Recently I have received many questions about the Ethereum hard fork: what will happen with all the ERC20 tokens, which basically are smart contracts deployed to Ethereum. Therefore, I decided to perform a quick research and cover this topic as we are getting closer to Metropolis update, everyone should be informed and understand what will happen.

What is hard fork?

Blockchain miners run the software to maintain the network, confirm transactions and earn mining fees. The software is being maintained and developed by the Network core developers and community. The main incentive for miners is profit, however, developers are seeking fast and effective network. This incentive mismatch is hard to align.

Miners select which software to run. Therefore, we have issues when developers propose solutions which reduce mining profits and part of the miners disagree with changes. At a certain time, we have a fork, where half of the miners run one piece of software and other half operate with another software. This leads us to having two separate chains from a certain block and this results in having a chain split.

Bitcoin and Bitcoin cash

The bitcoin has experienced a hard fork and a chain split lately. That lead to Bitcoin and Bitcoin Cash. The chain split occurred because the miners have been divided into two parts and one side did not want to use the new proposed software.

The result is that both networks are being maintained by miners. From a bitcoin owner perspective, your coins are available on both chains and you can start interacting with both networks. The Bitcoin chain split resulted in having the new cryptocurrency with a third size market cap.

Ethereum Metropolis

Due to high load on the network, Ethereum cannot keep up with the pace and scale. As a result, Ethereum foundation implemented updates to the Ethereum Miner software under the name Metropolis. Accordingly, the upgrade has now been split into two parts named Byzantium and Constantinople.

Byzantium. This upgrade includes fixing various scalability issues:

the problem of difficulty adjustments

‘returndata’ operations

‘static call’ operations

new precompiles

a difficulty delay feature

These are small tech things which won’t be obvious to non-developers. To be more exact, it will solve smart contract issues like re-entrance attack (when untrusted code enters a contract to manipulate it), return data in receipts will make it possible for light clients to determine if a transaction was successful or not with no need of actually executing the transaction in a virtual machine.

The main aspect of the upgrade is a reduction in Ethereum issuance to miners through block mining rewards from the current 5 ETH to 3 ETH. As well it will delay the increase in mining difficulty which was placed there for the Proof of Stake (PoS) upgrade. PoS is delayed, so to keep issuance around the same level as it should have been.

Right now, it is planned to introduce Byzantium approx. on October 17. Seek updates within Reddit!

Constantinople. Improvements for speed and deep core issues fixing. The release date is not defined yet.

What will happen if chain split? 2x tokens?

In case of a chain split interesting thing might happen. From that point in time, we would have two Ethereum chains. All contracts would be available at both chains. It means that ERC20 tokens would be available at both chains as well.

Assuming, that both would have enough miners and both stays alive, this might lead to huge confusion within the market. It will be up to exchanges to decide whether support both chains and all of its tokens or stay with the more popular one.

Exchanges may continue trading during the forks, although deposits and withdrawals may be disabled for some time, check their individual announcements for details. It is not recommended to store your Ethers and other ERC20 tokens in the exchange, as in case of the split, the exchange might delay or even decide not to support one or other chain.

Will it happen?

It is unlikely that Ethereum will have two valid chains, as the community is waiting for those updates and there is not much opposition to this proposed hard fork. This means that we might have a hard fork to which all nodes within the network switches and we will avoid chain split.

Most likely this is what will happen as Metropolis update was planned from the beginning and there are no reasons not to switch to. Also, there is a huge drawback to stay on the old chain: if a miner stays on the old chain, the Ice Age (built in block mining time increase) will force the node owner to switch and start using new software anyway because block times become way too long to be useful.

There were similar rumors with Bitcoin, but now we have Bitcoin cash. Therefore, it is hard to predict what will actually happen.

What to do?

There is a golden rule — keep your private keys with coins to yourself. Leaving it in the exchange during a chain split (if that happens) could result in two main things:

Your Ether and tokens balance will stay the same on the chain which wallet provider selects to support and you will be able to use those token as usual on that chain. Your wallet provider will offer you a chance to keep your token balance on both chains or to choose one of them. However, it might take even a month for exchange to actually enable those tokens transfers.

Most secure crypto currency hardware wallet is Ledger Nano. It provides hardware security for every user only for €59. Find out more here.

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Sources: Trustnode, Cointelegraph, Reddit