Traders are warning that the cryptocurrency Bitcoin could crash this week. Anyone holding bitcoin could soon face some unsettling problems—up to and including financial losses, whipsawing prices and delays in processing payments. But wait… It’s also possible that nothing much may change. It all depends on whether the people who maintain bitcoin can agree by July 31 to implement a major software upgrade, one designed to improve capacity on the increasingly clogged network.
However, this is not in agreement with everyone involved. In particular, some bitcoin “miners,” who are rewarded for verifying transactions, aren’t supporting the changes. This will lead to chain split, which implies a portion of Bitcoin’s nodes run software that another portion of nodes are not fully compatible with. This could cause a panic in the $39 billion bitcoin marketplace.
Let us take a look at the current dispute.
Bitcoin is a digital currency which lacks centralized control or regulation by any government or bank. Like cash, it lets users spend or receive money anonymously. Like other online payment services, it also lets them do so over the internet.
The coins are created by computer farms that “mine” them and verify other users’ transactions by solving complex mathematical puzzles. Miners receive bitcoin as the wage for their efforts. Alternatively, it is possible to buy bitcoins with U.S. dollars or other regular currencies from the bitcoin exchanges.
Though bitcoin has been touted as a currency of the future, so far it hasn’t proven very popular as a way to pay for goods or services. Its price, however, has gone higher amid the uncertainty. Bitcoin prices peaked in June above $3,000, and while it’s fallen back to around $1900, (as of this writing,) that’s still more than triple what it was a year ago.
PROBLEM WITH CURRENT SYSTEM
Right now, the bitcoin network has a limitation in its speed to handle digital money. As bitcoin network has grown, payment delays have become more common and worrisome.
Some software developers came up with a way to make things faster by reengineering bitcoin’s universal ledger, a file called the blockchain. Supporters of the new method include major companies such as Microsoft, the bitcoin exchange Coinbase and a variety of other bitcoin proponents who would like to see the currency used more widely in commerce.
However, this software update doesn’t have unanimous support among all bitcoin users.
JULY 31 DEADLINE
Supporters of the software update say they’ve run out of patience, and so have set a deadline for moving to the new system. At 8 p.m. Eastern time on July 31, they’re threatening to stop recognizing transactions confirmed by miners who haven’t adopted the upgrade. That would create enormous uncertainty in the bitcoin economy, since no one could really know if the bitcoin they’d just paid (or received) was actually moving through the system the way it’s supposed to.
Some big bitcoin miners, like Chinese bitcoin mining equipment giant Bitmain, haven’t yet agreed to support the new system. A rift could result in chain split, causing two or even more incompatible versions of bitcoin to exist.
This would mean chaos, though mostly limited to those who use or squirrel away bitcoin. No one using bitcoin could be sure which version they held, or what might happen if they spent it or accepted bitcoin as payment.
Taking bitcoin, for instance, could leave you with currency you couldn’t spend freely, and that might disappear entirely if it ended up being the “wrong” kind.
The community-supported website Bitcoin.org warned users Wednesday not to accept any bitcoin up to two days prior to the deadline and to wait for confirmation the situation had been resolved before trading again.
WHAT’S THE REASON FOR FIGHT
The main reason is money. Some companies that pool miners together believe the new system could result in lower transaction fees, cutting into their profits. But, the reformers foresee new business opportunities in a faster, more reliable form of bitcoin. Samson Mow, chief strategy officer at blockchain developer Blockstream, said the looming showdown has been propelled by bitcoin users frustrated at having a “simple bug fix” blocked by miners out for profit. “People are fed up,” he said. “The users are taking back their voice.”