With the SEC’s bitcoin ETF rejection just days behind the market, bitcoin traders saw a familiar topic return today – the technology’s long simmering scaling debate.
After two years of debating the best way to address the challenges associated with bitcoin’s 1 MB block size, the digital currency’s community has so far failed to develop the consensus for any particular solution.
While Segregated Witness is now available for miners and nodes to vote on, the proposal (one long favored by its development team) has thus far failed to obtain the signaling needed for approval from miners. This has taken place as the number of transactions on the network has surged, leading a vocal contingent of the business community to aggressively seek solutions.
Yet, the situation took a decisive turn earlier today when Bitmain, the operator of Antpool, the world’s largest bitcoin mining pool, announced that it would switch its entire mining pool to Bitcoin Unlimited, a bitcoin implementation that would aggressively expand the block size.
Following this announcement, analysts have grown increasingly concerned that the bitcoin network could undergo a hard fork – a development that, if handled poorly, could create two separate bitcoin assets.
As such, traders voiced concern about the issue, with investor and Civic CEO Vinny Lingham stating simply:
“The next big milestone will be ensuring that a hard fork does not happen.”
Two bitcoins
Among traders, the prevailing fear is that a situation could arise whereby one side is effectively able to enact a change that would find network nodes and miners split into two versions of the blockchain history, divided by alternative features.
Such a situation is not without precedent. Last summer, the ethereum blockchain experienced a controversial hard fork, a development that resulted in a minority of users creating the alternative ethereum classic blockchain.
Henry Brade, co-founder of physical bitcoin supplier Denarium, went so far as to advocate that trades liquidate their holdings in the event of such a development.
“If bitcoin splits, I recommend selling everything and buying back later. It’s a trust failure much larger than MtGox. Big haircut expected,” he wrote on Twitter.
Lingham later expanded on his statement, espousing his belief the situation will end poorly should a fork occur.
Adding to uncertainty is that the long-term impact of a fork is not well understood, though data from ethereum’s two blockchains provides some insight.
Rangebound bitcoin prices
Amid this uncertainty, bitcoin prices have fluctuated within a reasonably tight range today, trading between $1,216.31 and $1,247.26, according to the CoinDesk Bitcoin Price Index (BPI).
At the time of report, bitcoin was trading at $1,239.83.
Bitcoin hedge fund operator Tim Enneking summed up the situation as one where various parties in the technical and business community are beginning to get “impatient” for a solution that would boost scalability.
He suggested the market is now in wait-and-see mode, but that there could benefits to one technical solution winning out, as long as two bitcoin assets don’t emerge.
“A resolution (regardless of who prevails) will almost certainly push the price to new highs,” he said.
This relative calm contrasts with the sharp volatility that bitcoin prices experienced in the last several days, as the digital currency reached an all-time high of more than $1,325 before the SEC’s ruling on the proposed bitcoin ETF.
Prices then plunged nearly 30% to roughly $1,022 when the government agency rejected the plan, though the digital currency has since recovered.
Decision image via Shutterstock
