Is the Bitcoin XT Hardfork actually a new currency? -

Is the Bitcoin XT Hardfork actually a new currency?

Ray Walsh

Ray Walsh

August 21, 2015

For quite some time now, a heated debate has been happening in the Bitcoin community due to the finite amount of space available within the blocks of the Blockchain.  The Blockchain is the public ledger system that holds Bitcoins together: it’s the clever bit. It’s so smart, in fact, that financial institutions and entrepreneurs all over the world are trialing the system for a huge variety of applications.   

In Bitcoins, the Blockchain (which was invented by Satoshi Nakamoto) is used to hold the records of every transaction ever made. This public ledger makes Bitcoin extremely unusual because it allows Bitcoins to exist entirely separately from the usual financial institutions. Deregulated and decentralized – thanks to the sophisticated cryptographic nature of the Blockchain – it is what is referred to in Nakamoto’s own words as a ‘truly peer-to-peer electronic cash system’.   For this reason alone, Bitcoins are immutable. Every block is digitally marked in such a way that altering any entry invalidates every one preceding it going right the way back to the very first block.

So what is the problem?  At the moment, each block in the Blockchain is one megabyte in size, and those blocks are slowly filling up.  In fact, top Blockchain developers have estimated that by winter of 2016 the Blockchain will begin to suffer irreversibly from this small block size – making the whole Bitcoin system sluggish and inoperable. 

For this reason, Bitcoin developers have suggested a Hardfork where all Bitcoin users move into a new Blockchain with 8-megabyte Blocks. At a first glance, this seems like a good idea, and it probably would work if everybody went along with it. Unfortunately, as with all things that involve money, trust (or sentiment as it is called in financial speak) is everything, and not everyone trusts the new Blockchain.

On the 6th of August, the new Blockchain was released under the guise of Bitcoin XT. Some Bitcoin investors have started moving into their new home (you can check that progress hourly).  Unfortunately, some people (worried that it could cause adverse price fluctuations) are refusing to enact the Hardfork.

Gavin Andresen, the currencies top scientist, is strongly recommending the move, as is Mike Hearn,  the chief developer of the new Blockchain. Detractors, on the other hand, feel that because Bitcoin XT isn’t backward compatible with the original ‘core’ Blockchain – Bitcoin XT is in effect a new currency – meaning that there are now two distinct Bitcoins.

According to Hearn adopting the new Blockchain is essential to ensure that the money can cope with growing demand: which is why moving into the new Blocks has been billed a Hardfork all along. 

The good news is that despite Bitcoin XT being released to mixed emotions, so far the uptake has been encouraging.  ‘We’ve gone from zero people running the software to 10% of the network in 72 hours, which is really good,’ said Hearn.

Sadly, some of Bitcoin XT’s most prominent detractors are very influential, namely a large pool of Bitcoin miners from China. These Chinese investors are refusing to move into the new Blockchain until they see evidence that it is unanimously adopted by the core team. Then, and only then, will they be willing to take part in the Hardfork, which could leave them stranded in the new currency without a hope of moving back.

On the other hand, not moving soon enough could leave them stranded in a system that is clogged and unusable. Although, as Bitcoin’s devs admit, this is unlikely to happen for over a year yet. Meaning that the Chinese coin-miners have plenty of time to change their mind and make the decision to participate in the Hardfork.

Some might say, why release Bitcoin XT now? If the original Blockchain is not going to be laggy until next winter?  The answer to that is actually very simple.  Bitcoin XT was always going to have its detractors because price fluctuation is a very real and present danger (look at how much Bitcoin’s price has fluctuated since its inception). For this reason, giving all Bitcoin investors plenty of time to move into the new Blockchain is imperative. Allowing it to happen in a proper and orderly manner, and crucially, before the system starts to falter.

It is because of this, and the general lack of agreement, that chief Bitcoin developer Mike Hearn has decided to force through the Hardfork now. ‘If you look at the guys working on the Bitcoin core, they talk about consensus all the time – but if you ask them what they really mean, they can’t tell you,’ he says,

‘There is no consensus about what consensus means.’

Hearn does admit, however, that Bitcoin is moving into unchartered territory.  He also admits that any reduced control that developers might have using the new Blockchain might mean having to split it yet again,

‘If we go off the rails and do things that aren’t in the best interests of the community, then the solution is fork it again,’ he says.

For now then, the great Bitcoin gamble is still on.  Whether we will end up with two distinct Bitcoin systems, nobody knows, and what you should do with your Bitcoins is anyone’s guess. However, one thing is for certain. With a finite amount of space available in the original 1-Meg blocks, there can be no doubt that chief Blockchain devs Gavin Andresen and Mike Hearne are worried about something very real. So the big question is, will Bitcoin owners wait to move, and perhaps feel a slump in price for doing so? Or will they move more quickly, and help to stabilize Bitcoin’s value? At the moment, most of the sentiment appears to be overly alarmist because, arguably, a laggy Blockchain helps no one. Taking that into account, Bitcoin XT will likely prevail.

Ray Walsh

I am a freelance journalist and blogger from England. I am highly interested in politics and in particular the subject of IR. I am an advocate for freedom of speech, equality, and personal privacy. On a more personal level I like to stay active, love snowboarding, swimming and cycling, enjoy seafood, and love to listen to trap music.

5 responses to “Is the Bitcoin XT Hardfork actually a new currency?

  1. Well since my last comment I have been doing some reading. I read that my bitcoins will exist on both blockchains automatically and it will be up to the provider of my online wallet as to which block chain they use. How this effects the value of my coin on one blockchain vs the other is beyond me. Either way, it doesn’t seem possible to choose buying bitcoinxt over bitcoin or vice versa.

    1. In that case, I would strongly advise talking to your online wallet. As far as I understand it, the Chinese miners are not moving into the new Blockchain, if that is the case, why on earth would you be forced to? I don’t own any Bitcoins but if I did, I would certainly contact my wallet and make enquiries as to the exact procedure for my coins. I hope that helps.

  2. Dear Ray,

    There are clearly some gaps in my knowledge regarding bitcoin. However, I own a number of bitcoins, do I need to do anything now that there is Bitcoin XT or does it all happen for me?

    1. As far as I can tell the option is entirely yours. Moving into the new Blockchain is voluntary and, therefore, should require action on your part. The hope is that 75% of people will have done the move by January of 2016. As I understand it, this is considered a threshold level that will allow everyone to trust it has happened in an efficient manner. Though, even here there is disagreement, as some people feel that the threshold should be 95% of people.

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