As you may already know about, there's a civil war in the bitcoin community over the digital currency's future.
Developers, miners, and other stakeholders are locked in a heated debate over how best to scale the network, with chances steadily rising of irreconcilable differences causing a so-called "hard fork" that would split Bitcoin in two. To know more about what hardfork is about see: https://steemit.com/altcoins/@jose-alberto/beginning-and-birth-of-altcoins-hardfork
Bitcoin is in crisis, and while there's broad consensus that something needs to be done, there's little agreement on what.
WHAT´S THE PROBLEM?
To put it simply: Bitcoin is too popular, and can't handle the weight of transactions going through the network.
To put it less simply: Bitcoin transactions are processed in so-called "blocks" that involve complex cryptography to verify and set the transactions. But as the currency grows and more and more transactions take place, the one megabyte size limit on blocks that is built into the system is becoming an issue, causing delays in processing transactions. A purchase might take hours to confirm, making it unwieldy for real-world use.
"This has also caused companies to change the services they provide," Charles Hayter, CEO of data provider CryptoCompare, said in an email. "Bitpay, for example, increased their invoice minimum by 2400%, while Coinbase has recently announced that users will now be required to pay on-chain fees."
Long-term, this is unbearable if bitcoin wants to keep growing. The community recognises this — but it is split over how to respond.
WHAT ARE THE OPTIONS?
There are two camps in the debate, pushing two different possible solutions: "Bitcoin Unlimited" (which we'll henceforth refer to as BU), and Segregated Witness (SegWit).
They're both proposed software updates to the bitcoin network that would change how it functions. They can't both coexist: Their implementations would "fork" the bitcoin network, effectively splitting it into two competing digital currencies.
For context: Bitcoin transactions are stored in a shared ledger called the blockchain, which is a series of blocks of transactions linked together. The entire transaction history of all bitcoin can be viewed on the blockchain.
This "hard fork" would split the chain in two, producing a new chain of transactions splitting from the original one.
But the difference between the two isn't just an arcane technical debate. This is an ideological battle over Bitcoin's future.
Centralised vs. de-centralised
Let's look at Bitcoin Unlimited first. To understand it, you have to understand the concept of bitcoin mining. This is where computers, owned by "miners", do the complex work of crunching through transaction data and verifying transactions and are in return rewarded with newly issued bitcoin. See my previous post about mining: https://steemit.com/cryptocurrency/@jose-alberto/miners-how-they-keep-the-blockchain-safe
This is a key underpinning of bitcoin as it incentivises people to give up their computer power in order to make the decentralised bitcoin processing system work. In practice, the overwhelming majority of mining is done by professional miners running huge computing rigs built out of specialised hardware.
BU would allow miners and nodes to vote on increasing the block size as and when required. For this reason, it's favoured by many miners — because it gives them effective control of the Bitcoin network.
It would keep transactions in the main blockchain and effectively give them control to set transaction fees. Miners argue this is important, as the programming of bitcoin limits the lifetime supply of bitcoin to just 21 million. Once they are all in circulation, miners will need some sort of incentive to process transactions — hence control of fees.
WHAT ABOUT SEGWIT?
On the other side of the fence is SegWit. This is the proposal favoured by many bitcoin developers and enthusiasts, and keeps the cryptocurrency more decentralised, rather than handing additional control to miners.
SegWit would double the transactions per second capacity of bitcoin by rejigging the makeup of transactions, stripping out some details such as signatures. It would also add some extra functionality, including possibly moving some transactions off-chain in a way that might not benefit the miners. This solution would keep control over the bitcoin network decentralised.
The decentralisation factor is more important than you might realise. Bitcoin isn't just a financial instrument — its community can be deeply ideological, and since its creation in 2008 it has been framed as a digital currency that works independently of central banks and the established financial system, with no single centralised source of power or control.
One criticism of SegWit is that it appears to be only a temporary solution. It just doubles the network's bandwidth, while BU allows miners to vote to increase the capacity when they need with no upper limit.
Bitcoin has been hitting record highs recently, and if the fork problem is resolved in a timely and satisfactory manner, then it could make the market even more bullish.
But if it's not, and there's "increasing belligerence," then Hayter predicts that "you'll continue to see the price lose momentum," and some of the gains of the last few months could even be wiped out.
The dispute also threatens to damage Bitcoin's reputation in the eyes of observers. Throughout its history, the digital currency has been associated with political radicalism and a level of shadiness.
A schism so huge it literally tears the digital currency in two will do little to repair Bitcoin's reputation in the eyes of sceptics.
