Dark times may be on the horizon for Bitcoin. The value of the famous digital currency fell more than 16 percent on Friday after Mike Hearn, a lead developer in the open source project, resigned and announced he was selling all his remaining holdings.
Hearn was one of five major developers of the decentralized virtual currency. At one time, he quit his job at Google to dedicate himself to Bitcoin’s technology on a full-time basis. Now, five years later, Hearn has authored a lengthy blog post detailing why he left the Bitcoin project.
“From the start, I’ve always said the same thing: Bitcoin is an experiment and like all experiments, it can fail,” Hearn said in his article on the blogging platform Medium. “But despite knowing that bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly.”
Hearn also cited the bitterly divided community, technical problems with the network, “rampant censorship” and the “wildly unpredictable fees” as reasons for him to withdraw his support.
This news comes just a few short months after Bitcoin experienced a sudden rise in price, doubling its value since January, 2015, to being traded at $410 that November, as reported by Inquisitr. But now the average price of Bitcoin has currently sunk to $385.38. At its lowest on Saturday, one Bitcoin was worth $355.72. Hearn predicted a dire future for the cryptocurrency.
“The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards,” he wrote. “What was meant to be a new, decentralised 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.”
According to the Sydney Morning Herald, Hearn had been locked in a long-running legal battle with other lead developers over whether to increase the limit of Bitcoin transactions allowed per second. Bitcoin operates on a network that processes digital transactions, and these transactions are permanently recorded in files called “blocks.” As of now, “blocks” are limited to 1MB in size.
Hearn partially left over frustration due to the heated debate over whether the “blocks” should be adjusted to enlarge the number of transactions allowed per second, though he stresses the real problem was internal politics and bitter quarrels within the community. As Bitcoin is open-source software, any change has to be agreed upon by a majority, and so far there hasn’t been any agreement reached.
Introduced in January, 2009, Bitcoin is often called the “world’s first cryptocurrency,” and while a technically untrue title, it remains by far the largest in terms of value on the market and brand recognition. Bitcoin has gained support over the years from free market enthusiasts and even U.S. politicians such as Rand Paul, who according to a report by the Bitcoin news site, CoinDesk, accepts campaign donations in Bitcoin. The Wall Street Journal sums up the controversial cryptocurrency.
“Believers laud it as a currency that is free from central banks and a transaction system that works outside the normal financial system. Skeptics see it as a kooky currency whose values soar and crash unpredictably, a casino for computer nerds. Governments can’t even agree whether it is a currency or a commodity.”
Bitcoin’s appeal to libertarians and classical liberals lies in its ability to function without an intermediary and outside bank and government control, unlike fiat currency.
Hearn also predicted that Bitcoin would eventually run out of transaction capacity, which currently stands at three transactions per second, in contrast to the 20,000 or so that larger companies like Visa can process.
“The current price of bitcoin is supported almost entirely by people speculating on its future, in the assumption that this could be the money of tomorrow,” Hearn continued. “So if the network starts to collapse, then a lot of people are going to look at it and say: well maybe we’ve miscalculated (its) future value.”
In August, Hearn and his fellow lead Bitcoin developer, Gavin Andresen, proposed an alternative software called Bitcoin XT, which would double the “block” size to 2MB and increase the transaction size limits. Since changing the software requires consent from Bitcoin “miners” who have the enormous computer power to add transaction records to the public ledger, the split between the factions supporting XT and the original software, now called Core, has been ugly. The debate has spilled over onto internet forums and social media, even manifesting in anonymous cyberattacks on both companies and individual users.
Though it’s not certain what the future holds for Bitcoin, one thing is clear: important decisions regarding its direction will need to be made quickly as its transactions numbers grow ever closer to the limit.
[Photo by George Frey/Getty Images]