After developing software for Bitcoin for five years, Mike Hearn has sold his coins and is backing out.
In an article on Medium, Hearn details the multitude of reasons why Bitcoin has ultimately failed, such as a warring community, lack of necessary improvements on a system that has reached its limits, a dominating minority and lack of communication.
“Bitcoin is an experiment and like all experiments, it can fail,” Hearn writes. “What was meant to be a new, decentralized form of money that lacked ‘systemically important institutions’ and ‘too big to fail’ has become something even worse: a system completely controlled by just a handful of people.”
Bitcoins are a decentralized digital alternative to currency that began back in 2009. There is no central holding entity, like a bank or a government, which means the community controls transactions.
Hearn writes that individuals and companies that speak in favor of increasing the limit size of incoming transaction are silenced — banned from forums and hit with DDOS attacks as described by Forbes.
According to the New York Times, the last six months have seen developers receiving death threats and service attacks that have brought down entire regions of Internet.
Hearn’s own limit-increasing program, Bitcoin XT, which aims to allow more transactions for each second and speed up the transaction process, was met with attacks that effectively stopped it completely. Despite the attacks, Hearn writes there are still people trying to develop alternatives to Bitcoin Core, the project that maintains the program that runs the Bitcoin network, that increase limits.
Hearn continues, saying the network is on the verge of a technical collapse, the methods to prevent that have broken down, and, “as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.”
The technical failures
When Bitcoins are used in transactions, they are handled by miners that have access to the Bitcoin block chain, which is essentially an ever-expanding and revision-proof ledger. The whole process including miners and block chains is explained by Bitcoin here.
The capacity of Bitcoin’s ledger is one of its biggest downfalls. In a denial-of-service attack in the summer of 2015, in which someone flooded Bitcoin’s network with transaction requests, people learned that the probable peak of transactions is 700KB, which Hearn writes is about three transactions per second.
That’s not a very high processing rate of transactions for a currency that is touted as “the simplest way to exchange money at very low cost.” In fact, Hearn writes that bitcoin transactions can sometimes take hours to go through.
When the network is running at capacity, Hearn writes that it can become very unreliable — not a word you want to hear when you’re talking about your money. In order to deter users from overloading the system, Bitcoin automatically increases fees, similar to how Uber surges its prices during peak times.
So why not improve the limit that the network can handle? That’s where the people problems seep in.
The community failures
Bitcoin is essentially in the control of a handful of people, Hearn writes.
Two Chinese miners, which verify bitcoin transactions and add them to the ledger, control over 50% of the block chain. When transactions are verified by miners, they earn 25 bitcoins according to Hearn and BitcoinFAQ.com —equal to about $9,800 at the time of publishing — which equals a whole lot of money rolling into just two miners. And they don’t want to give up their hold.
Furthermore, the 5-person team that runs Bitcoin Core is at odds. Two of the five want to improve the network limit, while the other three want to keep it where it is. Hearn writes that this schism has created a sort of civil war in the community. Some fear that increasing the limit will make decentralization more difficult.
“It leads to an obvious but crazy conclusion: if decentralization is what makes Bitcoin good, and growth threatens decentralization, then Bitcoin should not be allowed to grow,” writes Hearn. Essentially, the very principle of keeping the currency decentralized spells out Bitcoin’s own doom.
Where Bitcoin is headed
Hearn writes that there is one questionable recent decision by Bitcoin in response to the traffic-deterring fees, in which users can pay to reach the front of the queue. By the time the transaction goes through, the fee could change, so Bitcoin is soon rolling out a feature to change your payment amount after sending it up until it appears in the ledger.
“The stated intention is to let people adjust the fee paid, but in fact their change also allows people to change the payment to point back to themselves, thus reversing it,” Hearn writes. “At a stroke, this makes using Bitcoin useless for actually buying things, as you’d have to wait for a buyer’s transaction to appear in the block chain … which from now on can take hours rather than minutes, due to the congestion.”