Bitcoin has soared to a record after a technology upgrade that was threatening to disrupt the biggest cryptocurrency was called off, removing another concern for mainstream investors captivated by this year’s more-than-seven-fold gains.
The virtual currency jumped as much as 11% to US$7 882 after the main architects behind a change to its underlying software, known as SegWit2x, cancelled their controversial plans, saying they wanted to avoid deepening divides in the developer community.
Bitcoin developers, users and miners — those running computers that crunch the complex maths required to verify transactions — have been trying to agree on ways to make transactions faster, as the network’s growing popularity has led to congestion.
After an initial upgrade in August known as SegWit, short for “segregated witness”, a group in the bitcoin community was calling for SegWit2x. The second upgrade hadn’t gained as much support and was only a week away from confronting bitcoin with one of its hardest tests ever.
“Uncertainty is gone, Wall Street is going to hit hard,” Kyle Samani, managing partner at Multicoin Capital, said in an e-mail. “Short term, expect bitcoin to keep pumping.”
Bitcoin has climbed from about $6 000 since CME Group, the world’s largest exchange owner, said on 31 October that it wants to offer bitcoin futures by the end of the year, only a month after dismissing such a plan. Cboe Global Markets said in August that it wants to sell futures. Both need approval from the US Commodity Futures Trading Commission.
Sceptics of the digital currency ranging from billionaire Warren Buffett to JPMorgan Chase & Co CEO Jamie Dimon have warned that the unregulated asset is a speculative bubble in danger of bursting.
Block size
SegWit2x’s goal was to double bitcoin’s block size to two megabytes, which in practice increases speed and reduces fees. While most miners and many businesses supported the change, many of bitcoin’s core developers opposed it, leading to bitter and public fights, including a high-stakes bet of a thousand bitcoins between Roger Ver, an early investor in bitcoin who is known as “Bitcoin Jesus”, and Charlie Lee, the founder of the fifth-largest digital coin, Litecoin.
In interviews before the upgrade was called off, Ver said users should be “excited because it makes bitcoin faster and cheaper” and called opponents a “loud and vocal minority”, while Lee said the change “could destroy the faith of bitcoin as a cryptocurrency”.
The lack of consensus meant the upgrade couldn’t be implemented without breaking the chain. The main proponents of SegWit2x said in a statement on Wednesday they decided to call off the hard fork because of this reason.
“Although we strongly believe in the need for a larger block size, there is something we believe is even more important: keeping the community together. Unfortunately, it is clear that we have not built sufficient consensus for a clean block size upgrade at this time,” developers and industry leaders including Jeff Garzik, Jihan Wu and Wences Casares wrote.
Users worried about potential disruptions the upgrade could cause as SegWit2x, unlike previous forks like bitcoin cash and bitcoin gold, didn’t have so-called replay protection. This means it might be possible to run the same transaction through two networks. Exchange Coinbase planned to disable trading of bitcoin for eight hours before the fork, for example.
Bitcoin had rallied after the bitcoin cash fork didn’t cause any problems on the main network. Bitcoin cash, which allows for bigger block size, is now trading at $587. Bitcoin gold, another digital asset that split from bitcoin, now trades at $140.
“There was definitely risk involved so, in that respect, it’s great to have that risk taken off the table — at least for now,” said Spencer Bogart, head of research at Blockchain Capital. “It would have been great for bitcoin to prove its resiliency once again and to strike this scenario off the ‘fear list’. Overall though, the cancellation of the 2x fork highlights bitcoin’s resiliency and reaffirms bitcoin’s status as the honey-badger of money.”
SegWit2x futures had been trading at around $1 500 yesterday, signalling it still didn’t have enough support to overtake bitcoin. They’ve plunged to $278.
That said, some industry insiders say bitcoin developers may still need to implement SegWit2x at some point — perhaps next year, Meltem Demirors, director of Digital Currency Group, said in a tweet on Wednesday.
But as the uncertainty and the infighting around the hard fork was lifted at least temporarily, it clears the way for institutional investors preparing to enter the space, with bitcoin derivatives and even exchange traded funds potentially on the way.
“When you have toxic conversations on Twitter between CEOs of large companies involved with bitcoin, it turns off mom-and-pop users because nobody needs drama in their life,” said David Mondrus, chief executive of Trive, a blockchain-based research platform. “It also turns off money. Institutional investors have concerns about trusting 25-year-olds writing code who can’t even be civil to each other.” — Reported by Camila Russo and Olga Kharif, (c) 2017 Bloomberg LP
