Bitcoin faces risk of separation in two groups

The encrypted currency, which soared 150% this year, could be headed for one of the most turbulent periods in its history. It's time for bitcoin traders to prepare for tough times.

The encrypted currency, which is characterized by volatility and a whopping 150 percent this year has drawn everyone from Wall Street bankers to Chinese elders, could be heading into one of the most turbulent periods of its history.

The blame is on the bitcoin civil war. After two years of confrontations behind the scenes, rival groups of computer geniuses who play a key role in maintaining bitcoin will adopt two competing software updates at the end of the month. This raised the possibility that bitcoin would split into two, an unprecedented event that would cause a market shock of $ 41 billion.

Although both parties have great incentives to reach consensus, the lack of a central bitcoin authority has made agreement difficult. Not even the professional traders who have followed the alternatives of this dispute know how this will end. The advice they give is to prepare for volatility and be willing to act quickly when a clear result comes up.

Debate

Behind the conflict there is an ideological split over the identity of bitcoin. The community vehemently debated whether crypto-currency should evolve to attract conventional firms and become more attractive to traditional capital or whether it should act more as an asset like gold or as a payment system.

The seeds of the debate have been planted for years: to protect against cyber attacks, bitcoin design limits the amount of information in its network, called blockchain.

This restricts the number of transactions it can process - the so-called "block size limit" - just as the currency's growing popularity is increasing activity. As a result, transaction times and processing fees hit record highs this year, limiting bitcoin's ability to process payments as effectively as services like Visa.

Two schools of thought came up to solve the problem. On one side are the miners, who use expensive computers to verify transactions and act as the backbone of the blockchain. They propose to increase the size limit of the block.

On the other side is Core, a group of key developers for maintenance of bitcoin error-proofing software. They insist that to decongestion the blockchain, a part of the data must be managed outside the main network.

They contend that this would not only reduce congestion but also allow other projects, including smart contracts, to be added to bitcoin.

But taking the data out of the blockchain diminishes the influence of the miners, most of whom are in China and have invested millions in gigantic server towers.

Predictably, the Core proposal, called SegWit, sparked resistance from the miners, the best known of which is Wu Jihan, co-founder of Antpool, the world's largest mining organization.

Commitment

However, following the failure of several counterproposals advocated by Wu last month, the miners agreed to make a commitment to support SegWit in exchange for increasing the size of the block. Wu says the plan will alleviate congestion in the short and medium term and will give Core enough time to create a long-term solution. The proposal is known as SegWit2x, which implements SegWit and doubles the block size limit.

However, the hardline says that after more than two years of fierce disputes, a split would allow people to explore different views, even if prices fall.