosystem.

And some of these disadvantages include community divisions, market uncertainty, security risks, resource intensiveness and reputational damage.

It is therefore essential and vital for cryptocurrency projects to carefully consider the potential risks and disadvantages of hard forks and work towards mitigating their negative effects through effective coordination, and planning.