You may not know it by looking at bitcoin’s recent price surge, but the infrastructure underpinning the world’s most popular virtual currency is teetering.
While speculators continue to push the value of the digital money to record highs against the US dollar, the system that verifies bitcoin transactions — known as the blockchain — is more backlogged than at any point in the currency’s eight-year history.
The number of transactions awaiting verification is up more than five-fold from a year ago, and the jam is forcing users to pay increasingly high fees to speed up confirmations, which in some cases is making bitcoin more expensive to use than Visa or PayPal.
Now, after more than two years of bitter infighting among the global bitcoin community about how to fix the problem, some of its most influential members are giving up on reaching consensus.
Instead, they’ve begun backing a controversial solution known as Bitcoin Unlimited. If the gamble pays off, it could ease congestion and may help bring the community back together. If it fails, the digital currency could face a hard fork into separate variants, effectively splitting bitcoin into two currencies.
“We will switch our entire pool to Bitcoin Unlimited,” Wu Jihan, founder of the world’s largest mining organisation Antpool, said in an interview on 10 March. His group accounts for 15% of blockchain activity and is hugely influential in the community. “We can’t tell how the hard fork will play out. We will only know by the time we get there.”
Wu is backed by Roger Ver, an early evangelist who amassed a fortune and got to be known as Bitcoin Jesus. He opened his own mining collective to the public last week. Relying on his high profile in the community and an aggressive pricing scheme, Ver said he’s already attracted about 3% of global miners and convinced them to back Unlimited.
“We need to get to 60% or 70% of miners on board to activate Bitcoin Unlimited,” Ver said in an interview at his office in Tokyo on 9 March. “Combined with others, I’d say we’re already close to halfway to our goal at this point.”
Bitcoin Unlimited is essentially a software upgrade to the blockchain. Years ago, bitcoin’s early developers imposed a cap on the amount of data it could process. While that slowed down the network, it was seen as a necessary safety measure against potential attackers who could overload the system. Now, Unlimited supporters say the blockchain is robust enough that it doesn’t need any limit at all.
While most agree the blockchain is stronger, critics such as Peter Todd, a key coding contributor to bitcoin, say that removing the data cap is a risky move which will leave bitcoin vulnerable to governments and global banks. Without a limit, large organisations would use their resources to out-muscle smaller miners and effectively take control of the blockchain and bitcoin itself.
“Bitcoin Unlimited is simply irredeemably broken,” Todd said in an interview on 11 March. “Large miners have every reason to vote the size up to push their competition out of business.”
Todd’s camp contends that a better approach to easing the congestion is to make the blockchain more efficient. Last fall, the group released their own solution, called SegWit, which uses a different method to verify transactions. Todd says adoption has been slow due to resistance from Unlimited supporters.
Ver said the lack of support is evidence that SegWit doesn’t address the actual problem: “Say you haven’t had any water to drink for a day and a half, and you also need a haircut. Do you drink some water or go to the barber shop? SegWit is like going to the barber shop.”
While the rift over bitcoin’s future has gone on for more than two years, Todd’s group have mostly held the upper hand and received support from the majority of miners who prefer to wait for a consensus-based solution instead of rocking the boat. That’s helped pave the way for speculators to bid the digital currency higher, to total market value of about US$20bn.
But with Wu and Ver last week striking out in support of Unlimited, the question now is whether other major miners will follow suit. Ver says he plans to step up lobbying efforts, especially in China, which is home to the majority of bitcoin mining.
If and when the Unlimited camp attracts a comfortable majority, Ver says the next step would be choosing a date on which to upgrade the blockchain to the Unlimited software. If Todd and others in the bitcoin community decide not to join and embrace the existing system with their own software, it could effectively splinter bitcoin.
What happens after that is unclear, but a precedent exists in ethereum, the world’s second most popular digital currency. Last year, a disagreement caused one side of the ethereum community to back one version of the software, and the other side to adopt another version. That resulted in ethereum being divided in to two different currencies, each with its own individual price. Both versions tumbled in the months after the split.
Ver says its worth taking the risk because inaction will only worsen the crippling backlog. “If bitcoin is more expensive or slower than traditional financial systems, people aren’t going to use it.” — (c) 2017 Bloomberg LP
