Monday, February 1, 2016

Longtime Bitcoin Developer Quits, States It Has "Failed"

By Bixyl Shuftan

Bitcoin, the noted electronic currency that's gained a following among computer geeks attracted to the idea of a worldwide virtual currency and those looking for an alternative to the US dollar and other currencies backed by big banks, has made news time to time, such as when it went through wild price swings in March and April 2013, and when one of it's largest exchanges, Mt Gox, went bankrupt in Feb 2014. Since then, the Crypto currency has continued on, making news recently as the best performing currency in 2015, gaining close to 40 percent.

But a couple weeks ago, it was dealt a major setback when one of it's developers and longtime advocate, Mike Hearn, sold all his bitcoin and published a blog, saying Bitcoin had failed, and would no longer be taking part in it. He wrote, "It has failed because the community has failed. What was meant to be a new, decentralized form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down ..."

So what are the problems? The big one, Hearn stated, is that the rate at which Bitcoin transactions can be made has been decreasing to the point it's networks are running out of capacity and becoming unreliable. Backlogs at peak times are becoming increasingly common. The blocks in it's blockchain have been steadily increasing, but the capacity cap of each block remains unchanged. While there are several reasons that the capacity limit hasn't been raised, the big one is that it's been effectively controlled by Chinese miners, "just two of whom control more than 50% of the hash power. At a recent conference over 95% of hashing power was controlled by a handful of guys sitting on a single stage."

So why won't they allow the capacity to grow? Hearn wrote, " the Chinese internet is so broken by their government’s firewall that moving data across the border barely works at all, with speeds routinely worse than what mobile phones provide. Imagine an entire country connected to the rest of the world by cheap hotel wifi, and you’ve got the picture. Right now, the Chinese miners are able to — just about — maintain their connection to the global internet and claim the 25 BTC reward ($11,000) that each block they create gives them. But if the Bitcoin network got more popular, they fear taking part would get too difficult and they’d lose their income stream. This gives them a perverse financial incentive to actually try and stop Bitcoin becoming popular."

As Hamlet Au would comment in New World Notes, "Ironically enough ... a currency that is so appealing to libertarians" was being strangled "because of well, the Chinese Communist Party. ... A virtual currency which promised to free us from government oversight and oppression is being successfully strangled in its crib by one of the world's most oppressive regimes. Without hardly even trying."

Despite this blow, Bitcoin remains popular. And it's unlikely it will collapse anytime soon. But as Chris Baraniuk writing for the BBC put it, "it certainly look(s) as though fundamental questions over how Bitcoin works are now coming to a head."

Sources: Mike Hearn, BBC, New World Notes.

Bixyl Shuftan

1 comment:

  1. As a rebuttal, the news of Mike Hearn is weeks old. The Bitcoin community has moved on from his perspective. Granted, as a 'libertarian currency', it has failed miserably. But those seeing only Bitcoin as the savior of freeing us from oppressive controlling factors still doesn't have their heads wrapped around the potential of digital currencies and the blockchain.

    Case in point: Linden dollars. There was a brisk ecosystem of exchanges and small businesses thriving due to the fact that the Linden was an up and coming digital currency. But then the feds got scared and established FinCEN to stop ill perceived money laundering, which was also tied to Bitcoin through at least one exchange that I know of. They also squelched several other game currencies in the process. Has that stopped the public from using either Lindens or Bitcoins? There has been a small explosion of secondary digital currencies like Dogecoin to run along side of Bitcoin.

    The concept isn't that "Bitcoin is dead" or "Lindens are dead". it rather that the public at large is finally waking up to the fact that digital currencies are a viable alternative to business as usual, that you can get, say, 1000 Lindens, and 10 Bitcoins and 50 Dogecoins and however many thousands of game points and combine them in a master wallet like PayPal that is also used for your default world currency. You go to any default world store, or online mom and pop, and you can pay with PayPal and its all figured out automatically. THATS the potential of the future of digitization. Those that are whining that they aren't getting rich will whine about whatever currency they are investing in, including precious metals like gold.