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Getting the handle on three upcoming crypto hard forks

By Carine Lee


Updated

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In this article:
ADA/USD
Cardano / USD
0.31593 USD
0.0061 +1.980%
DCR/USD
DCR/USD
21.04 USD
0.36 +1.750%
ETH/USD
Ethereum / USD
1286.02 USD
49.29 +4.000%
ETC/USD
ETC/USD
19.392 USD
0.511 +2.740%

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A fork through crypto coin strike by lightning
ETH’s Merge is not the only hard fork on the blockchain as the crypto market evolves – Photo: Shutterstock

Hard fork is easy to say but more difficult to explain and with three on the crypto horizon Capital.com took a look at what is happening and why they are important.

Two major chains are on the cusp of a hard fork: Ethereum’s (ETH) is finally going ahead with The Merge, while Cardano’s (ADA) is readying its Vasil upgrade.

Decred on the other hand recently completed its own hard fork with an interesting impact on its price, meaning cryptocurrency watchers are keep a close eye on ADA and ETH.

ETH to US dollar

Blockchain technology requires different parties to agree to maintain the history of a blockchain. When parties do not agree, a hard fork can follow.

Both bitcoin cash and ethereum classic are the result of a hard fork, where participants stuck with the original source code. 

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What’s a hard fork?

A hard fork is a radical change to the blockchain protocol. It creates two separate blockchains, while a soft fork leaves one.

The most talked about hard fork currently is the Ethereum blockchain’s Merge. 

The Merge

Ethereum has recently completed its final test prior to The Merge with the successful Goerli testnet implementation.

ETC to US dollar

The successful test has moved the network closer to the full transition, which will see the current Ethereum Mainnet integrate with the Beacon Chain proof-of-stake system.

The Merge is finally imminent.

The Merge is expected to take place on 19 September and it will greatly reduce Ethereum’s energy consumption.

This is because it will switch from proof of work to a proof-of-stake system.

However, miners are less keen about the proof-of-stake system, as the proof-of-work system gets them paid no matter whether the price of ETH is up or down.

According to Kaiko, the ETC has outperformed forks such as BTC and ETH year to date.

ETC investors seem to be either betting on a failed, delayed or an improved Merge with the arrival of more miners.

In the past week however, ETC has retraced its gains and fallen over 20% as a delayed Merge seems less and less likely by the day.

Market liquidity

ETH’s market share of weekly trade volume hit its highest level since 2018, exceeding its previous peak of 55% during the May 2021 sell-off.

The volume market share of ETH-USD relative to BTC-USD aggregated on 10 exchanges has surged from 38% mid-July 2022 to 57% last week.

DOGE/USD

0.10 Price
+3.020% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.0015016

XRP/USD

0.40 Price
+2.690% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.00439

LUNC/USD

0.00 Price
+5.200% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee -0.0500%
Overnight fee time 22:00 (UTC)
Spread 0.00000717

BTC/USD

17,262.75 Price
+2.280% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 66.00

The main driver of ETH trading activity in July has been the increased optimism around the Merge and an improvement of global risk sentiment, according to Kaiko.

However, last week’s sell-off across markets confirms that ETH remains a higher beta play as risk sentiment soured, ETH lost 17% of its value.

Overall, the average weekly trade volume is down significantly relative to last year’s average.

Looking at market depth aggregated across the same exchanges, Ethereum’s market depth has been on a downward trend since early August, falling by 23% to around 45,000 ETH.

On Friday alone the 2% ETH-USD market depth plummeted by 10% as market makers adjusted their positions amid a wider market sell-off.

ADA to US dollar

Vasil hard fork

Cardano founder and Input Output CEO Charles Hoskinson said the Vasil hard fork will provide a “massive performance improvement to Cardano and its smart contract capabilities.”

Smart contracts enable transactions to be agreed upon and completed automatically behind the scenes.

It is thought that Cardano’s hard fork will set itself apart from others as it allows for the use of reference scripts that accelerate and increase smart contracts.

In a recent crypto conference in California, Hoskinson said that the Vasil hard fork would not experience any further delays.

University of Toronto finance professor Andreas Park said that a hard fork is usually a positive development, when speaking to Capital.com.

The professor specializes in blockchain and crypto said the blockchain world requires people to be on the same page, and the Vasil hard fork would be a display of communal effort.

DCR to US dollar

Decred hard fork

Decred is an example of why hard forks are so keenly watched by the crypto sector. It went through a hard fork back in May, and on 5 August and there was an immediate price impact.

It started the day at about $26 and in less than two hours in the afternoon it jumped about 30%, rising from about $40 to $60.

Decred, which copied bitcoin’s code, modified it as a means of empowering and rewarding holders who contribute changes to the network.

It deploys a hybrid-consensus model which utilizes both proof-of-work and proof-of-stake systems to increase the token’s value, while other cryptos use either one of the systems.

The Decred hard fork also received the backing of crypto exchanges Binance and Bybit.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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