New Version of Bitcoin Threatens to Split Cryptocurrency Loyalists

Created by two prominent developers, Bitcoin XT represents a technical and philosophical divergence.

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The Bitcoin Foundation's chief scientist, Gavin Andresen, and well-known developer, Mike Hearn, have released a competing version of Bitcoin software called Bitcoin XT that allows for faster transaction processing, addressing fundamental limits on the current system's scalability. From PCWorld: 

Bitcoin XT would let the blockchain, a public database of transactions that can be modified by all users, accept blocks of data that are larger than 1 megabyte. The limit had been incorporated into the current system by Satoshi Nakamoto, the mysterious founder of bitcoin, but has been debated because it limits the number of transactions that can be processed by the block chain system—currently about three to seven per second.

Under Bitcoin XT, the system would support blocks of up to 8MB, which would allow up to 24 transactions per second. While that's far below the capacity of major credit card networks, it could be an important step in widening the appeal of bitcoin for mainstream users. If users have long wait times to confirm transactions, bitcoin will struggle to gain adherents beyond its current niche. 

To succeed, Bitcoin XT will have to gain enough supporters so that it's seen as the legitimate form of bitcoin. Traditionally, if 75 percent of blocks are processed with a new release of the software, it is seen as adopted by the community. A disastrous scenario would be two competing and incompatible versions of the software. 

The release is the culmination of a long-brewing disagreement among the cryptocurrency's developer community. Supporters of Bitcoin XT maintain that it is vital to increase transaction capacity as the user base grows to prevent the currency from becoming slow and irrelevant, while detractors argue the new system could lead to Bitcoin's downfall because of greater security risks and the fragmentation of the existing community.

But what started as a technical argument over data processing has become a philosophical battle over the use of Bitcoin and, perhaps more importantly, who gets to make such decisions in a completely decentralized system. Would Bitcoin XT lead to the end of the cryptocurrency, or save it from irrelevance? The leader-less community must now choose a path forward.

For Reason TV's interview with New York Times reporter Nathaniel Popper on the rise of bitcoin, watch or click on the link below for video, full text, supporting links, downloadable versions, and more Reason TV clips.