Bitcoin could be on verge of its own financial meltdown, as developers battle over the future direction of the digital currency.
The Bitcoin network processes transactions in units called blocks, with each consisting of 1mb, or several thousand transactions worth of data. A new block is created every ten minutes or so.
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When Bitcoin was created six short years ago, these 1mb blocks seemed like an ideal size, leaving plenty of room for future growth and yet small enough to let an average Joe have a crack at Bitcoin mining.
But as usage of the digital currency grows, the network becomes more congested. While it is currently only at about 35% capacity, the exponential growth of the Bitcoin means that developers need to start taking action if the currency is to evolve.
Increasingly the capacity is relatively easy; the Bitcoin community just needs to increase the size of each individual block.
However, the very attribute that has made Bitcoin a success (a decentralized network of contributors) may now prove to be its downfall. If the entire community does not reach a consensus and adopt the new limit, Bitcoin will effectively fork into two different currencies.
And this is exactly what appears to be happening. Over the weekend, two high-profile Bitcoin developers, Gavin Andresen and Mike Hearn, released an alternative version of Bitcoin, called Bitcoin XT.
Bitcoin XT will allow these blocks to grow to 8mb in size, rendering XT incompatible with the original Bitcoin software. Hearn and Andresen say that XT is essential to ensure the survival of Bitcoin, but opponents believe that this could lead to a centralized form of control. They worry that boosting the network's capacity will mean that fewer machines are involved due to the additional compute power required. This, they say, could make the network more reliant on individual stakeholders.
Both sides agree that having two or more versions of Bitcoin could have a negative impact on the market’s confidence in the currency.
Writing in a blog, Hearn said that Bitcoin XT was an inevitable step in the evolution of the currency.
[Bitcoin] changed the lives of hundreds of thousands of us across the globe,” Hearn wrote. Some of us quit our jobs, others devoted their spare time to the project, still others founded companies and even moved across the world. It’s the idea of ordinary people paying each other via a block chain that created and united this global community.
That’s the vision I signed up for. That’s the vision Gavin Andresen signed up for. That’s the vision so many developers and startup founders and evangelists and users around the world signed up for.”
Hearn said XT was the ‘one last mechanism for resolving the dispute’.
“We can make a modified version of the software, and put it to a vote of miners via the usual chain fork logic used for upgrades. If a majority upgrade to the new version and produce a larger than 1mb block, the minority would reject it and be put onto a parallel block chain. To get back in sync with the rest of the network they would then have to adopt the fork, clearly resolving the system in favour. If the majority never upgrade, the fork would never happen and the 1mb limit would be hit.”
Despite the controversy, XT is gaining traction at a pace Windows 10 could only dream of. Despite debuting only three days ago, XT already accounts for 8.4% of the computers running Bitcoin software, according to tracker XTnodes.