Bitcoin just can't catch a break. Last Friday, the virtual currency community's hopes were dashed when the Securities and Exchange Commission denied an application to approve a bitcoin investment fund. Bitcoin quickly recovered its value, but just a week later, it looks like another potential disaster is on the horizon.
After two years of debate and acrimony, bitcoin might finally be about to implement a code change that would split the currency in two, with meaningful investments on both sides. This possibility has been a nightmare for many who support the status quo, and on Friday a group of major bitcoin exchanges—which in many ways make up the foundation of bitcoin's economy, since that's where coins are bought and sold—released their contingency plan.
An open letter signed by 18 bitcoin exchanges including some large players lays it out: If bitcoin is split into two, these exchanges will trade both versions as separate currencies. But there's a catch. The exchanges state that they'll only support the newer version if it can safely avoid issues that have plagued splits in other virtual currencies.
"While a contentious forking event may be inevitable, and may ultimately provide a path forward for on-chain capacity increases, we have an obligation to our customers to provide a clear and consistent plan to minimize potential confusion surrounding such an event," the open letter states.
The issue at hand is increasing the capacity, and size, of the "blocks" of bitcoin transactions that get uploaded to the blockchain. Right now, these blocks are almost uniformly full of transaction information, limiting the number of transactions that can go through the bitcoin network in a reasonable amount of time. For people who want bigger blocks, the argument is that if bitcoin is ever going to be used by people around the world instead of just a niche community of enthusiasts, it needs to be fast.
Enter Bitcoin Unlimited, a version of the standard Bitcoin Core client that allows miners—the people who create the blocks—to signal to other miners if they're willing to accept bigger blocks. If enough miners agree that they will process larger blocks for long enough, then Bitcoin Unlimited forks off from the main bitcoin chain, effectively becoming its own currency with its own rules. Interest in Bitcoin Unlimited has skyrocketed in recent weeks, leading the exchanges to plan for what will happen next.
One large risk of a split like this is what's known as a "replay" bug. When bitcoin alternative Ethereum split into two versions through a software fork, this bug wreaked havoc by duplicating transactions from one chain onto the other. To offer Bitcoin Unlimited on their platforms, the exchanges wrote, its developers need to protect against this.
"Failure to do so will impede our ability to preserve [Unlimited] for customers and will either delay or outright preclude the listing of [Unlimited]," the open letter states.
It's unclear what, exactly, will transpire in the coming days and weeks. But at this pivotal time in bitcoin's history, nobody wants to take any chances.
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