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This is not the best of times for popular digital currency Bitcoin and its fans, as a grave schism is forming between main developers of the cryptocurrency. Two of the leading programmers have released an alternative version of the bitcoin software, effectively signaling a potential split in the community.

In an unprecedented and significantly unexpected move, prominent Bitcoin programmers Mike Hearn and Gavin Andresen on August 15 released a “fork” variant of the software powering the leading cryptocurrency. The dissenting developers, whose forked release is called Bitcoin XT, attributed their action to desire for growth in the Bitcoin ecosystem – something they believe isn’t attainable under current arrangement.

To get the full import of having a rival in form of Bitcoin XT in the Bitcoin community, just picture an economy with factionalized central banks issuing different currency. The phenomenon has even been likened to a civil war. Yet, Hearn and Andresen claim their action was taken in line with the vision of the pseudonymous Bitcoin founder Satoshi Nakamoto.

Hearn and Andresen are part of a five-man group of developers that oversee the open-source Bitcoin project. Hearn was the former chairman of the Bitcoin Foundation, while Andresen is the foundation’s chief scientist.

Source of disagreement

The ongoing dispute is in regard to Bitcoin “blocks” – units of transactions that are created around every 10 minutes and recorded on the blockchain. The size of each block was limited to one megabyte by Satoshi to keep the system from being clogged with spam. The size limit is reportedly enough to handle 300,000 transactions a day, sufficient enough for a currency that was virtually used by a select group of people in its early years. However, the block size is nowhere near enough for processing the amount of transactions processed by payment processors such as MasterCard and Visa.

Increase in the Bitcoin adoption level has made the one megabyte block size appear rather inadequate. As more and more people starts to use Bitcoin, the network draws near its maximum capacity and possible system clogging. Currently, just between 30 and 40 percent of network capacity is being used on average, but occasional congestions do occur, leading to delayed transactions.

It is feared that the current block size limit could undermine the growth of Bitcoin use if nothing is done about it. This is the reason Hearn and Andresen are proposing Bitcoin XT as a way out of the quagmire. The problem here is that the limit cannot be unilaterally raised – a mutual agreement must the reached since consensus is an integral part of decision-making in the Bitcoin network. But with the developers unable to reach a consensus agreement, a schism is the result when one party decides to raise the limit on its own, effectively creating two rival versions in the Bitcoin network. This outcome could be quite catastrophic for the popular cryptocurrency.

Opponents of a raise in block size limit have different reasons for their stance. One of these is that it could possibly lead to centralization by further lowering the number of computers participating in the network. It is also argued that the network has a built-in system of fees that can help strike a balance between supply and demand to keep congestions in check. Some think raising the limit is nothing but a trivial, quick fix that does not address other issues.

Departure from vision

In an op-ed, Hearn claims that Satoshi had scaling up of Bitcoin as it becomes more popular in mind right from the start, so that it can be used in the future for billions of transactions like Visa. He said the vision signed up for by him, Andresen and others like them is now being hijacked by “a small group of people” who fear success and desire to make drastic changes to Satoshi’s vision.

The Google engineer said block size was limited in the early days to keep the blockchain under control until SPV wallets were developed. He said the arrangement was not meant to be permanent and there was plan to phase it out along the way. The limit of the present system will be reached by 2016 or, latest, 2017, according to Hearn. That could grind the Bitcoin network to a halt, necessitating urgent action. The call for a raise in block size limit is supposedly supported by many leading actors in the Bitcoin space, including well-funded startups such as Coinbase and BitPay.

The Bitcoin XT angle

Bitcoin XT, the full version of which is now available, is essentially the same as the existing Bitcoin protocol that is described as “Bitcoin Core” by Hearn. But the new software comes with significantly enhanced block size of eight megabytes, which will reportedly be doubled every two years. Miners are currently being encouraged by the software developers to give it a try.

For now, Bitcoin XT is running concurrently with the old system. The block size will not increase until January next year, and that will only happen if at least 75 percent of miners have made the switch to the new software. The remaining 25 percent yet to make the switch at that point will have no other option than to follow suit. Once the block size rises, a split will occur between the two bitcoin versions and transactions carried out on either will not reflect on the other.

What could happen?

It is not exactly clear what to expect from this new development, but it could potentially be catastrophic is not properly managed. Hearn states that majority of Bitcoin users will not be significantly affected in that they only run wallets, which will automatically adjust to whatever final decision made.

The Bitcoin XT developers would have set a standard for resolving debates in the community if they manage to get the upper hand. But if things were to generate to the point of having two Bitcoin versions, the future of the cryptocurrency looks rather bleak, with possible plunge in value – this is capable of discouraging more people from adopting the currency.

Around eight percent of all miners have already jumped ship to Bitcoin XT – still a long way from the 75% mark. The debate on the new software is heated on online platforms such as Twitter and Reddit, where mere mentions of the new Bitcoin version have been censored.