How forked coins can be claimed as dividends

Another potential benefit of cryptocurrency ownership is the fork. Traditional companies use dividends to distribute a share of profits to its shareholders. Cryptocurrencies have no corporation controlling them, and instead of shareholders there are simply people who own the currency and support the underlying blockchain.

But even though cryptocurrency networks do not operate as publicly listed companies, you can still claim a form of dividends from something called a fork.

Cryptocurrency like Bitcoin runs on a blockchain (read a full blockchain explainer here). Blockchains are open source so nothing stops someone from making a copy and applying what they see as improvement to the rules. 

This is known as ‘fork’ , creating a second network that shares the same history as the original. This can occur when a group of developers responsible for maintaining the cryptocurrency decide to launch a different version, often due to ideological differences. 

For example, in 2017, Bitcoin forked to create a second chain called Bitcoin Cash (BCH). Holders of BTC were able to claim BCH on a 1:1 basis, giving them free coins that they could hodl or sell for more BTC if they wished. 

Bitcoin Cash has since undergone several forks of its own, and each time, BCH holders received the newly generated coins on a 1:1 ratio.

Did you know? Bitcoin has been forked more times than any other cryptocurrency, giving birth to new networks such as Bitcoin Cash, Bitcoin Gold, and Bitcoin PoS.

Blockchain forks provide a way to claim free cryptocurrency, but a note of caution should be added: there is no guarantee that the newly forked cryptocurrency will be worth anything. 

A fork is like a different interpretation of a common idea. A good analogy is the battle between Thomas Edison and George Westinghouse over which had the best system for delivering electricity. Or the so-called browser wars charting the development of web browsers..

Before you get excited about huge dividends, a  fork will only have value if it provides a meaningful improvement (requiring dedicated developers) and a community of its own hodlers and supporters, and this takes time. If not, this would invalidate the inherent scarcity that is such a key feature of cryptocurrency.

Early forks represented good ‘dividends’ as consensus hadn’t been reached on important challenges within crypto (see the Crypto trilemma) but have decreased over time.

Moreover, claiming forked coins can sometimes require technical knowledge that is beyond most beginners.

There are even scam websites that claim to award forked coins, but force users to input their private key (i.e. their wallet password) before stealing their existing coins. If you are a beginner, the simplest and safest option is to hold coins on a cryptocurrency exchange that intends to support the fork, doing all the work for you..

Note that you will only be eligible for future cryptocurrency forks. For example, if you bought BTC today, you would not be entitled to claim any historical forks, only those going forward. Again, think of it as a stock dividend, a perk ownership entitles you to, 

Summarising the benefits of Passive Ownership::

• Enjoying the benefits of long term crypto appreciation & avoid the stresses of short term fluctuation
• Join an army of hodlers & feel part of common cause
• Use Cost Averaging rather than trying to game the market
• Enjoy the perks of forks – the chance  of free cryptocurrency on 1:1 ratio with your existing holdings.

Summarising the risks of Passive Ownership:

• You need to risk an initial investment; past performance doesn’t guarantee future success
• No guarantee that forks  will be valuable.
• You may need some technical knowledge to claim coins & there are some sites that will try and scam you.

In this article, we’ve considered why cryptocurrency can be volatile, how cost averaging can counteract this volatility, and what it means to hodl. We’ve also examined how forked coins can be claimed as dividends – but that the time and energy spent claiming a new cryptocurrency might be wasted if the project goes nowhere.