A high-profile Bitcoin developer has said the
crypto-currency has failed and he will no longer take part in its development.
Mike Hearn, a Zurich-based developer and long-time proponent
of Bitcoin, surprised many this weekend when he published a blog calling
Bitcoin a "failed" project.
Mr Hearn, who had until recently been working on new
software for the currency, says he has now sold all of his own bitcoins and
will no longer take part in the crypto-currency's development.
So, is Bitcoin doomed?
What is Bitcoin?
Bitcoin is a crypto-currency - a system of digitally created
and traded tokens to which value is assigned. Computers have to solve
cryptographic problems in order to add blocks to the blockchain - a ledger that
records every transaction that has ever occurred with Bitcoin.
In return, those computers receive bitcoins in a process
known as bitcoin "mining".
Users have a "bitcoin address", to which bitcoins
may be sent or from which they may be used.
Addresses are stored online in wallets that function like
bank accounts.
Although most people refer to Bitcoin as a currency, it is
worth noting that for regulatory reasons many countries - including the United
States - have decided to define it as a commodity instead.
What are the
problems?
The act of 'mining' Bitcoins is sometimes carried out by
specially built hardware.
The act of mining bitcoins is sometimes carried out by
specially built hardware
The biggest issue most bitcoin users acknowledge is how
quickly new transactions can be processed. The size of blocks being added to
the blockchain has been increasing steadily with the rise of Bitcoin.
As a result, the rate at which transactions can be processed
has been slowing.
Indeed, some transactions face significant delays, hampering
payments.
Some fear the network will eventually become oversaturated
and cease to be usable.
Who is Mike Hearn?
Mike Hearn has advocated the adoption of software for
Bitcoin called Bitcoin XT, which he helped to develop.
Mike Hearn has advocated the adoption of software for
Bitcoin called Bitcoin XT, which he helped to develop. Mike Hearn is a software developer who has
worked on Bitcoin technologies for over five years.
In 2014, he left his job at Google to focus on Bitcoin full
time.
He has worked closely with Bitcoin chief scientist Gavin
Andresen on alternative software for Bitcoin called Bitcoin XT, which aims to
address capacity issues facing the network.
Mr Andresen is generally thought of as next in the chain of
influence over the currency's development after Bitcoin's mysterious founder,
Satoshi Nakamoto.
How might the
capacity of the network be increased?
Gavin Andresen, Bitcoin's Chief Scientist, had backed the
Bitcoin XT.
Bitcoin's chief scientist Gavin Andresen had backed the
Bitcoin XT project
Currently, each block can be no more than 1MB.
But in May last year, Mr Andresen said bigger ones should be
adopted.
He later wrote, "It is more likely people [will] just
stop using Bitcoin because transaction confirmation becomes increasingly
unreliable."
The Bitcoin XT version developed by Mr Hearn, Mr Andresen
and others offers to increase the block size limit to 8MB. There are
alternatives, however.
Nic Cary, co-founder of Bitcoin start-up Blockchain, points
to BitcoinClassic, which would increase the block size limit to 2MB.
Why is there a
dispute over this?
There is often lively debate within the Bitcoin community
over how the currency should be developed.
There is often lively debate within the Bitcoin community
over how the currency should be developed.
Bitcoin's history as a "decentralised" currency
has led to much hesitation over decisions that might change its fundamental
nature. Any proposal relating to Bitcoin is likely to encourage fierce debate
and, in some cases, stagnation.
Some have argued vehemently against Bitcoin XT, causing a
deep divide in the community. The New York Times has reported that death
threats had even been made against some Bitcoin developers.
Mr Cary says the need to update the block size limit is not
as urgent as some say.
"This is a matter of perspective," he told the
BBC.
"The Bitcoin network has been updated safely dozens of
times and will continue to be the most reliable, affordable, and efficient way
to send value around the world."
However, there are some who feel that Bitcoin's potential as
a currency has already been exhausted.
"I'm sure there are smart people right now working out
what the next generation [of Bitcoin] should look like but I have to say I'm
not convinced that money or payments is the optimum [use] of the
technology," Dave Birch, a director at consultancy firm Consult Hyperion,
told the BBC.
Part of the problem was the lack of consensus over what
Bitcoin was and how it should be used, he added.
How 'healthy' is
Bitcoin?
In the past, Bitcoins stored in online exchanges have been
lost or stolen - leaving their owners out of pocket.
In the past, Bitcoins stored in online exchanges have been
lost or stolen - leaving their owners out of pocket. Bitcoin's price fell quite
sharply over the weekend, following the publication of Mr Hearn's blog.
One bitcoin is now worth $380 (£265), down from about $430
on Thursday.
However, the price of Bitcoin is notoriously volatile.
It has been classed as the best performing currency in the
world in 2015.
But authors of that analysis, The Money Project, also noted
it was the worst performing currency the previous year.
Besides price, Bitcoin has also suffered from a litany of
cases in which bitcoins have been stolen from online exchanges in which they
were stored, in some cases due to negligence or poor security. Such incidents
generally result in a complete loss of funds for the victims, since it is very
difficult to trace where stolen bitcoins have been transferred.
Meanwhile, the currency continues to grow - a sign of good
things to come, say many.
What will happen
next?
An increasing number of businesses - even pubs - have
started accepting Bitcoin.
An increasing number of businesses - even pubs - have
started accepting Bitcoin
Bitcoin remains popular.
There is still huge interest in developing both the currency
and technologies based on the blockchain idea of recording data.
It seems unlikely the currency will collapse overnight.
But it certainly look as though fundamental questions over
how Bitcoin works are now coming to a head.
Whether the community that uses and supports Bitcoin will be
able to come to a consensus on these matters remains to be seen.
Mr Hearn has lost faith in the project, of that there is no
doubt.
But many others are refusing to throw in the towel just yet.
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