With all the recent discussion about the potential (or depending on who you believe, inevitable) Bitcoin split, it is important you know how to protect your investment. In light of this uncertainty, this article will guide you through how to safeguard your BTC investment without relying on any knowledge on the reasons or technical details of the split. The key thing to remember is that it is perfectly safe to retain BTC, but you should take some simple precautions.
The positives you can expect from a Bitcoin split:
- Every Bitcoin will effectively be duplicated onto every chain. If the BTC network splits into 4 (the current number of competing camps) then your BTC will effectively become 4 tokens - one on each new chain.
- If you believe in the value propositions offered by any of the potential splinter groups, this will be a chance for your investment to excel.
The negatives you can expect from a Bitcoin split:
- Exchanges are likely to lock down any BTC transactions during the split period and for a while after.
- And BTC kept on an exchange may only reappear on a single post-split chain in your control.
- There is an inherent danger in BTC transaction right after the split while the technical details are ironed out.
What you should do right now:
The first thing to take note of with any coin split is that it is a high-risk situation. To compare this to a fiat example, it would be like the US dollar splitting into two different currencies, which yields uncertainty. At best, all new chains come out on the other side in one piece and rise in value. At worst, the exchange rates may drop sharply. Therefore, as per the age old advice, do not retain any more money in your Bitcoin investments than you are willing to lose.
Once you have sold off any Bitcoin you do not wish to risk, it is important to follow this simple rule:
Your Keys, Your Coins
If you do not control the private keys to your investment, then you do not control that investment. If you hold your BTC on an exchange, or a third party wallet, then they hold your private keys. What happens to them during and after the split is entirely out of your control. Some exchanges may give you a token on every new chain, but others have explicitly indicated that may not be the case.
In light of this, the first step is to withdraw any BTC into a private wallet (which can be a paper wallet). This is also a good time to make backups of all your keys. Some exchanged have already locked BTC transactions, and in those cases there is nothing left to do at this stage.
What You Should Do During a Split
While a coin split is happening, do not send any BTC transactions until is is clear what the new BTC landscape looks like. This is especially important if one of the new chains does not include replay protection, which would mean that any transaction on one chain is replicated on the other.
It is also worth mentioning that we may not get perfect warning of when a split is imminent. This is another good reason not to keep any significant investment on an exchange, which is good practice for crypto investment as a whole.
What You Should Do After a Split
Assuming that several new blockchains made it to post-split stability, and you controlled your private keys, you should now have a coin on every chain for each coin you started with. These may be linked together, so it is important to investigate before making any transactions. If there is a requirement to split your coins to prevent replay attacks, it is likely that the major exchanges will be able to facilitate this for you.
In Summary
- Make sure you hold your private keys.
- Do not make any transactions during or just after the split.
- Do your due diligence research before continuing to trade BTC after the split.
Image credit:
Banner, @joshoeah
