Pierluigi Paganini January 16, 2016

Mike Hearn explains that the fundamentals are broken and the price the long term trend should probably be downwards.

Mike Hearn is the former chair of the bitcoin foundation’s law and policy committee, he wrote a blog post titled “The resolution of the Bitcoin experiment” to explain his point of view on the status of the popular virtual currency.

“From the start, I’ve always said the same thing: Bitcoin is an experiment and like all experiments, it can fail. ” he wrote. “But despite knowing that Bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards. I will no longer be taking part in Bitcoin development and have sold all my coins.” 

Hearn explained that the decentralised currency lacked “systemically important institutions,” the component of the community with power over the future of the currency is top resistant to change.

Bitcoin is open source software, although anyone can propose changes to its release, but only the core development team composed of 5 people has the authority to implement the changes.

Those five have been split for the last six months about how to deal with bitcoin evolution.

“Jeff Garzik and Gavin Andresen, the two of five Bitcoin Core committers who support a block size increase (and the two who have been around the longest), both have a stellar reputation within the community. They recently wrote a joint article titled “Bitcoin is Being Hot-Wired for Settlement”.

Jeff and Gavin are generally softer in their approach than I am. I’m more of a tell-it-like-I-see-it kinda guy, or as Gavin has delicately put it, “honest to a fault”. So the strong language in their joint letter is unusual. They don’t pull any punches:” wrote Hearn.

Gavin Andresen paired with Hearn in August to attempt to launch a fork of bitcoin currency, which would use the same basic code but overwhelm capacity constraints.

We are seeing a schism, some are pushing for the new version, called Bitcoin XT, others oppose it and want the old version. Unfortunately, technical reason linked to the miners blocked the launch of the Bitcoin XT.

To apply the changes requested in the Bitcoin XT, more than half of the computing power on the bitcoin network has to update their own software. The problem is that only a small portion of Bitcoin users mines the currency because it’s expensive in terms of computer hardware, time and electricity. Consider that two individuals control more than 50% of the entire power of the Bitcoin network.

“Why has the capacity limit not been raised? Because the block chain is controlled by Chinese miners, just two of 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. The miners are not allowing the block chain to grow.” wrote Hearn.

“Why are they not allowing it to grow? Several reasons. One is that the developers of the “Bitcoin Core” software that they run have refused to implement the necessary changes. Another is that the miners refuse to switch to any competing product, as they perceive doing so as “disloyalty” —and they’re terrified of doing anything that might make the news as a “split” and cause investor panic. They have chosen instead to ignore the problem and hope it goes away.”

Concluding, Hearn is betting on a congestion of the Bitcoin currency scheme, the impossibility to apply the changes will cause the decline of the project.

“The fundamentals are broken and whatever happens to the price in the short term, the long-term trend should probably be downwards”, Hearn concludes.

Pierluigi Paganini

(Security Affairs – Bitcoin, Mike Hearn)