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Bitcoin is embroiled in a civil war вЂ” here’s one way it can unfold
Bitcoin is up 250% since last year, but recently it has experienced big swings in its price. MI
A civil war is taking place in the world of bitcoin, puttingВ the future of the red-hot cryptocurrency in question.
Bitcoin is up over 250% since last year, but in the past few months its price hasВ experienced bigВ swings.
Arthur Hayes, CEO of BitMex, a bitcoin derivative exchange, told Business Insider he thinks recentВ volatility in bitcoin’s price reflects the uncertainty surroundingВ the outcome of this war, whichВ will be determined August one when crypto-power brokers determineВ how the tech that powers the currency will be structured.В
A bitcoin civil war
The ongoing bitcoin battle is connected to theВ cryptocurrency’s design. According to bitcoin evangelist Paul McNeal, bitcoin’s blockchain network, the technology that supplies bitcoins, can only process so much information at a time. To put it in more technical language, the “blocks” that carry information in the chain are limited in their size to one megabyte (MB).
This, McNeal says, was done on purpose to protect the network from hackers and other cybersecurity threats. But as the number of people using the cryptocurrency has enhanced, so too has the time it takes for transactions to process. This has made bitcoin transactions more expensive, which is one reason why merchants have been slow to accept itВ as a form of payment, according to Morgan Stanley.
That said, bitcoin faces a chicken and the egg dilemma. Consumers have limited places to spend their bitcoins and it shows up merchants do not have enough consumers to make it worth their time to invest the energy and capital to understand and accept it.
“This blockchain size issue has drawn a battle line inbetween two main camps,” McNeal told Business Insider. “On one side you have folks, mostly miners, who think the size of “blocks” should increase because it would be financially lucrative to do so, and those who want to maintain the status quo – safety and security of the network.”
Bitcoin themed balloons float in the air during the “Inwards Bitcoins: The Future of Virtual Currency Conference” in Fresh York. Reuters/Lucas Jackson
The folks who want to maintain the size of the blocksВ are referred to as the “core developers.” According to McNeal, they are the guys who maintain the code and are responsible for implementing switches when necessary for future innovation. By doing soВ they keep the blockchain stable.
Their view is that an increase in the size of blocks above the current one MB cap would jeopardize the entire network.
As such, they have come up with an alternative solution to the problem called SegWit. According to reporting by Bloomberg’s Lulu Yilun Chen and Yuji Nakamura, this solution would budge some activity on the bitcoin blockchain to an outside network.
“But moving data off the blockchain effectively diminishes the influence of miners, the majority of whom are based in China and who have invested millions on giant server farms,” Chen and Nakamura wrote.
In order to find middle ground, some “business executives and miners” created a proposal called SegWit2X, which would stir the threshold for implementing SegWit down to 80% and also permit for a puny increase in the size of blocks on the chain to two MB, according to McNeal.
But “fundamentalists” on both sides of the argument are holding their position. This could eventually lead to a splitВ in the bitcoinВ world, thereby creating more than one bitcoin currency.В
What will happen next?
Arthur Hayes, CEO of BitMex. Arthur Hayes
Hayes told Business Insider that a split, or fork, is very likely.В
“Support for SegWit2x has reached levels unseen for previous solutions,” according to Bloomberg with about 85% of miners reporting they will agree to the fresh bitcoin setup.В
Those who hold out willВ either remain with the old system or adopt their own. When all is said and done, Hayes thinks there could be up toВ four different bitcoinВ iterations.В
As a result, the price of bitcoin will proceed to rise and fall sporadically until the August one deadline, according to Hayes. He expects jumpy bitcoin investors to stir over to Ethereum, the popular bitcoin rival. On Wednesday the price of an ether token, the token powered by the Ethereum blockchain, was up 20%. But that doesn’t mean he’s bearish on bitcoin.В
“Sure, people are going to get out as a result of this uncertainty and the price will fall,” Hayes said.
“But there are people with billions of dollars of skin in the game and they will ultimately go with the superior bitcoin network, and then the market will go after,” Hayes concluded.В
In the end, he thinks the winning bitcoin could reach $Five,000 aВ coin.В