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 fivefold 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 Inc. or PayPal Holdings Inc.
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 organization Antpool, said in an interview on Mar. 10. 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 joining 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 Mar. 9. “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 organizations 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 Mar. 11. “Large miners have every reason to vote the size up to push their competition out of business.”
Todd 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.”
Wu added that miners like him have refused to adopt SegWit because he doesn’t see his economic interests aligning with what is proposed by the technology.
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 $20 billion.
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.
Further adoption of Unlimited won’t necessarily lead to a hard fork, though the likelihoods could increase if it gains more traction. 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.
Samson Mow, former chief operating officer at exchange BTCC, said even in the event of a hard fork, it would be up to the market to decide which version would hold the upper hand and that many wouldn’t deem the new currency as bitcoin.
“Bitcoin Unlimited is not bitcoin because it’s rules are different,” said Mow. “If BU splintered, it would create an altcoin and there are hundreds of altcoins. Those altcoins have little value.”
Ver says it’s 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.”
© 2017 Bloomberg