A spat among developers could split Bitcoin

Bitcoin Project Approaches a Fork in the Road

"Federal Reserve Splits Off Rebel Group of Executive Board to Create Independent U.S. Currency" The headlines may seem unlikely, but that's exactly what's happening in the world of bitcoin. On August 15, two of bitcoin's main developers simultaneously released competing software that powers the cryptocurrency, or what some call a split, in a move that some fear could split the digital currency.

The debate is predictably murky. At issue is the size of "blocks," the batches of bitcoin transactions that are grouped together before they are executed. Bitcoin's elusive creator, Satoshi Nakamoto, who disappeared from the internet in 2011, had capped blocks at one megabyte. That's enough to handle 300,000 transactions a day, making it a perfect currency for crypto-geeks. Bitcoin has been a failed attempt to take on traditional payment systems, with credit cards like Visa and MasterCard able to process tens of thousands of transactions per second if needed.

How much and when the block size should be increased has long been a hot topic of debate within the Bitcoin community. The support camp advocates a significant 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 response, Mike Hearn, a leading Bitcoin developer, warned that transactions may take hours to confirm and fees will increase dramatically. At the same time, he also wrote in his Weibo update in May: "Bitcoin will eventually survive, but it will also lose important development momentum."

The opposing camp, made up of the other three major bitcoin developers, is concerned that a hasty increase in the block size would lead to centralization, turning bitcoin into a more traditional payment system. This is important to bitcoin purists, who insist that the currency should be run in a decentralized way. The bitcoin system currently relies on many independent "nodes," computers around the world that verify the validity of transaction blocks and identify bitcoin holders. Increasing the block size would make the system bloated and unwieldy, discouraging nodes that want to participate, exacerbating the current situation of declining participation.

The debate is both ideological and technical. The Bitcoin community has a process for resolving such conflicts, but the process itself is slow to set up and only makes decisions when everyone is satisfied. Hearn and Gavin Andresen, developers on the opposing side, were so frustrated by the long unresolved debate that they decided to organize a referendum to move things forward. They have called on "miners" to assemble blocks to mint new bitcoins and install their new version of the software, called "Bitcoin XT."

Once more than 75% of blocks are processed by Bitcoin XT, it will upgrade to a block size of up to 8 megabytes as early as January next year (while doubling the block size every two years). At that time, nodes still using the "Bitcoin Core" software will be excluded from the Bitcoin system.

The actions of the opposing camps have undoubtedly made the debate more heated. On forums such as Reddit, forum moderators have to censor comments about Bitcoin XT because they have already seen Bitcoin XT as a force that weakens the Bitcoin community. Rumor has it that Satoshi Nakamoto himself warned everyone that in the face of such disagreements he might declare the Bitcoin project a failure, of course, this is generally considered a deception.

Despite all the noise and agitation, such an outcome is unlikely to happen. The two opposing camps, like the doves and hawks in the old-school central bank, may eventually reach some kind of compromise; the Bitcoin community will also hold two very interesting-sounding "Bitcoin scalability workshops" in the second half of this year.

Even if miners could vote, it would probably not result in a split in Bitcoin. Once it is determined which version is more dominant, all miners will surely jump on the winning bandwagon together. Currently, 8% of miners have joined the dissenting Bitcoin XT camp. However, whether the majority rule is the best way to manage the highly complex Bitcoin system is another matter.