Bitcoin is in Crisis

Bitcoin is in Crisis

Cryptocurrencies have exploded in the last several years, becoming better known and more widely used each day, with countless new forms of digital currency emerging, from DogeCoin to OneCoin. Despite hard selling attempts by the creators of OneCoin and similar alternates, the original BitCoin (BTC) still reigns supreme, reaching record highs in early March 2017, and at one point becoming more valuable than gold.
The future may not be quite so bright, however, as the community faces an ideological split: the hard fork. In a nutshell, the issue becomes that the cryptocurrency has become far more popular than the original structure was designed to handle. Miners are currently limited to producing blocks with a maximum size of 1MB. As BTC becomes more and more widely used, the smaller block size simply can’t handle the volume of transactions being made. With a 1MB cap, the maximum number of transactions per second is limited to about 4. More than four transactions being made per second means that the time between sending a payment and having it confirmed by the network increases, to the point where delays impact the ability of businesses to use the cryptocurrency at all.

BitCoin is in Crisis

Currently, there are two solutions being proposed to the hard fork: Bitcoin Unlimited and Segregated Witness. While either would solve the issue, they are mutually exclusive. Moreover, they represent a difference in ideology. BTC Unlimited would give control over the block size to the miners, people who volunteer their processing power to maintain the blockchain and include transactions in return for a small fee. Segregated Witness keeps the current block size but re-engineers the way transactions are processed in order to allow more transactions per second.

BTC was created as a decentralized ideal, a way of trading without a looming government regulating the value of the currency being used. Segregated Witness keeps it that way, preventing miners from controlling the block size and fees, and thereby preventing the kind of currency manipulation that led to the initial conception of cryptocurrency. However, implementation of Segregated Witness would not be a permanent solution, as it simply increases the bandwidth available to process transactions. The growing adoption of Bitcoin means that the volume of transactions will continue to increase, and will eventually exceed the even the capability of the improved network.

BTC Unlimited would be a permanent solution, as it allows miners to vote on increasing the block size each time it becomes an issue, presumably without limit. This means that the network will always be able to handle transactions, as the block size would simply scale with the need. On the other hand, giving the miners control over the blocks would mean that they would not only control the speed at which transactions are processed, but also the fees that are taken per transaction. Getting a large enough group of miners together could present the same issue that fiat currency has: centralized control.

It’s not yet clear how this schism will be resolved. Either solution could win out, or BTC could split into two separate currencies, each competing for users, as happened to Ethereum in 2016. While this may damage the value of BTC, and will likely damage the reputation of the community, one thing is certain: cryptocurrencies are here to stay, no matter what form they may end up taking.

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