Bitcoin's rival launches following developer disputes

The future of Bitcoin may be at risk due to the limit on the number of transactions it can handle, however, arguments between the fractious group of volunteers who develop the product has prevented a change in the code to allow more entries to be made on blockchain - a public ledger that is at the heart of the system. A group of developers have now created a rival version called Bitcoin Classic, which doubles the size of the "blocks" of transactions; this has resulted in two rival codebases now vying for support among users. A sign that trouble is brewing is that one of Bitcoin's main developers, Mike Hearn, resigned last month due to the disputes. One wild card in the mix is China; two Chinese operations control around 50% of the network's mining power, and they are reluctant to adopt the larger block size.

The bitcoin community can't even agree on whether it's breaking up.

Last month, Mike Hearn---an ex-Googler and one of the biggest names working on the software underpinning bitcoin---made more than a few headlines when he called the digital currency "a failed experiment." He not only parted ways with the bitcoin community. He sold all his bitcoin. He said he was fed up because the bitcoin system---software that runs across a vast network independent machines spread across the globe---was "completely controlled by just a handful of people" and "on the brink of technical collapse."

Hearn had been part of a group trying to change the bitcoin software so it could avoid that "technical collapse," and this group ran into fierce opposition from that "handful of people" at the heart of the bitcoin community---i.e. other core developers with different opinions on the future of the digital currency. He called it "open civil war."

Bitcoin is designed to operate as a democracy. This is how things are supposed to work.

"When parts of the community are viciously turning on the people that have introduced millions of users to the currency, you know things have got really crazy," he said, referring to bitcoin company Coinbase being banned from the bitcoin website and removed from discussion groups. He also complained of denial-of-service attacks against Coinbase and others, while The New York Times reported that some developers had received death threats.

But others in this Hearn's group (which no longer includes Hearn) insist that this is not a civil war, that bitcoin is not splitting up. They say the debate over the software is a natural part of the democratic process that drives the development of the bitcoin system. "Bitcoin is not having a crisis. It's having an election," says Brian Armstrong, the CEO of Coinbase, a very well funded startup based in San Francisco. "The [prevailing] mental model for what's going on is a split, a divide in the community. But the right model is an election."

Armstrong has self-serving reasons for saying this. He runs one of the world's largest bitcoin exchanges, a place where you can trade all sorts of fiat currencies for the digital currency. He definitely doesn't want anyone thinking bitcoin has failed. On Wednesday, he and his company called reporters to Coinbase's HQ just to spread that message. But he raises a good point---denial-of-service attacks and death threats notwithstanding. Bitcoin is designed to operate as a democracy, and indeed, it's deep into a major election. This is pretty much how things are supposed to work. Sure, the project needs a better governance structure, and the election tactics got out of hand at times. But, well, this is the internet. When a technology is still maturing, these things happen. People forget that when the internet itself first entered the mainstream, it was the Wild West too.

Building Blocks

The rub is that Armstrong's camp believes that if it loses the election, the bitcoin network will gradually slow to a crawl. Or, in Hearn's words, it will collapse. At issue is the size of the "blocks" that identify transactions on the network. Armstrong and those who agree with him argue that the community must increase the block size to accommodate the increasingly large number of transactions on the network. "Assuming that transaction volume keeps going up, transactions will get increasingly unreliable at random times. That's just not a good situation," says Gavin Andresen, an independent software developer who is also part of this camp and appeared via video at Coinbase's event to make the same case.

In other words, if the block size doesn't increase, they say, bitcoin is screwed. As Armstrong points out, the bitcoin network currently does about seven transactions per second. PayPal does 100. And Visa does 4,000. "Bitcoin is going to have to continue to scale," he says.

The result of the election won't have an immediate impact on individuals who use bitcoin today---let alone the average consumer, who has yet to embrace the digital currency. But it could impact the long-term future of bitcoin, a technology that promises to significantly reinvent how we deal with money. The hope is that this vast network of machines will let us move money from place to place as easily as we send texts and emails.