Bitcoin 2.0? A Fork in the Road Ahead
Sep 02, 2015
Two sides of the same coin: Bitcoin Core and BitcoinXT
Two factions have emerged in what will prove, however it is resolved, to be a pivotal moment for the Bitcoin Blockchain. Bitcoin is heading into dangerous territory and an unnecessary crisis point, according to one faction of developers. The time has come for radical change, say their breakaway opposition.
The competing parties are Bitcoin Core and Bitcoin XT. The Bitcoin Core developers are arguing for maintaining and improving the existing Bitcoin model. Dynamic adjustments and a long-term strategy towards the resolution of structural problems would negate the need for radical and urgent change. The other faction, Bitcoin XT, includes the former lead developer of Bitcoin Core Gavin Andresen and the prominent developer and Bitcoin media figure Mike Hearn.
Perhaps you’ve heard that Bitcoin is forking. A fork is where a large subset of nodes independently makes changes to a different version of the Bitcoin software. From then on, two distinct blockchains will emerge. As miners continue to add nodes using the new software, the two blockchains will grow in parallel, each set of nodes rejecting the contributions of the other. These blockchains will be distinguishable in every confirmed transaction from the moment of bifurcation, and therefore will be totally incompatible.
To handle the world’s payments: a problem of scale
The central point of disagreement is around Bitcoin's scaling problem. The Bitcoin Blockchain records the history of every transaction, and therefore it grows incrementally over time. However, the protocol limits the amount of data that each block can hold (currently 1 megabyte) and the time it takes for a new block to be added (currently ten minutes). It is clear that eventually, additional volume would put strain on this model as the number of transactions the system is able to process struggles to keep up with demand.
There have been several attempts to outline a solution to the problem of transaction limitations, the foremost of which is to raise the maximum block size from 1 megabyte. Other ideas have pushed for sidechains to be developed, auxiliary networks tied to the Bitcoin Blockchain to process transactions and thus remove the burdens, or other forms of technical restructuring that are not ready to be implemented. Bitcoin XT uses for the former, with a scaling block size moving starting from 8 megabytes and doubling every 2 years for the next 20.
Community reaction to this proposal has been wide in scope, but currently, 13.6% of all nodes have switched to the new software. The major technical objections revolve around the centralization of mining with even higher processing requirements. The majority of all bitcoin blocks are mined by a pool, and any further cost would price many low-end, personal miners out of being able to operate. As a counterpoint to this, Mark Hearn outlined the support for his proposal within Satoshi’s original posts from 2008, pointing out Satoshi’s original plan involved the structural change of the network in order to incorporate higher transaction volumes and lighter standard-user client software.
Business investment in Bitcoin: the bad news then the good news
Where Bitcoin has attracted serious investment across the world, from the currency itself to sidechain-focused startups, it has also garnered criticism, particularly over the asset’s volatility. As the uncertainty over Bitcoin’s future increases, the volatility of the Bitcoin price will increase, removing the incentives for holding the coin as well as increasing the currency risk when it is used as a transaction medium.
Full acceptance of Bitcoin XT will result in a loss of the 5-person development consensus, putting the onus on Gavin Andresen and Mark Hearn to convince the community and investors to leave Bitcoin’s security in their hands. This has proven controversial because of Mark Hearn’s professed views on the need for Bitcoin user blacklisting and the tracking of illicit funds—a violation of Bitcoin’s core principles of censorship-proof and trustless transactions. Despite this, major businesses involved such as Coinbase, Blockchain.info, BitPay, and Xapo, have expressed their support for Bitcoin XT.
A dark alternative is the one most users are worried about. If Bitcoin XT succeeds in turning 75% of the Bitcoin nodes to its side, but the rest stubbornly persist on the old Bitcoin protocol, two chains will emerge that mutually disregard each other’s transactions. In the worst case scenario, where both continue and maintain distinct user bases, the value of both could be called into question and the entirety of investment and development on top of Bitcoin could face a major crisis of confidence.
Frost & Sullivan considers this case unlikely. The core message, particularly for open source projects, is the strength of democratic forces. Satoshi Nakamoto, in several places in his foundational writings, spoke of Bitcoin’s development as a socially robust, as well as technologically and economically robust, system. In one sense, the latest developments are a testament to that robustness. Even under the most serious division that Bitcoin has faced so far, the custodian developers of Bitcoin XT included the 75% clause. This, coupled with the economic incentive, will allow the community to decide where Bitcoin heads next. It will soon become clear that the community as a whole will remain intact, exercising its own abilities to reach a consensus in the stead of the developer circle, just as Satoshi intended.
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