A STALEMATE between two warring factions within the Bitcoin community has failed to dent the cryptocurrency’s meteoric rise in recent weeks.
Bitcoin crept above the $10,000 milestone during the week and was trading at around $9,800 yesterday – ten times higher than a year ago. In the last six weeks alone, its value has doubled, driven higher by news the world’s largest derivatives exchange operator CME Group is to launch Bitcoin futures.
Adrian Przelozny, who runs one of Australia’s largest digital currency exchanges Independent Reserve, said demand from new customers had “exploded” in recent months, with the exchange handling an average daily trade volume of close to $5 million.
“We’ve been growing quite quickly, particularly in the past six months it’s exploded as there’s been very high growth across the industry,” he said.
“We’re getting about 200 to 400 new customers every day, our revenues have probably increased 100-fold in the past year and we’re hiring new people every week.”
“We’re growing as fast as we’re able to but we’re trying to control that growth.”
While speculators and investors have driven Bitcoin’s market value to more than $150 billion, behind the scenes the currency’s power brokers have been arguing over the best way of improving transaction speeds and cutting processing fees on the increasingly congested network.
To put things into perspective, the Bitcoin network is limited to processing around seven transactions per second, compared to VISA’s network which has a peak capacity of about 56,000 transactions in the same time.
On one side of the debate are the miners – people who receive Bitcoin in exchange for crunching complex maths problems to generate the digital currency – who are in favour of an upgrade that would increase the size of each block of the Bitcoin block-chain.
On the other side are the developers and users who fear the change would consolidate too much power into the hands of too few miners.
A so-called “hard fork” was expected to settle the matter next week, threatening to divide the Bitcoin community into two separate networks and two competing versions of the digital currency.
However, backers of the capacity upgrade – known as SegWit2x – backed out last week after failing to convince enough users to make the switch.
In an email sent by Mike Belshe – the chief executive of Bitcoin security company BitGo and a key supporter of SegWit2x – he said “keeping the community together” was more important than pushing ahead with a divisive technology upgrade that could be “a setback to Bitcoin’s growth”.
Block-chain expert and founder of the Distributed Technologies Institute, Joshua Buirski, said a three-year battle between the two factions had turned personal in recent months, and would continue as long as the “scaling drama” was left unresolved.
“Both sides agree that there is a need for scaling but the disagreement lies in the appropriate way of doing it,” he said.
“Whenever you’ve got economic interests at stake people start to get very passionate. It’s become kind of like a religion really – there’s a couple of sects with varying interpretation of the original text.”
It is not the first time Bitcoin’s major players have faced off over the question of how to scale Bitcoin for the masses.
In August, a group of miners split off from the legacy Bitcoin to use a new version known as Bitcoin Cash. It is now the third largest cryptocurrency with a market capitalisation of more than $14 billion.
With the risk of another split on the horizon, investors could be in for a rocky ride in the coming months.
While CME’s futures market – to be launched this year – is expected to rein in Bitcoin’s volatility, Mr Buirski warned potential investors to do their research and avoid getting caught up in the hype.
“My advice would be not to jump in for the sake of jumping in as there’s arguably more downside risk to upside potential,” he said.