Despite what others seem to think I’ve always liked the idea behind cryptocurrencies. A decentralized method of transferring wealth between parties, free from the influence of outside parties, has an enormous amount of value as a service. Bitcoin was the first incarnation of this idea to actually work, creating the ideas that power the proof-of-work system and the decentralized nature that was critical to its success. However the Bitcoin community and I soon parted ways as my writings on its use as a speculative investment vehicle rubbed numerous people the wrong way. It seems that the tenancy to run against the groupthink runs all the way to the top of the Bitcoin community and may ultimately spell its demise.
Bitcoin, for those who haven’t been following it, has recently faced a dilemma. The payment network is currently limited by the size of each “block”, basically the size of the entry in the decentralized ledger, which puts an upper limit on the number of transactions that can be processed per second. The theoretical upper limit was approximately 7 per second however further development on the blockchain meant that the upper limit was less than half that. Whilst that still sounds like a lot of transactions (~600,000/day) it’s a far cry from what regular payment institutions do. This limitation needs to be addressed as the Bitcoin network already experiences severe delays in confirming transactions and it won’t get any better as time goes on.
Some of the core Bitcoin developers proposed an extension to the core Bitcoin framework called Bitcoin XT. The fork of the original client increased the block size to 8MB and proposed to double the size every 2 years up to 10 times, making the final block size somewhere around 8GB. This would’ve helped Bitcoin overcome some of the fundamental issues it is currently facing but it wasn’t met with universal approval. The developers decided to leave it up to the community to decide as the Bitcoin XT client was still compatible with the current network. The community would vote with its hashing power and the change could happen without much further interaction.
However the idea of a split between the core developers sent ripples through the community. This has since culminated in one of the lead developers leaving the project, declaring that it has failed.
His resignation sparked a quick downturn in the Bitcoin market, seeing the price shed about 20% of its price immediately. Whilst this isn’t the death knell of Bitcoin (since it soon regained some of the lost ground) it does show why the Bitcoin XT idea was so divisive. Bitcoin, whilst structured in a decentralised manner, has become anything but that with the development of large mining pools which control the lion’s share of the Bitcoin processing market. The resistance to change has largely come from them and those with a monetary interest in Bitcoin remaining the way it is: under their control. Whilst many will still uphold it as a currency of the people the unfortunate fact is that Bitcoin is far from that now, and is in need of change.
It is here where Bitcoin finds itself at a crossroads. There’s no doubt that it will soon run up hard against its own limitations and change will have to come eventually. The question is what kind of change and whether or not it will be to the benefit of all or just the few. The core tenants which first endeared me to cryptocurrencies still hold true within Bitcoin however its current implementation and those who control its ultimate destiny seem to be at odds with them. Suffice to say Bitcoin’s future is looking just as tumultuous as its past and that’s never been one of its admirable qualities.