Good governance is key for any cryptocurrency to succeed in the long run, says a new study that delves into the intricacies of unavoidable software changes within cryptocurrency networks. The study implies that it is a collective responsibility of the community as much as it is of the blockchain’s lead developers to ensure that the changes required happen smoothly, without triggering hard forks.
Hard Forks Are a Cause of Serious Concern
Benjamin Trump, ORISE fellow and lead author of the study, points out that even the most successful tokens such as Bitcoin are unable to invoke longstanding trust in investors as a reliable form of financial asset. Not without a good reason, though, he points out.
According to Trump, notwithstanding the rich potential of some cryptocurrencies and their underlying technology, inherent long-term stability is a distant goal that cannot be achieved without first addressing a key problem concerning software updates.
The study drives its point home by underlining the inefficiencies in the way cryptocurrency networks handle software updates. It primarily focuses on “hard forks,” which pose serious challenges to the long-term reliability of a cryptocurrency.
A hard fork happens when the original blockchain splits into two because of a radical change within the blockchain protocol. The split results in a second blockchain that marks the blocks or transactions on the original blockchain invalid (and vice versa). Hard forks can lead to the creation of new cryptocurrencies. For example, cryptocurrencies such as Bitcoin Cash and Bitcoin Gold came into being as a result of hard forks from the original Bitcoin blockchain.
The study finds that there has been a remarkable rise in the number of hard forks from the original Bitcoin software. Most of these forks led to altcoins that simply disappeared within months. Only a few, including the likes of Litecoin, Vertcoin, Dogecoin, have lasted for years.
To quote Trump’s take on hard forks and their impact on the stability of a coin:
“Hard forks are a threat to maintaining a stable and predictable operating platform that is essential if cryptocurrencies are to be adopted for daily financial transactions.”
However, the study also points out that not all forks necessarily lead to bad results.
“It is important to note that not all forks are inherently negative, or present significant concern of cryptocurrency volatility, or a threat to public trust in the long-term survival of cryptocurrencies like Bitcoin.”
Governance Determines the Long-Term Usefulness of Crypto
Trump added that if popular cryptocurrencies such as Bitcoin were to emerge as reliable long-term financial assets, they must first focus on establishing themselves as a predictable medium of exchange on a global scale.
The only way to go about that objective, according to the study, is to have crypto miners, exchange operators, wallet developers and other stakeholders within the network work together to pave the way for good governance, which, in turn, will yield in longstanding stability.
To Trump, this wouldn’t be that big a hurdle if the community could work out a set of metrics for key variables so that requisite software updates can be preemptively identified without causing inflection points. The study doesn’t identify these metrics as such but points out that they would probably require focusing on “concerns of scalability.”