The Looming Problem That Could Kill Bitcoin
- by Tom Simonite
- August 28, 2015
The way things are going, the digital currency Bitcoin will commence to malfunction early next year. Transactions will become increasingly delayed, and the system of money now worth $Trio.Three billion will begin to die as its flakiness drives people away. So says Gavin Andresen, who in two thousand ten was designated chief caretaker of the code that powers Bitcoin by its shadowy creator. Andresen held the role of вЂњcore maintainerвЂќ during most of BitcoinвЂ™s improbable rise; he stepped down last year but still remains strenuously involved with the currency (see вЂњThe Man Who Indeed Built BitcoinвЂќ).
AndresenвЂ™s gloomy prediction stems from the fact that Bitcoin canвЂ™t process more than seven transactions a 2nd. ThatвЂ™s a lil’ volume compared to the ems of thousands per 2nd that payment systems like Visa can handleвЂ”and a limit he expects to embark crippling Bitcoin early in 2016. It stems from the maximum size of the вЂњblocksвЂќ that are added to the digital ledger of Bitcoin transactions, the blockchain, by people dubbed miners who run software that confirms Bitcoin transactions and creates fresh Bitcoin (see вЂњWhat Bitcoin Is and Why It MattersвЂќ).
AndresenвЂ™s proposed solution triggered an uproar among people who use or work with Bitcoin when he introduced it two weeks ago. Rather than continuing to work with the developers who maintain BitcoinвЂ™s code, Andresen released his solution in the form of an alternative version of the Bitcoin software called BitcoinXT and urged the community to switch over. If seventy five percent of miners have adopted his fix afterВ January 11, 2016, it will trigger a two-week grace period and then permit a вЂњforkвЂќ of the blockchain with higher capacity. Critics consider that to be a reckless toying with BitcoinвЂ™s future; Andresen, who now works on Bitcoin with the support of MITвЂ™s Media Lab, says it is necessary to prevent the currency from strangling itself. He spoke with MIT Technology ReviewвЂ™s San Francisco bureau chief, Tom Simonite.
How serious is the problem of BitcoinвЂ™s limited transaction rate?
It is urgent. Looking at the transaction volume on the Bitcoin network, we need to address it within the next four or five months. As we get closer and closer to the limit, bad things embark to happen. Networks close to capacity get congested and unreliable. If you want reliability, youвЂ™ll have to begin paying higher and higher fees on transactions, and there will be a point where fees get high enough that people stop using Bitcoin.
Why take the provocative step of releasing an entirely fresh version of Bitcoin?
It was a difficult decision. IвЂ™ve been lobbying pretty hard behind the scenes for the last eight months, butВ was having trouble even getting developers to agree that there was a problem. I had to go public and actually release the code and let people essentially vote with their feet. Now that weвЂ™ve done that I think you see people eventually coming around to the idea that this is a high priority problem. IвЂ™m not blessed that it had to come to that, but I think in the long run it will be a good thing.
Some major Bitcoin companies have endorsed your proposed way of enhancing the block size, and some miners have even adopted BitcoinXT. Other companies and prominent Bitcoin developers have attacked your stir, and suggested alternative solutionsвЂ”not all backed by working codeвЂ”that are rapidly gaining support. WhatвЂ™s happening?
ItвЂ™s somewhat chaotic. ThereвЂ™s no well-defined process for coming to a decision about switches to Bitcoin and thereвЂ™s no one correct response for how to solve this problem. Things are pretty messy вЂ“ but thatвЂ™s by design. ThereвЂ™s no central committee. ThereвЂ™s no single person making these decisions for Bitcoin; it takes consensus among the people running the software. ItвЂ™s a good thing that decisions like this are truly hard to make happen.
Do you think that consensus can be reached?
ItвЂ™s pretty clear that the maximum blocksize is going to increase. I donвЂ™t know exactly how or exactly when. I donвЂ™t think itвЂ™s clear yet that my proposal will generate enough consensus among miners and the other ecosystem players.
What will happen if nothing is done?
Transactions will get unreliable and itвЂ™ll get worse and worse over time. My fear is thereвЂ™ll be no critical event that causes people to reactвЂ”Bitcoin just kind of has a long slow death. IвЂ™m attempting to set off alarm bells for вЂYou know, guys, if we donвЂ™t do this, Bitcoin will be dead in four years.вЂ™ ItвЂ™s not effortless to sell that, especially when thereвЂ™s so much controversy.
If BitcoinXT activates, it will recognize existing Bitcoins. But not fresh Bitcoins created by miners who donвЂ™t switch. Is that dangerous?
ItвЂ™s pretty hard to get left behind. Once the Bitcoin core software sees that fifty percent of mining power has upgraded and you havenвЂ™t, itвЂ™s going to warn you that you need to upgrade. It would be awfully difficult to be taken by surprise. The economic incentives to switch would be so strongвЂ”you want your Bitcoins to be the same Bitcoins that everyone else is using.
How widely established is Bitcoin now anyway?
ItвЂ™s stiffly established in a few niche areas and growing there. An early use case is people who pay international contractors in Bitcoin because itвЂ™s lighter than figuring out how to transfer dollars into local currency. The major barrier to it going mainstream anywhere is there has to be some way of getting Bitcoin as part of your normal activity. Until part of your paycheck is regularly paid in Bitcoin, IвЂ™m not sure how it would truly go mainstream. I can imagine places in the world where there are not functioning banking systems, or payroll systems, where it could go mainstream very first, because youвЂ™re not attempting to substitute the way people are already doing something.
I still say do not invest your life savings in Bitcoin. It is still an experiment and it could still fail.В