Bitcoin prices suffered further losses this past week. As the reality of the Securities and Exchange Commission (SEC) rejection sunk in, concern among investors has grown amid signs of an impending hard fork — a “great schism” of bitcoin, if you will.
While last week the popular cryptocurrency had recovered from a 17 percent loss in the first hour post-SEC rejection, trading into Friday (March 17) saw bitcoin heading downward once more. By Saturday, bitcoin was below $1,000 for the first time in over a month by CoinDesk’s estimate.
Bitcoin went on a bumpy ride through the week, gaining some and then losing nearly as much. While prices are up from Saturday’s low, growth has largely been tempered. At the time of writing, one bitcoin was worth $1,039.93, up 0.24 percent from the end of trading on Wednesday and trending flat. The popular cryptocurrency’s estimated market cap sat at just above $16.9 billion.
In the past few weeks, bitcoin traders have started sensing a growing likelihood that the bitcoin network could split into two competing digital currencies. Investor concern (and trading bitcoin for rival cryptocurrency ether) likely led to bitcoin’s latest woes.
“Bitcoin traders may have wanted to offset some of their exposure should a fork occur or the scaling deadlock continue, and ether seems to be the most promising alternative,” Aurélien Menant, founder and CEO of Gatecoin, told CNBC. “Bitcoin-ether volumes have surged since and are currently rivaling bitcoin-fiat currency trading liquidity.”
The issue stems from a long-existing debate in the bitcoin community over block size that has come to a head in recent weeks. In a nutshell, block size effectively caps the amount of data that can be included in bitcoin transactions. This limits how many bitcoin can be produced and how many transactions the system can handle.
As interest in bitcoin, trading volume and size of transactions have grown, bitcoin’s block size has slowed payment processing and transaction backlogs. In the past six months alone, the reported number of backlogged transactions has tripled.
In the past, some suggested that growing bitcoin’s capacity would destroy the virtual currency. Others believed that the ideological block size divide prevented innovation. Innovation that, in part, could be key to future legitimacy plays, like addressing the SEC’s concerns about the bitcoin market.
As of now, there are two conflicting modes of thought on the block size and the future of bitcoin. One contingent under the “Bitcoin Unlimited” banner looks to update the bitcoin network, expanding the block size to support a larger volume of small transactions. The other side, “Bitcoin Core,” favors smaller changes and fewer transactions.
With some 40 percent of bitcoin miners support Bitcoin Unlimited, according to data cited by Forbes, there’s more than enough in each ideological camp to support competing operations.
But a hard fork can cause problems on both sides. During ether’s hard fork last year, for instance, both sides saw operations interference, including a high number of transaction replays — when a transaction on one blockchain is also included in another accidentally.
While many schisms throughout history have been resolved by councils of leaders agreeing to disagree (or by mutual excommunication), bitcoin’s decentralized, at times anarchic nature could make effective planning a bit tricky.
Some exchanges are already working to create contingencies in the event of a hard fork. A group of 18 exchanges recently released plans outlining procedure if the time to split comes, said CoinDesk.
“While a contentious forking event may be inevitable and may ultimately provide a path forward for on-chain capacity increases,” the exchanges wrote in a statement, “we have an obligation to our customers to provide a clear and consistent plan to minimize potential confusion surrounding such an event.”
According to the statement, the exchanges — which include the likes of BTCC, Coincheck and Zaif, among others — have a plan to list Bitcoin Unlimited as they would an alternative cryptocurrency in the case of a hard fork.
The group insisted, however, that Bitcoin Unlimited be responsible for building transaction replay protections, writing, “Failure to do so will impede our ability to preserve BTU [Bitcoin Unlimited] for customers and will either delay or outright preclude the listing of BTU.”
Separately, plans have reportedly been laid for an invite-only meeting of bitcoin industry leaders, developers and miners to discuss bitcoin’s future development and the scaling issue this coming May. (Looks like the “council” idea might be more than just an analogy. History does have a tendency to repeat itself.)