An agreement to upgrade the speed of processing transactions propelled bitcoin to new heights on Thursday (May 25). The value of the cryptocurrency soared another 10 percent to land at $2,690, bringing this year’s total gains to 182 percent.
Bitcoin’s Satoshi blockchain can only process so much data, and this was creating a backlog in transaction processing. The digital currency processes transactions in blocks of 10, and miners must verify each block by cracking complex calculations before the block is added to the public ledger, or chain.
With more and more businesses accepting bitcoin and with user confidence on the rise, blocks of 10 just weren’t big enough anymore.
Barry Silbert, founder of Digital Currency Group, this week posted a pact signed by more than 50 companies, which commits to increasing the block size and activating a new way of verifying transactions called Segregated Witness.
“It’s pretty significant to put this forward, have a consensus and move forward with a solution,” said Ryan Rabaglia, head trader at Octagon Strategy Ltd., a digital currency trading firm in Hong Kong. “It’s always been on the back-burner as something that can potentially disrupt bitcoin’s growth.”
Segregated Witness removes data related to signatures from bitcoin transactions, making them smaller in size so that more transactions can fit in a block. It was first presented at the Bitcoin Scaling Conference in Hong Kong Dec. 6, 2015.
In addition to capacity increase, Segregated Witness introduces several other attractive benefits: elimination of unwanted transaction malleability, weighting data based on how it affects node performance, increased security for multisig and script versioning.
Segregated Witness is a soft fork, meaning the current chain is being developed in a secondary direction that will still be compatible with and considered valid by the original chain. With a soft fork, the new rules are more restrictive and create a subset of the previous blocks, rendering all new blocks valid under the old rules (much as a square is valid as a subset of rectangles).
However, the pact proposes to activate a 2-MB hard fork within six months, which will require all users to consent to switching to the new form, as blocks in the older version will no longer be compatible with the new chain.
According to the pact, “We are also committed to the research and development of technical mechanisms to improve signaling in the bitcoin community, as well as to put in place communication tools, in order to more closely coordinate with ecosystem participants in the design, integration and deployment of safe solutions that increase bitcoin capacity.”
Coinbase, btc.com and Coins.ph are just a few of the supporters getting behind the pact.