Fork

Everyone is always asking me “will I have the new bitcoins in my wallet ?”, “do I need to put them on an exchange ?” and stuff like that.

Let’s clarify a few things.

First of all, it’s very important to understand that your bitcoins are not in your wallet and they are not on an exchange. Bitcoins only exist on the blockchain.

They correspond to a transaction written on a block. When you open your wallet, what happens is that the wallet will contact a node that has a copy of the blockchain and will scan all blocks looking for your address. This way it will be able to show you your bitcoin balance, that is the bitcoins that you haven’t spent yet and that you still own.

Let’s get to the day of the fork now. What has been just one blockchain up until today will split, following two different new paths. But if we follow these two paths backwards, we will find a point where they are joined into the one chain that originated them. So when you open your wallet right after a fork, the wallet will scan its chain backwards until it finds the address linked to your bitcoins. This will happen in any case whether your wallet operates on chain #1 or on chain #2, because both chains have a common history that contains your transactions.

This is the reason why bitcoins look as if they are “doubled”. In reality they are not doubled at all, they are just linked to your address, but you can “spend” them on both chains.

Why is this possible ?

Suppose I open my wallet that operates on chain #1. This wallet will scan the blockchain backwards until it finds my address and it will verify that I own 1 bitcoin that I haven’t spent yet, allowing me to process a transaction, for example to sell my bitcoin on an exchange. This transaction will be recorded on a block of what is considered to be chain #1 after the fork. At this point this wallet will know that I don’t have my bitcoin anymore, because when I open it on chain #1, it will go back to this last transaction and will verify that I’ve spent my last bitcoin.

Now I open the wallet on chain #2. This wallet will scan chain #2 and will keep going backwards to a moment before the fork where it will find my address and my bitcoin that is still there. This is due to the fact that I sold my bitcoin through the wallet on chain #1 after the split point and the transaction that I recorded is on the branch of chain #1 that isn’t accessible to the wallet that operates on chain #2. For the latter, the last valid information is that I still own my bitcoin. For this reason I can spend it on chain #2 and process a transaction on this chain as well.

This is the way Bitcoin works and it has nothing to do with exchanges. So why are we still talking of exchanges ?

Simple: if you want to sell the bitcoins of either chain, you need to find someone who is willing to buy them. Exchanges are like a marketplace. If you go to a street market in your town and you want to pay your fruit vendor using Japanese Yen, I’m sure he won’t sell you anything, because he doesn’t recognize that currency and won’t accept it.

Bitcoin exchanges are the same. If you want to sell Bitcoin Cash on Coinbase, Coinbase doesn’t know what you’re talking about and won’t buy it. But if you try on ViaBTC or Kraken, they will recognize it and allow you to sell it, because they have decided to allow the trade of this new crypto.

So what do you need to do if you want to sell BCH (Bitcoin Cash) ?

The same thing you need to do with any other crypto: you process a transaction towards the exchange, then you access the “sell” menu on the exchange page and actually sell it.

But none of us owns BCH, because the fork hasn’t happened yet, so how can I process a transaction towards the exchange to sell it ?

There are two possible ways:

The first one is to go on with the transaction today using your bitcoins, place them on an exchange that will support BCH and wait. After the fork, you will find two different accounts on the exchange: the initial one with BTC and the other one with BCH, both containing the same amount of bitcoin or bitcoin cash. At that point you will decide what to do with either of them.

The second method consists of keeping the bitcoins on your offline wallet (Electrum, Ledger, etcetera) and wait for the fork. After the fork you will be able to download a wallet that supports the BCH chain. You will insert the private key of your own wallet (this key will actually have to work on both chains, since it’s a crypto that was generated from the same initial chain) and from that moment on you will be able to perform any operation you want on BCH with the new wallet, as if it were a regular bitcoin.

Take into account a few practical factors before taking your decision: most people will want to sell their BCH, since (in my opinion) they are considerably above their real value. This will entail a rapid drop of their price. Also, there will probably be a lot of sale transactions to record on the BCH chain, but since the mining power to generate the blocks will remain extremely low, all these transactions will be kept on hold for hours, if not days. Exchanges – which aren’t exactly the best performing sites in the world – will be assaulted by traders and will risk to crash or slow down considerably, adding further delay to the trades. So if you’re thinking of selling to get a really good deal (which will probably be the case for the newcomers), just take into consideration that things might not go as smoothly as you think.

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