Bitcoin has been declared dead about ninety times since it’s release in 2009, but this time it’s different. Instead of a media outlet breathlessly repeating assurances from a banking sector executive that the first blockchain based virtual currency is dead, the source of the obituary was none other than Mike Hearn, a leading Bitcoin developer.
Hearn’s post on Medium exposed some of the inner workings of the Bitcoin industry, focusing in particular on the deadlock among developers regarding how to increase the maximum number of transactions per second. Hearn deserves to be heard, given the time he has devoted to making Bitcoin work, but many of his concerns have been blown out of proportion.
The majority of the article discusses an issue that has been in hot debate since the middle of 2015, the scalability of the Bitcoin’s underlying ledger mechanism, the blockchain. Bitcoin currently has the ability to handle between 3 and 7 transactions a second due to a mix of the current 1mb limit per entry to the blockchain, called a block, combined with the current methods of uploading the transactions. As it turns out, the number of Bitcoin transactions are growing at such a rate, that we, as an industry, needed to start thinking about scalability as early as last year.
Hearn’s proposed solution is a new version of the Bitcoin protocol, called BitcoinXT. There were many changes, but most importantly the block size was expanded by a factor of eight. Other developers feared that the increased block size would make it harder for smaller miners, industry players who validate transactions in exchange for the ability to create Bitcoin and receive transaction fees, to participate. The consolidation of miners would lead to centralization, removing much of the security and efficiency attributed to Bitcoin.
The other concern was the transition from Bitcoin to Bitcoin XT. The proposed modification would be added to the official software immediately, but would not activate until 75% of all clients running the Bitcoin protocol, called a node, were upgraded. The nodes that did not upgrade would continue running, but with a separate view of the state of the Bitcoin blockchain.