The Bitcoin market is not peaceful and developers are starting to take sides

Mike Hearn, a British computer programmer, spent the last week holed up in his two-bedroom apartment in Zurich, writing a heartfelt appeal.

Two years ago, Hearn quit his cushy programming job at Google's Swiss headquarters to devote his time to a passion of his: the virtual currency Bitcoin. He and a group of developers around the world are focused on maintaining the basic software that manages both the creation of new Bitcoins and the network on which financial transactions take place.

But a nasty feud has torn apart the brotherhood of a small group of Bitcoin developers and called into question the virtual currency’s survival. Mr. Hearn, who had been one of the project’s most visible leaders, had become so disillusioned with the cryptocurrency that in December he sold his remaining several hundred bitcoins and quietly took a job at a new startup.

The impassioned blog post he was working on last week was an announcement that he was leaving Bitcoin behind entirely: “Bitcoin is no longer the transparent and open community it once was. It has become a community where some Bitcoiners censor and attack other Bitcoiners at will.”

Bitcoin developer Mike Hearn in his apartment in Zurich. Image copyright Daniel Auf der Mauer/The New York Times

The dispute, which stems from the question of how many transactions the Bitcoin network can handle, sounds like something that only the most die-hard technophiles would be interested in. But it actually reflects fundamental differences between the most basic purpose of the Bitcoin project and how online communities should be managed. People in each camp tend to label each other as either a populist who is only interested in exploring Bitcoin's commercial potential or an elitist who is focused on maintaining Bitcoin's fundamental status as a challenger to the existing monetary system.

Over the past six months, the disagreement has led to death threats against Bitcoin developers and hacker attacks that have crippled Internet service providers. Both sides feel a strong sense of betrayal. One of Hearn's main opponents, a bearded California programmer named Gregory Maxwell, also appears to have withdrawn from work on Bitcoin after receiving anonymous death threats.

At the same time, the internal battles underscore the trust that Bitcoin technology is gaining on Wall Street and Silicon Valley. Amid the controversies that have engulfed Bitcoin, many involving theft and fraud, its underlying software has continued to work as hoped. That consistency has pushed the market value of all issued Bitcoins to more than $6 billion and has led many venture capitalists to imagine Bitcoin technology as the future of finance — because it can make all kinds of financial transactions cheaper and faster.

Gavin Andresen is one of the people who has contributed to the bitcoin software over time. Image credit: Stephen McCarthy/Sportsfile

Among the many fundamental attractions of Bitcoin is its promise to provide a more reliable, trustworthy alternative to the existing monetary and financial system. Unlike the Federal Reserve, Wall Street, and other institutions run by humans, Bitcoin is built on extremely precise, infallible mathematical logic and computer code. In this system, programmers like Hearn are seen as neutral technicians who often volunteer their skills and energy to Bitcoin.

But the current controversy is also a reminder that Bitcoin software, like other computer code, is an evolving product designed by humans, and its effective use is vulnerable to human weaknesses and differences of opinion.

But there may be a middle ground on the issue that started this fight, and for now the two sides have reached an impasse that has left the bitcoin software (and bitcoin itself) in a state of limbo. Hearn believes that this impasse will soon make it impossible to complete even the simplest transactions on bitcoin, and will eventually drive users away and cause the price of bitcoin to crash. Hearn's concerns about the current impasse are echoed by a growing number of bitcoin developers and startups that buy, sell and hold bitcoin, but their voices are less strident.

Gavin Andresen, a close friend of Hearn and one of the people who has contributed to the bitcoin software, said the fight is likely to cause short-term volatility, but he doesn't think it will hurt bitcoin's long-term prospects. Other leading figures in the bitcoin space have expressed similar sentiments, and bitcoin investors are inclined to believe them: The price of a single bitcoin has actually risen in recent months, reaching $430 this week.

Some of Hearn’s allies hope to break the impasse by getting big bitcoin companies to back software like Bitcoin Classic, a new version of bitcoin’s underlying software released this week that aims to expand the network’s capabilities and introduce new governance standards.

But Hearn thought it was too late. As he wandered that evening through the woods near his apartment in Zurich, he was trying to figure out what had gone wrong with Bitcoin and the meaning of the ideals that had drawn him to the project in the first place.

“I never would have thought that Bitcoin would fall apart because of people’s craziness and people’s fundamental factional disagreements about what the project was about,” Hearn said in a Skype interview from his apartment. “It really shook my faith in humanity.”

Early supporter of Bitcoin

Hearn, 31, who grew up in Manchester, England, and spent his free time playing music and rock climbing, was one of the first programmers to take Bitcoin seriously in April 2009, months after its mysterious creator, known as Satoshi Nakamoto, unveiled it to the world.

At the time, Hearn was working in Google’s mapping division, where he had worked since graduating from Durham University in the UK. He had never worked with finance or currency before, but the financial crisis had taught him that national currencies were vulnerable to politics and bad decisions. During a web search, he found Bitcoin’s rudimentary website, and when he learned that Satoshi Nakamoto was its creator, Hearn immediately sent him an email.

“I still have many questions about it, but I have encountered one of those rare times when I have encountered a truly revolutionary idea,” Hearn wrote.

Like many of the earliest programmers to take an interest in Bitcoin, Hearn admired the rule-bound nature of the system: There are only 21 million bitcoins, the distribution of newly created ones is clearly laid out, and the mathematical algorithms behind it make it impossible for anyone to manipulate it.

Satoshi had written the software that contained these rules, but once it was released, anyone could see and modify the code. Essentially, by choosing which version of Bitcoin to download, people who downloaded the open source software voted for changes they were willing to accept. If Satoshi proposed a change they didn't like, they wouldn't download and run the software, and anyone could contribute their own modified version. Like other open source projects, Bitcoin embodies a leaderless democracy - a new way to govern human behavior online. One computer, one vote, and anyone can propose new terms of governance.

It took a while for Bitcoin to catch on, but by the time Hearn began contributing code in late 2010, it had already developed a passionate following. Bitcoin’s apparent leaderlessness and the fact that its software works without interruption earned it a reputation among libertarians and anarchists. Soon, entrepreneurs and venture capitalists were drawn to the project’s transparent mathematical foundations.

Hearn joined a small but growing group of volunteers who work from all corners of the world to maintain Bitcoin’s underlying software—the most engaged are known as core developers. They’ve met in person only a few times, but they chat online and email about what changes might come next. Andresen, a father of two from central Massachusetts who brought everyone together under the Bitcoin umbrella, became the leader of the community in 2011, when Satoshi Nakamoto (whose real identity has never been revealed) stepped down from the project.

Hearn had always been different from the other core developers. While most of them were stereotypical tech geeks with scruffy beards and mismatched clothes, Hearn was clean-cut and stylish in jeans and skate shoes—and he was sociable. Inside Google, Hearn became an unofficial spokesperson for Bitcoin, answering questions from Google co-founder Sergey Brin and spearheading an internal mailing list discussion group that attracted 400 Google employees by the time Hearn left.

Like Andresen, Hearn is pragmatic, most interested in improving the basic experience of holding and using Bitcoin. He is not in the habit of making big decisions known to the Bitcoin community's ideological adherents -- like the idea of ​​Bitcoin replacing the dollar or the euro. He is more focused on the challenges Bitcoin currently faces that could make it go wrong.

As tensions between developers grew, Andresen kept the peace in the community by brokering compromises between all parties.

Things have changed

Since last year, this peaceful atmosphere has begun to collapse, caused by a seemingly completely benign development: the number of Bitcoin users and transaction volume have continued to rise.

The problem is that Satoshi Nakamoto had set a limit on the number of transactions that the Bitcoin network could handle every ten minutes. The purpose of this was to ensure that computers could support the network and process transactions without being overwhelmed by the huge amount of data. But Satoshi Nakamoto suggested that the limit should be temporary, because once the number of transactions on the network approaches this value, operations will be delayed and transactions will not be completed.

When Hearn began pushing for changes to Bitcoin's core software that would allow for larger transaction blocks, he immediately faced resistance. Gregory Maxwell, a self-taught coder who had worked on Wikipedia and the Mozilla web browser, both open source projects, said larger transaction blocks would be harder for regular computers to process. The result, he warned, would be a transfer of control of Bitcoin to large companies that could afford more powerful computers.

For Maxwell, slower transactions are a secondary issue compared to protecting Bitcoin from centralized control.

“If Bitcoin gets stuck in the old ways, I don’t know if the world will get a second chance in the next few decades,” he wrote to other developers.

Hearn countered that technology is not a big problem, and that ordinary computers can basically handle larger transaction data blocks. What is more important, he believes, is that Bitcoin needs to succeed in becoming a cheap and fast payment network like Paypal and Visa. If Bitcoin wants to compete with mainstream payment systems (which can process tens of thousands of transactions per second) one day, it must abolish its current limit of less than seven transactions per second.

The debate is complicated by the financial interests of the people involved. Maxwell and several of his backers work at a bitcoin startup called Blockstream, which has $21 million in funding from venture capitalists. What they are trying to do is make it possible to do transactions off the bitcoin network, making the number of transactions the network can handle less important.

After leaving Google, Hearn began collecting a salary for his work on bitcoin from venture capital firm Andreessen Horowitz, one of the biggest backers of bitcoin startups in Silicon Valley.

As the debate spiraled out of control, the friendships among the core developers began to unravel.

In the past, Andreessen (no relation to Marc Andreessen of Andreessen Horowitz), the leader of the Bitcoin software project, has stepped in to mediate. As “lead maintainer,” he has sought consensus but, in rare cases when there were unresolvable disagreements, he has made the final call like a “benevolent dictator.” But in 2014, Andreessen stepped back from the day-to-day management role, handing the lead maintainer job to another volunteer on the project, Wladimir J. van der Laan. The Dutch programmer has said he has no intention of following in Andreessen’s footsteps.

“I can’t be a decision maker on issues at the network level,” van Draan said via email this week. “No one owns Bitcoin. No one can make decisions about Bitcoin as if it were a company.”

Late last summer, Hearn and Andresen finally decided to let the people who actually use the Bitcoin software vote. It was the only way to move things forward. They made their own version of the core software, very similar to the current one but allowing for much larger transactions. They called the new software Bitcoin XT. If a majority of Bitcoin users downloaded it, it would become the new industry standard—a fork, in open-source software parlance .

Forks are part of the open-source process and are used to make small, agreed-upon fixes to bitcoin. But no one has attempted the kind of divisive fork that Hearn and Andresen are designing, largely because of the risk of creating two incompatible bitcoin networks and calling into question the legitimacy and value of existing bitcoins.

“So this is it. We have come to this point. The community is divided. Bitcoin is forking,” Hearn wrote on August 15, announcing the new software.

To van Draan and Maxwell, the launch of Bitcoin XT is an act of betrayal. Yes, the software is maintained by everyone, but they say decisions about the core software should be made by technical experts, not by populist movements.

In an interview with Vice days after the release, Maxwell likened the Bitcoin XT team to "a guy standing on the sidelines wearing a beer mug hat." A close friend of Maxwell's likened the event to an attempted coup. On the Bitcoin.org website and several other online forums where Bitcoin members discuss the project, their supporters blocked the release of Bitcoin XT and any discussion of it.

The battle took on a new dimension when a powerful hacker began spreading Bitkiller. The malware sought out computers that had already downloaded the Bitcoin XT software and overwhelmed them with traffic. One Long Island internet provider said the Bitkiller attack crippled service in parts of southern Long Island for hours. Shortly after announcing support for the XT version of the software, Coinbase, the largest bitcoin company in the U.S., was completely taken offline. Needless to say, these moves scared off many bitcoin users from downloading the new software or even expressing support for it.

The hacker responsible for the attack appears to be based in Russia and told Hearn in an online exchange that someone "hired me to take down XT," but he declined to identify who it was.

Maxwell and his backers had tried to work out a compromise in the late fall. They organized meetings in Montreal and Hong Kong to bring together leading developers to discuss alternative ways to scale the Bitcoin system. Andresen attended the first meeting, but watched as Maxwell and his allies announced their own plan, a more gradual increase in the network's capacity. But Andresen and Hearn both felt the proposals didn't go far enough. Andresen, who was not usually one to take the initiative, began to strengthen his position.

"Developers today are likely to be fired and replaced by other teams because they're not focusing on their customers," he said in an interview last week.

Maxwell similarly scorned Hearn’s camp, saying he was politicizing what should have been a technical decision. Then, in mid-December, he abruptly withdrew from the conversation without explaining why he had disappeared. His colleagues said he was tired of the rancor.

An unclear future

Andresen said he has been approached by some of the biggest bitcoin companies to come back and lead a new version of the bitcoin software, but he said if he were to return to his old role he would insist on clear rules for decision-making.

Hearn said it was difficult to bring the opposing camps together, and he believed the danger of the current stalemate had not yet been reflected in the price of bitcoin because many online forums where bitcoin is discussed censored the full debate.

Despite the rift, Hearn hasn’t lost faith in the idea behind Bitcoin. R3, the New York startup where he accepted the job offer, is developing a Bitcoin-like network for banks to trade a variety of assets more cheaply and quickly. The company aims to take advantage of Bitcoin’s decentralized record-keeping approach but still have one person in charge, handling the software and managing access to the system.

The job lacked the purity of Bitcoin, but after months of sleepless nights worrying about whether he had betrayed his commitment, Hearn said, “I wanted to work in a professional environment again, with people who were rooted in some kind of business reality.”