Slow transactions, soaring fees, and warning emails from Bitcoin exchanges ahead of a “hard fork” – this wasn’t what utopian cryptocurrency Bitcoin was supposed to look like.
Until now, this particular technological movement prided itself on its decentralised, anti-authoritarian foundation: a network that was so mathematically complete it could reject the need for a governing body.
But as transaction times slowed, fees soared and endless discussions about what Bitcoin was trying to achieve wore on, it became clear some leadership was needed.
On Friday, new software was introduced to amend the existing Bitcoin technology. It was the result of months of heated internal debate among the most powerful players in the Bitcoin community, and for the most part, it was a compromise.
But in a universe where mass agreement is the backbone of the project, how did some parties have the power to say no?
“It’s moderates versus extremists,” said Stephen Pair, chief executive officer of BitPay, one of the world’s largest bitcoin wallet managers.
“Because the code is open sourced, anybody can take the code and improve it, but it takes the weight of everybody transacting together to keep it stable and prevent a shattering split.”
Bitcoin has reached a turning point where the number of computers on the network are struggling to constantly verify the millions of transactions taking place among an increasing number of participants.
In order to alleviate the bottleneck a new software called SegWit2X was developed, and the first part of it, BIP 91, was rolled out on Friday.
“This is ultimately the first step in a scaling solution for Bitcoin,” says Jon Matonis, economist and founding director of Bitcoin Foundation. “It’s time for this technology to evolve, but from that, a lot of politics has surfaced. A lot of game theory is at play here.”
Two factions emerged out of the debate: Bitcoin miners and coders. Both want Bitcoin to stay strong and competitive but for different reasons.
Mining is the process of adding transaction records to the blockchain and generating new Bitcoins. It involves grouping recent transactions into blocks and trying to solve complex mathematical problems.
It takes a colossal amount of energy and computer time to solve theses maths problems and – mostly Chinese – firms have spent hundreds of millions of dollars establishing server farms that run 24-hours-a-day generating new Bitcoins and verifying the legitimacy of the existing ones.
As the network became more clogged it took more and more power to keep the chain going, and as such, the tiny clips the miners took on every transaction soared and Bitcoin trading turned into a an expensive activity.
“While it still serves fine as means of storing and transferring value, transaction fees have inflated to a point where it doesn’t make sense for Bitcoin to be used in micro transactions,” says Duncan Campbell, director at Digital Currency Experts.
But the new software aims to alleviate some of this bottleneck, and slashes the amount of data in each transaction.
The disagreement in the community arose from whether they should allow more transactions to go through without the usual level of verification or whether they should amend the protocol so it could do different things, like handle micro payments or smart contracts.
“The possibilities of Bitcoin are now widely discussed and all kinds of developer groups are offering up ideas,” says Matonis. “They are like restaurants offering different menus, but ultimately, it’s the community that will vote with their feet on which dishes they’ll select from which menu.”
Miners just wanted bigger blockchain sizes or an increase in the number of Bitcoin in circulation – there is a cap on 21 million, with around 14 million currently mined. There was general discomfort this with this idea, given miners have every incentive to make it easier for them to do their jobs and keeps them as masters of the supply.
But Bitcoin Core – the development team that maintain the existing technology – would prefer to enlarge bitcoin’s transaction handling capabilities gradually.
“Bitcoin Core is a group of developers that are responsible for a lot of the implementations seen to date and the current version the network is using,” says Mr Campbell.
“In the past all these improvements have met little resistance but as the stake has grown groups of developers might try to push a version that is different to core and get the backing of miners but ultimately everyone has to collude to prevent forking.”
A fork happens when diverse participants cannot agree on common rules: in the case of Bitcoin, the enormous ledger would be split with different rules governing different transactions.
This Core group was also toying with the idea of re-purposing some of the Bitcoin technology to enable it to do other things. Ethereum made a huge splash with its smart contract protocol which allowed programs to sit on a blockchain – a much more flexible asset than just a “coin”.
The price has wobbled in recent weeks as investors worried that the powerful Bitcoin miners might reject the update, causing a rupture in the chain.
As of this weekend, it looks like the vast majority of miners will adopt the new software and come November, they will receive their increased block sizes, but the ordeal has revealed just who carries the weight when it comes to the future of cryptocurrency.
“The truth is, this isn’t a completely decentralised network,” says Matonis. “The loudest voices will be always be those with the most skin in the game. But so far they’ve managed to compromise and onlookers will soon note that the Bitcoin structure will prove resilient. The incentivisation to make this work for everyone is keeping this together, as it was intended.”