Ethereum just had a hard fork and ether prices are rising - here's what happened and why

 
Courtney Goldsmith
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What's a hard fork and why did it happen? (Source: Getty)

Early this morning, the second-largest cryptocurrency by market capitalisation completed a so-called hard fork.

Even if investors were paying attention to bitcoin back in August when it was rocked by its very own hard fork, questions are likely emerging about what all of this means for ethereum and its ether token.

Will a new token be created? Will the price rocket or tank? Here are all your questions answered.

Read more: As bitcoin surges, Coutts warns of a "gold rush"

First off, what is ethereum?

Unlike bitcoin, which was specifically created as a decentralised means of payment and an alternative to fiat currencies, ether is the token that fuels the ethereum blockchain, and it is technically not a medium of exchange, according to Matt Newton, market analyst at eToro.

While bitcoin disrupts payment services and online banking, ethereum aims to be a "world computer" that uses a blockchain to replace internet third parties, which store data in clouds and servers.

Read more: Bitcoin explained: What is it? Why did its price rise? What's next?

And what's a hard fork?

Once you break through the industry jargon, the move is essentially a software upgrade to improve the speed and security of the ethereum blockchain. Iqbal Gandham, managing director at eToro UK, likened the ethereum hard fork to a Microsoft software upgrade implemented to make a series of changes to the platform.

The upgrade was first called Metropolis when it was introduced back in 2015. After some delays it was broken into two parts - Byzantium and Constantinople. Part one, Byzantium, has now been implemented but part two is not expected to come until next year.

How does this differ from bitcoin's hard fork?

The hard fork in bitcoin's blockchain was much more contentious, and it resulted in a separate currency being created: bitcoin cash. Because bitcoin is the bigger cryptocurrency and is more community driven, there are more parties involved with different vested interests.

Ethereum, on the other hand, has a foundation behind it, and because the changes that were being made didn't effect any particular group, it was easier to develop a consensus. Ethereum has split in two in the past, however, creating ethereum and ethereum classic.

What's going to happen to ether's price?

As with most aspects of the controversial cryptocurrency market, it depends on who you talk to. Following the hard fork today, prices climbed to a six-week high of $350 a token, and that came after a sharp price spike on Friday, too.

Ethereum's ether token has shot up in price this year from just under $8 in January.

Newton said: "Long-term it’s hard not be excited as we’re still in the very early stages of what digital services savvy tech start-ups can create. With so many startups rushing to create decentralised applications, there will be strong demand for ether which will support the price."

However, Gandham added that bitcoin, which as of today has a price tag of around $5,700 a coin, is starting to step on ethereum's toes. Certain changes in bitcoin may allow it to develop smart contracts in virtually the same way that ethereum does, which could be an issue to look out for next year - though he said ethereum developers would disagree with this point. Until then, ether's price is expected to remain stable until more applications are built on its platform.

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