The bitcoin civil war may have gotten a forceful push toward a solution today as Barry Silbert, head of Digital Currency Group and one of the most influential venture capitalists in the space, announced an agreement for resolving the two-and-a-half-year-long impasse.
The agreement, published in a Medium post titled “Bitcoin Scaling Agreement at Consensus 2017,” is less a technical feat than a political one. It has the support of 56 companies across 21 countries that represent 83.28% of computer power on the bitcoin network, 20.5 million wallets and $5.1 billion of monthly transaction volume on the network.
Just to have some plan of action is a relief to the signers.
The impasse began when developers managing the open source code for bitcoin first descended into a disagreement over how to accommodate more transactions on the network. That then developed into a full-blown civil war. Aside from the bad press, the two-and-a-half-year-long gridlock has resulted in high fees on the network, a larger-than-usual backlog of transactions and long delays in confirmation times.
“We’re at a point where the average bitcoin user who is holding a few dollars can’t actually use their money because the fee is higher than the money they’re holding,” said Bill Barhydt, chief executive of Abra, a remittance company that uses the bitcoin blockchain to make transfers and that signed the agreement.
Though the compromise is unlikely to make anyone in the bitcoin community change their minds — message boards showed a mix of support of the compromise and opposition for various reasons — it could finally move the network forward from the question that has stalled progress on it for so long.
The agreement is to implement a software upgrade that makes the network more efficient once 80% of the network signals support for that upgrade (previously, the developers had set a threshold of 95% to trigger it). It also proposes implementing another upgrade that runs the risk of splitting the bitcoin network in two, thus creating two coins, within six months.
It’s not clear how much of a success this will be until it’s pulled off. Ironically, other than the dates and timeline, the agreement isn’t that different from a previous agreement signed a year-and-a-half ago in Hong Kong. It is a variation on another proposal sent to the bitcoin development email list in March by Sergio Demian Lerner, of the bitcoin company Rootstock.
Silbert, who declined to comment, got support from players worldwide, including leading U.S. companies such as Coinbase, Xapo, Bloq and Bitfury, as well as top companies in other countries where bitcoin is popular, such as China’s BTCC, Japan’s bitFlyer, and South Korea’s Korbit.
Most notable are the support it has from Bitmain, a Chinese mining equipment manufacturer and bitcoin pool operator and the omission of DCG portfolio company Blockstream, which has several key employees on the open source developer team, which has been at odds with Bitmain. That means the agreement fails to bring together the two parties who have each been most vilified by the other side and who are the most opposed to each other.
“We need a compromise that brings together the hash power, the wallets and the people running the largest nodes,” said Barhydt. “This agreement has minimal technical risk and gets us back to where we need to be so the average bitcoin user can actually use their bitcoin.”
Adam Back, CEO of Blockstream, which declined to sign the agreement, said in a meeting room at this week’s blockchain industry conference, Consensus, said “Everybody in bitcoin would like more scale, but we should scale in a scientific, efficient way that doesn’t stress the network.”
In the same post, Silbert also announced a commitment from several startups to provide technical and engineering support to test the software upgrade and to help other companies prepare for those upgrades.
The setting for the announcement couldn’t be more triumphant for Silbert.
A Wall Street wunderkind who built the highly successful Second Market, he left that perch three years ago and then did something perceived as crazy — start a new empire in bitcoin.
As head of DCG, the largest venture capital firm and incubator in the space, he invested in dozens of bitcoin and blockchain companies around the world, many of whom are some of the biggest cryptocurrency players today.
And his vision was vindicated: although there was a long period of doldrums, bitcoin’s price eventually began to rise steadily. It skyrocketed past $2,000 this weekend and is at $2,270 as of press time.
Consensus, hosted by CoinDesk, a subsidiary of Silbert’s DCG, has drawn 2,500 attendees — five times the attendance two years ago — and its top sponsors are Citi and Deloitte.
But for the past couple years, the question of how to scale the network has clouded bitcoin’s future. If this agreement is executed well and does not split bitcoin into two coins, it will help further the success of this industry Silbert helped foster.
Tuesday, May 23, 2017, 6:40pm EST: This article originally misstated how much bigger 2017’s Consensus was over 2015’s. It was five times bigger, not ten.