On the eve of a major change in bitcoin, a threat of a split in the digital currency has been avoided — for now.
A move by users to force a change in the computer code by Monday has worked. A majority of “miners” — the core bitcoin users who verify bitcoin transactions around the world — has signaled support. Though the change is designed to improve capacity on the increasingly clogged network, some miners had objected because it could reduce transaction fees they collect.
The show of support has helped reverse a slide in the value of bitcoin from around $1,900 two weeks ago to roughly $2,800 on Monday.
The news comes as a just-released survey from global research firm Juniper finds that many large companies are moving to embrace digital currencies.
However, some uncertainty still remains. A May agreement between large bitcoin companies effectively pushes the threat of a split off until November. And one proposal to launch an alternative currency, Bitcoin Cash, is sowing confusion and fears of scam trades.
Here’s a look at the current dispute.
- WHAT IS BITCOIN, AGAIN?
Bitcoin is a digital currency that’s not tied to any bank or government . Like cash, it lets users spend or receive money anonymously, or mostly so; like other online payment services, it also lets them do so over the internet.
The coins are created by miners, who operate computer farms that verify other users’ transactions by solving complex mathematical puzzles. These miners receive bitcoin in exchange. It’s also possible to exchange bitcoin for U.S. dollars and other currencies.
Bitcoin has been touted as a currency of the future, but so far it hasn’t proven very popular as a way to pay for goods or services.
- WHAT’S BEHIND THE FUSS?
In a word, speed.
The bitcoin network is limited in how quickly it can shuffle around digital money. As bitcoin has grown, payment delays have become more common and worrisome.
Some software developers came up with a way to speed things up by reengineering bitcoin’s universal ledger, a file called the blockchain. Supporters of the new method include Microsoft, the bitcoin exchange Coinbase and a variety of other bitcoin proponents who would like to see the currency used more widely in commerce.
Reformers had threatened to stop recognizing transactions confirmed by miners who hadn’t adopted the upgrade.
- WHAT WOULD A SPLIT MEAN?
Generally speaking, chaos — though mostly limited to those who use or squirrel away bitcoin. People who use bitcoin couldn’t be sure which version they held, or what might happen if they spent it or accepted bitcoin as payment.
Taking bitcoin, for instance, could leave you with currency you couldn’t spend freely — and that might disappear entirely if it ended up being the “wrong” kind.
That’s one reason the community-supported website Bitcoin.org had warned users not to accept any bitcoin up to two days prior to Monday’s deadline and to wait for confirmation the situation had been resolved before trading again.
But the change now has the support needed to proceed, so a disruption isn’t likely this week.
- WHAT ARE THE REMAINING ISSUES?
A separate group of developers sought to solve the speed issue by proposing a new currency called Bitcoin Cash. It effectively rewards every owner of bitcoin with an equal amount of the new currency using a system that can handle much higher volumes of trades.
But some digital currency exchange operators— including Coinbase and Bitstamp — have said they won’t support Bitcoin Cash. And Cornell computer science professor Emin Gun Sirer says savvy traders can game the system to create free money for themselves.
Bitcoin Cash was slated to launch Tuesday. As of Monday the price of Bitcoin Cash futures was about one-tenth of bitcoin itself.
Tone Vays, a bitcoin analyst and consultant, says he thinks Bitcoin Cash is destined to become one of many alternative digital currencies known as “alt-coins.” He says the concept is similar to Clams , digital coins that were also awarded to bitcoin holders in 2014 but now trade at about one-thousandth of bitcoin’s price.
Once Bitcoin Cash goes live Tuesday, people “will immediately sell it for bitcoin,” he said Monday.
Meanwhile, major companies that came together on the May agreement committed to a second change by November that could still result in a split of bitcoin into two incompatible currencies if a significant number of miners don’t agree.
“The big drama has thus been postponed,” Sirer said in an email Monday.
- What is Bitcoin?
Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.
- Who created Bitcoin?
Bitcoin is the first implementation of a concept called “cryptocurrency”, which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin.
Satoshi’s anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi’s influence was limited to the changes he made being adopted by others and therefore he did not control Bitcoin. As such, the identity of Bitcoin’s inventor is probably as relevant today as the identity of the person who invented paper.
- Who controls the Bitcoin network?
Nobody owns the Bitcoin network much like no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can’t force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.
- How does Bitcoin work?
From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.
Behind the scenes, the Bitcoin network is sharing a public ledger called the “block chain”. This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called “mining”. To learn more about Bitcoin, you can consult the dedicated page and the original paper.
- Is Bitcoin really used by people?
Yes. There are a growing number of businesses and individuals using Bitcoin. This includes brick-and-mortar businesses like restaurants, apartments, and law firms, as well as popular online services such as Namecheap, Overstock.com, and Reddit. While Bitcoin remains a relatively new phenomenon, it is growing fast. At the end of April 2017, the total value of all existing bitcoins exceeded 20 billion US dollars, with millions of dollars worth of bitcoins exchanged daily.
Read more at: https://bitcoin.org/en/faq#what-is-bitcoin