Bitcoin is facing an existential crisis. Two weeks ago, in one of the most stunning op-eds by an insider you might ever come across
, Mike Hearn announced his resignation from the Bitcoin project and stated how he has come to, in no uncertain terms, "the now inescapable conclusion that [Bitcoin] has failed".
On the surface, it might seem that the problem is the 1 MB block size limit, a technical measure which affects the number and speed of transactions that Bitcoin can be handle. However, that can be changed. The real issue, as Hearn sees it, is "people problems".
There are currently two competing visions for Bitcoin - one in which Bitcoin expands its commercial potential and gains mainstream usage; another in which it challenges the existing global financial system. Or, as Fred Wilson told Business Insider
, "Should Bitcoin be Gold or should Bitcoin be Visa? If it is Gold, it’s a
store of wealth and something to peg value to. If it is Visa, then its a
transactional network that can move wealth around the globe in a
Hearn describes that the camp in favor of raising the block size limit, known as the Bitcoin XT camp, which includes himself, has been the target of cyberattacks in recent months and that their views have been censored on online discussion boards.
He also points out that "the block chain is controlled by Chinese miners, just two
whom control more than 50% of the hash power. At a recent conference
over 95% of hashing power was controlled by a handful of guys sitting on
a single stage... Bitcoin has no future whilst it’s controlled by
fewer than 10 people". This, of course, begs the question: What has happened to the vision of a decentralized currency?
Meanwhile, in the storm of fury that came in reaction to Hearn's revelatory post, conspiracy theories have begun circulating across the Internet highlighting the fact that Hearn has since accepted a job at R3 - a startup backed by some of the biggest financial institutions around,
including Morgan Stanley, Goldman Sachs, JP Morgan, and UBS. There is a clear insinuation that this entire episode is "some sort of banker conspiracy"
Meanwhile, not be be considered an afterthought, the value of Bitcoins plummeted on the very day Hearn's post was published, but has since began a gradual recovery:
In the week-and-a-half since, much has been written about Bitcoin's demise, and even death. This is probably an overreaction. As former Wall Street Journal reporter Daniel Palmer summed it up
, the big idea of a "software-driven governance system" is very much alive, however the possibility of Bitcoin becoming a mass-adopted currency is dead, and it simply won't become "a replacement for the dollar" anytime soon.
That's the analysis that rings most true here as well. As this existential dispute among Bitcoin's core developers comes to light, it would seem foolish for anyone to start trading in their dollars or euros for satoshis, but it would also seem equally foolish to completely disregard the fact that Wall Street firms have seriously begun adopting the blockchain approach to transaction-handling in clearinghouses and elsewhere.
The idea still has a bright future, even if my CoinBase account does not.