The Economist: Making Bitcoin Work Better
IN DIFFERENT circumstances the two people could be good friends. Each is rather shy and very smart. And each is passionate about bitcoin, a digital currency. One invented hashcash, which foreshadowed components of the crypto-currency; the other is the author of the first Chinese translation of the white paper in which Satoshi Nakamoto, the elusive creator of bitcoin, first described its inner workings.
Adam Back is the chief executive of Blockstream, a British startup, which employs some of the main developers of the software that defines bitcoin’s inner workings. Jihan Wu is the boss of Bitmain, a Chinese firm, which makes about 80% of the chips that power “miners”, specialised computers that keep the bitcoin network secure, confirm payments and mint new digital coins. But far from being fellow-travellers, each represents one of the two main camps in what has come to be called a “bitcoin civil war”, fought over how, if at all, the system should grow.
The worst seems to have been avoided. On July 21st a large majority of miners signalled their support for a compromise, reducing the risk of a split of bitcoin into different currencies and driving its price back up towards $3,000 (see chart). But a “fork”, as some call this possible split, may only have been delayed: the issues underlying the dispute have not been truly resolved.
At issue is the size of a “block”, the name given to the batches into which bitcoin transactions are assembled before they are added to a decentralised digital ledger, called “blockchain”, that contains the payment history of all bitcoins in circulation. Mr Nakamoto limited the block size to one megabyte, meaning that the system can only handle a maximum of seven transactions a second. Payment systems like Visa can process thousands in that time. With demand growing steadily, the system started to slow; users had to offer miners fees of several dollars a pop to get their transactions processed speedily.