Can Bitcoin retain its anarchist edge while still operating more like a central bank? Last year, I wrote about how Texas has become a hotbed of Bitcoin development.
One of the challenges the digital currency faces is how it can replace conventional central banks without adopting many of the same characteristics, which Bitcoin loyalists loathe. This week, The Economist has a piece on how Bitcoin is now at a crossroads over how the digital currency should be governed:
On August 15th two of [Bitcoin’s] main developers released a competing version of the software that powers the currency. With no easy way to resolve feuds, some are warning that this “fork” could result in a full-blown schism.
The dispute is predictably arcane. The bone of contention is the size of a “block”, the name given to the batches into which Bitcoin transactions are assembled before they are processed. Satoshi Nakamoto, the crypto-buff who created the currency before disappearing from view in 2011, limited the block size to one megabyte. That is enough to handle about 300,000 transactions per day—suitable for a currency used mainly by geeks, as Bitcoin once was, but nowhere near enough to satisfy the growth aspirations of its boosters. Conventional payment systems like Visa and MasterCard can process tens of thousands of payments per second if needed.
By how much and when to increase this limit has long been a matter of a heated debate within the Bitcoin community. Overlapping cabals of “core maintainers” and “main developers” serve as de facto keepers of the currency, especially in Mr Nakamoto’s continued absence. Now one camp wants to increase block sizes, and do it soon. Otherwise, they argue, the system could crash as it runs out of capacity as early as next year. Transactions could take hours to confirm and fees could rocket, warns Mike Hearn, a leading Bitcoin developer. “Bitcoin would survive,” he wrote in a blog post in May, “but it would have lost critical momentum.”
The rival faction, supported by other heavyweight developers, frets that rushing to increase the block size would turn Bitcoin into more of a conventional payment processor. The system currently relies on thousands of independent “nodes”, computers dotted across the world that check whether transactions are valid and keep tabs on who owns which bitcoins. Increasing the block size could make the whole edifice so unwieldy as to dissuade nodes from participating, so hastening a recent decline in users. The result would be a more centralised system, prompting angst among Bitcoin purists who fret concentration could undermine the currency.