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Bitcoin miners signal revolt amid sluggish blockchain

Monday, March 13, 2017 - 20:01

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While speculators continue to push the value of the digital money to record highs against the US dollar, the system that verifies bitcoin transactions - known as the blockchain - is more backlogged than at any point in the currency's eight-year history.

[TOKYO] You may not know it by looking at bitcoin's recent price surge, but the infrastructure underpinning the world's most popular virtual currency is teetering.

While speculators continue to push the value of the digital money to record highs against the US dollar, the system that verifies bitcoin transactions - known as the blockchain - is more backlogged than at any point in the currency's eight-year history. The number of transactions awaiting verification is up more than fivefold from a year ago, and the jam is forcing users to pay increasingly high fees to speed up confirmations, which in some cases is making bitcoin more expensive to use than Visa Inc or PayPal Holdings Inc.

Now, after more than two years of bitter infighting among the global bitcoin community about how to fix the problem, some of its most influential members are giving up on reaching consensus. Instead, they've begun backing a controversial solution known as Bitcoin Unlimited. If the gamble pays off, it could ease congestion and may help bring the community back together. If it fails, the digital currency could face a hard fork into separate variants, effectively splitting bitcoin into two currencies.

"We will switch our entire pool to Bitcoin Unlimited," Wu Jihan, founder of the world's largest mining organization Antpool, said in an interview on Mar 10. His group accounts for 15 percent of blockchain activity and is hugely influential in the community. "We can't tell how the hard fork will play out. We will only know by the time we get there."

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Mr Wu is joining Roger Ver, an early evangelist who amassed a fortune and got to be known as Bitcoin Jesus. He opened his own mining collective to the public last week. Relying on his high profile in the community and an aggressive pricing scheme, Mr Ver said he's already attracted about 3 per cent of global miners and convinced them to back Unlimited.

"We need to get to 60 or 70 per cent of miners on board to activate Bitcoin Unlimited," Mr Ver said in an interview at his office in Tokyo on Mar. 9. "Combined with others, I'd say we're already close to halfway to our goal at this point." Bitcoin Unlimited is essentially a software upgrade to the blockchain. Years ago, bitcoin's early developers imposed a cap on the amount of data it could process. While that slowed down the network, it was seen as a necessary safety measure against potential attackers who could overload the system. Now, Unlimited supporters say the blockchain is robust enough that it doesn't need any limit at all.

While most agree the blockchain is stronger, critics such as Peter Todd, a key coding contributor to bitcoin, say that removing the data cap is a risky move which will leave bitcoin vulnerable to governments and global banks. Without a limit, large organizations would use their resources to out-muscle smaller miners and effectively take control of the blockchain and bitcoin itself.

"Bitcoin Unlimited is simply irredeemably broken," Todd said in an interview on Mar 11. "Large miners have every reason to vote the size up to push their competition out of business." Mr Todd contends that a better approach to easing the congestion is to make the blockchain more efficient. Last fall, the group released their own solution, called SegWit, which uses a different method to verify transactions. Mr Todd says adoption has been slow due to resistance from Unlimited supporters.

Mr Ver said the lack of support is evidence that SegWit doesn't address the actual problem: "Say you haven't had any water to drink for a day and a half, and you also need a haircut. Do you drink some water or go to the barber shop? SegWit is like going to the barber shop." Mr Wu added that miners like him have refused to adopt SegWit because he doesn't see his economic interests aligning with what is proposed by the technology.

While the rift over bitcoin's future has gone on for more than two years, Mr Todd's group have mostly held the upper hand and received support from the majority of miners who prefer to wait for a consensus-based solution instead of rocking the boat. That's helped pave the way for speculators to bid the digital currency higher, to total market value of about S$20 billion.

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