Will Bitcoin “Split”?

Recently, a war without gunpowder is being staged in a secret corner of the Internet. Geeks from all walks of life have been arguing fiercely about whether Bitcoin should be improved. How should the blockchain be expanded? Will the expansion plan affect the decentralization principle of Bitcoin?

In this regard, Bitcoin Core developer Mike Hearn wrote that the issues in the Bitcoin community debate have become very serious and communication has broken down. Mike Hearn admitted that the Bitcoin community is splitting and Bitcoin is also beginning to split into two versions. The two branches are Bitcoin Core (Bitcoin Core Wallet) and Bitcoin XT , a micro-variant based on the same program. Some opponents even say that the Bitcoin software currently released is a "copycat Bitcoin". On August 16, 2015, Beijing time, Bitcoin XT has a complete release.

Mike Hearn said that among the five Bitcoin core maintainers, Gavin and himself supported the split, but the other three were opposed. Both sides held their own views and felt that they were protecting the decentralization of Bitcoin.

Why split?

"The split of Bitcoin itself is man-made, which is just some optimization solutions thought of within the community." Zhang Shousong, founder and CEO of Bitcoin trading network Btctrade, said in an interview with the International Financial News reporter that Bitcoin itself has certain shortcomings. Some people think that this shortcoming should be optimized, but this optimization cannot be smoothly transitioned on the original system, so Bitcoin can only split.

Bitcoin is actually a string of code on the Internet. The designers designed it to allow users to complete payments through Bitcoin in a decentralized, peer-to-peer network. Its unique feature is that it does not require a central clearing house or financial institution to clear transactions. Users only need an Internet connection and the Bitcoin software to make payments to another public account or address.

In the Bitcoin world, there is a group of participants called "miners". Their task is to collect legal transfers from "nodes". About every ten minutes, they will add a new page to the "account table". The addition of pages is done by "miners" sending new "account pages" back to "nodes". In the Bitcoin world, account pages are called "blocks" and each account is called a "blockchain".

In the Bitcoin community, how much and when the block size should be increased has always been a hot topic of debate. The support camp advocates a substantial increase in the block size and the implementation of this technology as soon as possible. Their view is that if this is not done, the Bitcoin system will collapse early next year due to exhaustion of production capacity. In this regard, Mike Hearn warned that transactions may take several hours to confirm and fees will soar. At the same time, he wrote in a Weibo post in May: "Bitcoin will eventually survive, but it will also lose important development momentum."

The opposing camp is made up of three other major Bitcoin developers, who worry that a hasty increase in the block size will lead to centralization and turn Bitcoin into a more traditional payment system. This is very important to Bitcoin purists, who insist on operating the currency in a decentralized way. The Bitcoin system currently relies on many independent "nodes", and large transfers will take up more hard disk storage space due to the new system, increasing the cost of running "nodes", and therefore it is likely to reduce the total number of "nodes". This will exacerbate the current situation where the number of participants is already decreasing.

In this regard, He Yi, the former co-founder of OKCoin, told the reporter of International Finance News: "I think the cost of running nodes will rise inevitably. Overall, if you can still mine Bitcoin with a laptop, I think its popularity will be very high, but it may not be beneficial to the future development of Bitcoin."

The debate is both ideological and technical. The bitcoin community has a process for resolving such conflicts, but it is slow to set up and only makes decisions when everyone is satisfied. Mike Hearn and Gavin Andresen, two developers on the opposing side, were so frustrated by the long unresolved debate that they decided to organize a referendum to move things forward. Once more than 75% of blocks are processed by Bitcoin XT, it will upgrade to a whopping 8 megabytes as early as January (while doubling the block size every two years). At that point, nodes still using the "Bitcoin Core" software will be excluded from the bitcoin system.

It's a bad thing and a good thing

Ultimately, the Bitcoin split was a battle between two Bitcoin Improvement Proposals and two software versions. Another software version released in the Bitcoin world is called a "fork" in the software world. Forks are a common phenomenon in the software world. After Google created Android, Amazon, Nokia, and other device manufacturers also created their own versions to differentiate their products from others. Google allows developers to make some modifications to Android, but not particularly major changes, and they will block incompatible devices from using their own app store. In this case, Android is semi-open source.

In fact, many successful projects started as forks, such as blogging platforms WordPress and WebKit.

"Forks can serve as a catalyst for innovation, producing higher quality software through the law of natural selection," said Gil Luria, a securities analyst at Wedbush. "This won't be the only attempt to create a better version of Bitcoin. But I believe that people are unlikely to abandon Bitcoin Core, which has many resources, because there is not much motivation to drive people to do so. Even if there is, some healthy competition is a good thing for Bitcoin."

"In my opinion, Bitcoin itself is a new technology, and this kind of technological differentiation is a good thing," He Yi told reporters. "I think this kind of change and the corresponding continuous adjustments are good for the development and popularization of Bitcoin technology. In the future, it will better serve us ordinary people."

However, it is undeniable that the split of Bitcoin has an impact on the trading volume and value of Bitcoin. Shortly after the Bitcoin community split, the price of Bitcoin plummeted in the Asian session on August 19, showing a cliff-like decline. On the same day, the quotes released by the European Bitcoin trading platform Bitstamp showed that the exchange rate of Bitcoin against the US dollar plummeted from 250 to below 223; the quotes released by the US Bitcoin exchange Kraken showed that the exchange rate of Bitcoin against the euro plummeted from 230 to around 210.

"The Bitcoin split has indeed led to a decrease in Bitcoin trading volume and value. The emergence of any change will inevitably lead to a period of volatility. During this period, it is normal for the price of Bitcoin to fall back or change," said He Yi.

"Bitcoin split will definitely have an impact on Bitcoin price, because Bitcoin price itself is very volatile. Any news, whether good or bad, will be affected to a certain extent." Zhang Shousong said, "In the short term, many people think that the news of Bitcoin split is bad news, because it will make some changes to Bitcoin's native system, and may eventually split into two virtual currencies. But in the long run, it is a good thing."

Will the split affect the decentralized principle of Bitcoin? In this regard, He Yi said that because Bitcoin itself is decentralized, the split may bring about another form of decentralization.

Zhang Shousong also believes that the Bitcoin split essentially has little impact on the principle of decentralization.

However, some industry insiders believe that Bitcoin cannot be completely decentralized. The total amount of Bitcoin in circulation will increase at a predictable pace, based on the designed code mechanism, until the total supply reaches 21 million Bitcoins in 2140. The current supply of Bitcoin is 12 million, which is 57% of the final total. Since the total supply of Bitcoin is fixed, it is not ruled out that someone controls more than half of the total circulation of Bitcoin and manipulates the price. In this case, the controller becomes the center of Bitcoin, and he can raise or suppress the price at will, and even make Bitcoin worthless. In addition, some virtual currency traders have become the center of Bitcoin to some extent.

Venture capital remains optimistic

Bitcoin is now under attack from all sides, with constant internal disputes and disagreements. Its own development also faces some risks. Other virtual currencies are also developing rapidly and catching up, and the attitudes of various countries towards Bitcoin are also wavering. However, venture capitalists are still very optimistic about the prospects of Bitcoin.

According to the latest statistics, about 100家Bitcoin companies have received angel round investment, 30家of which are located in Silicon Valley, USA. In China, there are about 20 large-scale Bitcoin companies with 80万users, and these companies' business accounts for about 70% of the global Bitcoin trading volume. As of June 2015, the Bitcoin industry has received more than $800 million in venture capital, and more than $400 million in capital has flowed into the accounts of Bitcoin companies in Silicon Valley.

However, amidst these optimistic venture capital investments, we also have to consider the issue of比特币合规性.

On December 5, 2013, the People's Bank of China and five other ministries and commissions issued a "Notice on Preventing Bitcoin Risks" stating that the so-called "Bitcoin" calculated by a specific computer program cannot and should not be used as currency in the market. Influenced by this news, the price of Bitcoin plummeted by 35% in 40 minutes. Since 2014, the price of Bitcoin has been in a long-term downward trend. In 2014, the decline in the exchange rate of Bitcoin against the RMB reached 55.55%. As of 17:00 Beijing time on August 24, on OKCoin, the largest Bitcoin trading platform in China, the exchange rate of Bitcoin against the RMB was 1423.65, continuing to fluctuate at a low level.

Not only the Chinese government wants to regulate Bitcoin, but also at the Commonwealth Virtual Currency Working Group meeting held in London, participants agreed that it is necessary for the government to start regulating Bitcoin. The Central Bank of Nigeria also called for the regulation of Bitcoin to prevent money laundering and avoid international penalties.

"Regulation is of great significance to Bitcoin. The government represents the interests of the people. The government will eventually adopt and promote things that are beneficial to consumers, and regulating Bitcoin is in the interests of consumers. Therefore, we should attach importance to regulatory forces and measures from outside the industry." Bitcoin China (BTCChina) CEO Li Qiyuan said at the Inside Bitcoins Summit in Chicago on July 10.

"Not every country has to accept Bitcoin. It is also a good thing that it can serve as a supplement to legal tender between governments." He Yi said that the government's attitude towards it does not necessarily have to be to regard it as money. Most governments now have a relatively open attitude towards Bitcoin. Bitcoin is a tradable asset, which is a good start for Bitcoin.

Bitcoin itself is not risky, but some companies have risks in their management systems. Some Bitcoin trading platforms are not well managed and their technical strength is not strong enough, so they may be stolen or attacked by hackers or encounter other accidents. Zhang Shousong said that in the early stages of Bitcoin development, risks are unavoidable. The Bitcoin system will become more and more mature, and only companies with rich management experience and strong technology can survive.

"Perhaps Bitcoin will give us greater room for imagination in the future." He Yi said, I think the most valuable aspect of Bitcoin lies in its technology, not the money it represents.

Zhang Shousong emphasized in the interview that Bitcoin now has a high level of acceptance and recognition around the world. The split does not mark the end of Bitcoin, but perhaps a new beginning for the development of Bitcoin.