Bitcoin is at a crossroads. The digital currency and its deregulated network is maturing, but members of the community are lost — they can’t decide what the network should look like when it grows up.
Bitcoin is a decentralized currency that’s transacted on a public ledger called the blockchain. Transactions are verified and posted to the blockchain by a group of people called miners, who are rewarded with Bitcoin for their work. Not just anyone can be a miner, because of the intense computing power required to verify transactions.
Last week a Bitcoin company incited a flood of transactions on the network to give fellow Bitcoin users a sense of what will come to pass if the currency goes mainstream. The offending company, CoinWallet, put 200 Bitcoin up for grabs, initiating a torrent of transactions as people raced to claim the money. The following day there were 190,000 unconfirmed transactions. Today, the miners have a backlog of 145,000 transactions on the Bitcoin network.
A surge of users could break Bitcoin
CoinWallet’s exercise proves that Bitcoin’s processing standards will not be adequate should the number of transactions increase substantially over time. Currently miners process Bitcoin transactions in blocks, with each block carrying 1MB of data.
In 2010, alleged Bitcoin designer Satoshi Nakamoto limited the block size to 1 MB. The idea was to enable some micropayments, but nothing less than a penny, as well as to prevent spam from getting through. When the number of Bitcoin owners was relatively small, this ensured that transactions happened quickly. People trading Bitcoin wouldn’t have to wait a long time for a block of transactions to fill up and be processed. However, now the community is fast approaching a critical capacity at which Bitcoin blocks will fill too quickly, causing a backlog of transactions like what’s happening right now. Miners can’t process them fast enough.
Originally appeared at: http://venturebeat.com/2015/09/14/bitcoins-leaders-dont-know-whats-next-for-bitcoin/