Finance & economics | Bitcoin

Forking hell

A spat exposes unwieldy governance at the digital currency

“FEDERAL Reserve deeply split. Renegade group of board members to create separate American dollar.” Such a headline seems highly unlikely, but this in essence is what is happening in the land of Bitcoin, a digital currency. On August 15th two of its main developers released a competing version of the software that powers the currency. With no easy way to resolve feuds, some are warning that this “fork” could result in a full-blown schism.

The dispute is predictably arcane. The bone of contention is the size of a “block”, the name given to the batches into which Bitcoin transactions are assembled before they are processed. Satoshi Nakamoto, the crypto-buff who created the currency before disappearing from view in 2011, limited the block size to one megabyte. That is enough to handle about 300,000 transactions per day—suitable for a currency used mainly by geeks, as Bitcoin once was, but nowhere near enough to satisfy the growth aspirations of its boosters. Conventional payment systems like Visa and MasterCard can process tens of thousands of payments per second if needed.

By how much and when to increase this limit has long been a matter of a heated debate within the Bitcoin community. Overlapping cabals of “core maintainers” and “main developers” serve as de facto keepers of the currency, especially in Mr Nakamoto’s continued absence. Now one camp wants to increase block sizes, and do it soon. Otherwise, they argue, the system could crash as it runs out of capacity as early as next year. Transactions could take hours to confirm and fees could rocket, warns Mike Hearn, a leading Bitcoin developer. “Bitcoin would survive,” he wrote in a blog post in May, “but it would have lost critical momentum.”

The rival faction, supported by other heavyweight developers, frets that rushing to increase the block size would turn Bitcoin into more of a conventional payment processor. The system currently relies on thousands of independent “nodes”, computers dotted across the world that check whether transactions are valid and keep tabs on who owns which bitcoins. Increasing the block size could make the whole edifice so unwieldy as to dissuade nodes from participating, so hastening a recent decline in users. The result would be a more centralised system, prompting angst among Bitcoin purists who fret concentration could undermine the currency.

How Bitcoin works

The dispute is as ideological as it is technical. The Bitcoin community has a process to settle such controversies, but it is by design slow and produces decisions only when everybody is happy. Frustrated that the discussion has kept dragging on, Mr Hearn and Gavin Andresen, another Bitcoin grandee, decided to press the issue by organising a referendum of sorts: they have called on “miners”, specialised nodes that assemble the blocks and mint new bitcoins, to install their new version, called “Bitcoin XT”. Once at least 75% of the blocks are processed by XT, but no earlier than January, it will upgrade to a block size of a maximum of eight megabytes (and double that limit every two years). The nodes that then still run the old “Bitcoin Core” software would find themselves excluded from the system.

Predictably, this move has increased the temperature of the debate. On discussion sites such as Reddit, moderators have censored mentions of XT because they see it as an effort to undermine the Bitcoin community. Comments purportedly made by Mr Nakamoto warning that a fork would lead him to “declare Bitcoin a failed project” have been widely dismissed as a hoax.

Despite all the sound and fury, a genuine split is still unlikely. Like doves and hawks at an old-fashioned central bank, the two sides will probably agree on some sort of compromise, perhaps at two fun-sounding “Bitcoin Scalability Workshops” scheduled for later this year. And even if miners get to decide by using the version they like, this would probably not lead to a Bitcoin split. Once it becomes clear which version is likely to prevail, all miners will have an incentive to join the winning side. Already, 13% of nodes have jumped on the dissident XT bandwagon, albeit few miners. Whether majority rule is the best way to run a system with Bitcoin’s pretensions is an entirely different question.

This article appeared in the Finance & economics section of the print edition under the headline "Forking hell"

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