The Bitcoin Civil War
The Bitcoin civil war primarily centers on the issue with Bitcoin’s scalability. Given the rapid rise in popularity and transactions over the past 9 years, its ability to handle a growing number of transactions has now come to test. US (SPY) (IWM) based Kraken and Poloniex, South Korea (EWY) based Bithumb, Japan (EWJ) based bitFlyer, and China (FXI) (YINN) based OKCoin, BTCC, and HitBTC figure among the top 10 trading platforms (by volume) for Bitcoin trading.
Now, Bitcoin (ARKW) has come to a point where it needs to upgrade, fast.
The Bitcoin infrastructure
Under the current Bitcoin infrastructure, bitcoin transactions are verified by Bitcoin miners in batches called blocks. These blocks are then strung together to form the decentralized open ledger known as the blockchain.
Growth potential for Bitcoin’s usage had begun getting limited by the fact that the Bitcoin infrastructure was designed to handle a block size of 1MB (once every 10 minutes on average) mainly to prevent cyber attacks. Now, the increasing number of transactions on the current system has been leading to increases in the average time taken to confirm a deal. The backlog of transactions has been pushing up costs, leading to higher average processing fees.
Discussions around the possible ways of a system upgrade were met with a lot of disagreement leading to the so-called “civil war” between the two main groups essential to the running of the entire Bitcoin blockchain infrastructure.
The two sides of the Bitcoin civil war
The two sides:
- The core developers – instrumental in upholding Bitcoin’s bug-proof software
- The Bitcoin miners – serve as a backbone to the blockchain process as they verify transactions made over the blockchain network.
The Bitcoin debate
The lack of a central authority or consensus between the two sides is what is the root cause of the ongoing debate within the $67.5 billion Bitcoin market (as of August 14). The two sides of the debate are offering different solutions to Bitcoin’s data overload problem. The core developer’s solution to issue is that the Bitcoin system is to allow side-chains, which is like moving some data off the main network. This side supports the deployment of the SegWit.
However, the miners fear that the move could diminish their importance. They, on the other hand, are proposing a hard fork, that is a straightforward increase to the block size limit to say 2MB, which would amount to an increased number of Bitcoin transactions in each block. Currently, the block size is limited to 1MB. As also evident in the table above, the month of November is critical to Bitcoin holders and investors. The next part of this series explains why.