Bitcoin is currently in crisis and there is great concern and confusion surrounding the future of digital currency. As a result, investors in Bitcoin have sold off huge amounts but what has produced this mass panic?
Early last month, Bitcoin topped an all-time high of $1,350 but less than two weeks later it struggled to exceed the $1,000 and then recorded a low of $944.36.
The main argument surrounding Bitcoin’s future, and the one which has prompted the recent mass selloff is to do with uncertainty of how the number of blocks that process Bitcoin transactions can be increased. The digital currency has relied on fast transactions which is what made it so appealing but now, that is not the case and transactions can take days to process with that delay seemingly growing longer by the day.
With many predicting bitcoin to become the market leader in future payment technologies, having to wait days for a transaction to be cleared is far from ideal. Right now, it’s a major stumbling block in the evolution of money from psychical to virtual tender.
A solution is very much needed as it’s causing problems for a host of businesses. In 2014 Circle unveiled itself as a Bitcoin currency with the goal of taking the digital currency mainstream, three years down the line and Circle will no longer allow customers to buy and sell Bitcoin. Like many early adopters, there were big promises but bitcoin is still plagued by a whole manner of tax and regulatory issues which complicates things and even more so as the digital currency community continue to debate over its core technology creating somewhat of a civil war.
Stakeholders, developers and miners are in a fracas over the future of Bitcoin and the best way to scale the network. It’s fair to say that Bitcoin is a victim of its own success, it’s too popular and simply can’t handle the volume of transactions passing through the network.
Such transactions are known as blocks and as the currency continues to grow coinciding with the number of transactions taking place, the one megabyte size limit on blocks has become a huge issue. The length of time a transaction now takes to be confirmed makes it inconvenient for any real use.
There are two possible solutions that are being pushed for Bitcoin, “Bitcoin Unlimited” (BU) and “Segregated Witness” (SegWit), each of which are proposed software updates to the Bitcoin network. Both would change how the network functions, however, they both cannot coexist which means a choice must be made.
Bitcoin Unlimited places emphasis on the concept of Bitcoin mining where computers owned by “miners” carry out the complex work of verifying the transaction data and as a result, are rewarded with newly issued Bitcoin.
BU would allow these miners to vote in favour of increasing the block size whenever required, effectively allowing miners control of the network. It would ensure that transactions remain within the block chain and allow control to set transaction fees.
SegWit on the other hand, keeps the cryptocurrency decentralised rather than handing control to miners, and is therefore favoured by the developers of Bitcoin developers.
They would double the transactions per second capacity of Bitcoin by reconstructing the structure of transactions, detracting details such as signatures. Not only this but it would also look at moving some transactions off-chain in a way that may not benefit the miners, hence no control is handed to the miners.
This decentralisation factor is quite important as Bitcoin is far more than a financial tool, it works independently of central banks and the established financial system meaning there is no one centralised source of control that exists.