Wednesday, July 26, 2017

Some Bitcoin Backers Are Defecting to Create a Rival Currency

SAN FRANCISCO — For the last two years, rival factions have been vying for control of the Bitcoin virtual currency and its global network of computers and supporters.

Now, one of the main camps is preparing to break off and create a competing version of Bitcoin.
A group of investors and entrepreneurs, most of them based in Asia, have announced a plan to create 
what they are calling Bitcoin Cash, starting next week.

The plan would seal a divorce between opponents in a long-simmering feud over what Bitcoin should be — and lead to two competing virtual currencies going by the name of Bitcoin.

“I actually think it would be a good thing if there is a split,” said Roger Ver, a Tokyo-based investor who voiced his preliminary support for Bitcoin Cash on Tuesday.
He said the differences among the different camps had quite likely grown too stark for them to move forward together.

Bitcoin Cash could easily dissolve into irrelevance — the level of support for it is still unclear — but the concrete plans to move forward have underscored, once again, how hard it is to govern a decentralized, open-source technology like Bitcoin with no single set of leaders or ownership.
“In the long run it will be forced to develop some real political structure to take these kinds of decisions, but it just isn’t there yet, so the result has been chaos,” said Joseph Bonneau, who has studied Bitcoin and is a fellow at the Electronic Frontier Foundation, which describes itself as a nonprofit defending digital privacy, free speech and innovation.

The Bitcoin divide is part of a wider splintering of the world that has sprung up around virtual currencies.

Many people who initially got excited about the unique technology behind Bitcoin have taken advantage of the public, open-source nature of the technology and created their own new virtual currencies, like Ethereum, Ripple and Litecoin. These other systems run according to different rules than Bitcoin, with some emphasizing more speed and complexity, and some more focused on anonymity and security.

The divisions have, if anything, increased the excitement and the value of all the virtual currencies in the world — and banks and governments have announced their own projects to harness the technology.

The price of Bitcoin has recently been at record highs, near $3,000, and several other coins have grown to be worth billions of dollars on their own. A whole class of companies have raised money in recent months by creating and selling their own new digital tokens.

Until now, though, Bitcoin has remained the most valuable digital token of them all, and it has kept its followers united by a single set of rules, despite all the warring behind the scenes.

Mr. Ver has been one of the leaders of a contingent that has long wanted to change the rules governing the Bitcoin network so that it can handle more transactions and compete with the likes of PayPal and Visa.

Bitcoin Cash is set to increase the limit on the number of transactions that can be processed by the Bitcoin network every 10 minutes. Currently, the network can process only blocks of transactions that are smaller than one megabyte, which allows for roughly five transactions in a second.

The move to increase the size of the so-called blocks, though, has run up against intense opposition from the programmers who maintain the Bitcoin software.

These programmers, known as the core developers, have said that increasing the amount of data included in each block of transactions would make it harder for individual users to process the blocks and easier for a small number of companies to take control of the Bitcoin network.

“It destroys the Bitcoin ethos, which is open and permissionless, where nobody is telling you what to do,” said Samson Mow, the chief strategy officer at Blockstream, a company that employs some of the most prominent core developers.
The core developers have come up with their own solution to increase the number of transactions flowing through the system with software known as Segregated Witness, or SegWit. Mr. Ver and others, though, have said SegWit does not expand Bitcoin fast enough to keep up with its recent growth in popularity.

The arguments have given way to vicious mudslinging and hacking attacks against the leaders on both sides, leading some prominent developers to leave the project.

Proponents of increasing the block size, like Mr. Ver, have put forward proposals in the past that have failed to garner majority support in the community, in part because of concerns about the sophistication of the programmers working on the projects.

While Bitcoin Cash will not exist until next week, a small number of exchanges have begun trading futures contracts, tied to the expected price of Bitcoin Cash. On Tuesday, it was trading around $450, or a fraction of the $2,600 value of an ordinary Bitcoin.

As recently as last week, it appeared that the major Bitcoin players had found a compromise that would avert a split in the network, or a fork as it is known in Bitcoin world.

Many of the largest Bitcoin companies agreed in May that they would install the SegWit software the core developers created, while also moving toward a doubling of the size of each block of transactions, to two megabytes, in November.

The largest Bitcoin processors had signaled last week that they intended to begin running the new software on Aug. 1. But the developers have suggested that they do not intend to move forward with any increase in the size of the blocks in the coming months.

One of Mr. Ver’s many investment holdings, Bitcoin.com, announced on Tuesday that it would put all of its resources behind Bitcoin Cash if the block size has not been doubled by November.

To gain traction more broadly, Bitcoin Cash will have to win backing from the broader community of so-called Bitcoin miners.

Bitcoin miners are best known for using specialized computers to unlock, or mine, new Bitcoins. But miners also process Bitcoin transactions and have voting power over any changes to the Bitcoin network in direct proportion to the amount of computing power they dedicate to the network.

One significant Chinese mining operation, ViaBTC, has been an outspoken supporter of Bitcoin Cash and has said it will begin backing the system next week.

The largest Bitcoin mining operator in the world, a company known as Bitmain, is a primary investor in ViaBTC. That has led many in the Bitcoin world to expect that Bitmain will also provide backing to Bitcoin Cash. But Bitmain has so far said only that it does not “rule out” supporting Bitcoin Cash.

When Bitcoin Cash comes into existence, every current holder of Bitcoins will have access to an equivalent amount of Bitcoin Cash, but from that point forward the two systems will diverge.

In the coming weeks, Bitcoin enthusiasts on all sides of the debate will be watching closely to see which big Bitcoin companies offer support for people who want to hold, trade and mine Bitcoin Cash.

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