Users of Bitcoin have found themselves divided this week over how the digital currency should prepare itself for anticipated growth in coming years, with two members of the community acting independently to offer their own solution.
Bitcoin developers Gavin Andresen and Mike Hearn launched a new version of the currency's software, Bitcoin XT, over the weekend, informing the community that the new tool would be able to process more transactions per second than the old tool.
But the developers face blowback from those who are opposed to a split in the community and from users who "mine" Bitcoin transactions — or receive money in exchange for logging them — and who have more of a financial risk at stake in any changes, according to Christian Catalini, of the MIT Sloan School of Management.
"It's tricky because it's not just the developers, but the miners who have a vested interest because they made capital investments, so any change to the protocol could mean less revenue than they planned," Catalini told VICE News.
The rift highlights a turning point for the fledgling online financial tool, caught between the need to grow and its commitment to a decentralized, thoroughly democratic decision-making process among its stakeholders.
Catalini said that debates and divisions within open-source software communities are par for the course, with similar debates ongoing in the Linux developer community. The only difference here, he said, is the potential for real economic loss or gain.
"So there's a broader tension here," he said. "The whole network is trying to figure out the model for making changes and improvements that takes every stakeholder into consideration."
Mark Williams, a professor of risk management at Boston University, said he thinks the divide is "more than just growing pains." Instead, it is result of years of friction between the "anti-establishment" ethos that first created Bitcoin and the current need to monetize it. Those who started with the anti-establishment, experimental idea of Bitcoin feel like the monetization is "selling out," he said.
"If it's going to be used by the masses it has to create these capacity abilities," Williams said. "That's the challenge."
Some of the ways Bitcoin developers hope it will be used in the future include not just online payments but applications built on top of the payment system, including "smart contracts," new forms of intellectual property, and ways to "revolutionize accounting and finance to make them more efficient," Catalini said.
"I do think it's important for this debate to get resolved in one way or another, because eventually people will want to do things with the current Bitcoin model," he said.
For at least some observers, the debate signals that the Bitcoin community is functioning well, trying to resolve problems in a democratic way and remain true to its principles.
One way Andresen and Hearn tried to include the opinions of the rest of the network was by putting the new system to a sort of referendum: the new system will work fine with the old system unless — and until — the new system reaches a 75 percent share of transactions, at which point the old system will become incompatible, Catalini explained.
"So the network can vote by large majority if they want this upgrade," he said.
"If anything, the optimal block size debate at the moment demonstrates how well the Bitcoin community functions, and how intent the major players like Andresen and Hearn are to promote a truly decentralized payment system," William J. Luther, an economics professor at Kenyon College and an adjunct at the libertarian think-tank the Cato Institute, told VICE News.
Luther also pointed out that while the introduction of BitcoinXT is certainly significant, it is also anticipatory; that is, Bitcoin does not yet need increased capacity. They still don't have the volume of transactions that would require increased block sizes.
"People expect it will be a problem in the future, and frankly it is a good problem to have, and they want to start dealing with that problem today, and that foresight enables them to come up with a solution that gets introduced gradually with a lot of discussion and a lot of debate," he said.
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