The latest furore to emerge in the world of Bitcoin concerns a fork. Forking – where two distinct block chains briefly co-exist - may take on two forms: an accidental fork (typically caused by a bug) or, as in this case, a hard fork, when cryptocurrency developers decide that changes must be made to the programming of the coin that will create incompatibilities between the older and newer versions.
The hard fork that is currently the cause of sound and fury in Bitcoin forums is known as the Bitcoin XT Fork. Essentially, the fork has been created with the aim of increasing the size of the blocks in order to address the cryptocurrency’s scalability.
However, several of the major mining pools (including F2Pool, BTCChina and BitFury, which together comprise around 48% of the hashing power in the network) have been vociferous critics of the fork, with only the Czech-based Slush (around 5% of hashing power) prepared to endorse it.
Partly as a result of the furore, the value of Bitcoin has continued to slide, falling by more than 15% in the past week against the US dollar to just over $211 as of August 26. In mid-2015, the currency enjoyed a brief revival when Greece teetered on the brink of exiting the Euro. The Greek government may not have been aware that the Bitcoin community was wholly in support of Grexit: as the Greek government reluctantly backed the bailout measures and Bitcoin began falling from dizzy heights of $300 it had reached in mid-July, Arthur Hayes of BitMex could be heard excoriating Prime Minister Tsipras and his allies for ‘selling Greek islands and public utilities to the highest bidder’ and demanding that Greek citizens ‘put the fear of God into any MP who dares to ignore the landslide No vote in the referendum’.
Sadly for the Greek citizenry (and of course for those with a vested interest in Bitcoin), austerity and the Euro remain. But leaving aside the rights and wrongs of any Grexit, the key takeaway here is that Bitcoin remains a highly volatile currency cum investment vehicle: since the start of the year it has fallen by over 30% against the dollar, far more even than the beleaguered Russian Rouble (22%) or the apparently crisis-ridden Euro (5%).
Indeed, as the chart below demonstrates, if we take December 2013 as our baseline, Bitcoin now stands at just 20% of its original value, while the Euro sits at 85%.
Meanwhile, although there has been a steady (but by no means spectacular) increase in Bitcoin transaction volumes, the value of those currencies over the first 8 months of this year stands at just under $12.4 billion, or 25% less than the value of Bitcoin transactions in the equivalent period in 2014.
In short, although Coinbase’s CEO recently predicted the Bitcoin would achieve ‘reserve currency status’ by 2030, given its ongoing tribulations then perhaps the goals of its supporters should perhaps be rather more modest.