Twenty years pass and Bitcoin becomes the largest store of value. Some people use custodial wallets; large investors and nerds use non-custodial wallets.
A flaw is discovered. Or maybe someone wants to create a cryptocurrency with different properties (privacy coin, smart contracts, different proof of work, etc.) In either case, they might hard fork Bitcoin and make their own crypto.
It's moderately successful. Maybe it fulfills some other niche. Maybe it's better. Maybe it's actually worse but chumps don't know. The fact is all owners of Bitcoin when the fork happens have a stake in the new crypto. See Bitcoin cash.
This is fantastic if you have a non-custodial wallet. Sell the new crypto and make some cash or hodl and hope for the best. In either case: because you held your own keys you get access to the hard fork coins.
What if you have a custodial wallet? This is unprecedented territory. PayPal's policy states:
"In the event of a fork, PayPal will evaluate the feasibility of supporting the fork and determine whether and to what extent any new assets resulting from the fork may be supported and/or allocated."
If you hodl with PayPal, there is no guarantee that you get the hard fork coins. Sad
Suppose that the majority of coins are held by custodial wallets. A hard fork will fail under this condition because it wouldn't be in the interest of the customers to let it succeed.
While I consider myself a Bitcoin maximalist, I do believe that alt-coins have their place in the crypto ecosystem. Custodial wallets pose a significant obstacle in a successful bitcoin hard fork because they centralize allocation and thereby disincentivize adoption.
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