Bitcoin Battered After "Governance Coup"

Naysyers are warning that the recent plunge in Bitcoin prices - from almost $318 at its peak during the Greek crisis, to $221 yesterday - is due to growing power struggle over the future of the cryptocurrency that is dividing its lead developers. On Saturday, a rival version of the current software was released by two bitcoin big guns. As Reuters reports, Bitcoin XT would increase the block size to 8 megabytes enabling more transactions to be processed every second. Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built on with some believing the split could spell the end of bitcoin. However, the turmoil in the price also coincides with some rather notable global macro eventsfrom Asia (where Bitcoin is extremely popular). 

So while the price action is serious - we have roundtripped from the beginning of the peak of the Greek crisis. However, as Reuters reports, the split in cryptocurrency developers could spell the end of Bitcoin...

On Saturday, a rival version of the current software was released by two bitcoin big guns:Gavin Andresen, who was chosen by the currency's elusive creator, Satoshi Nakamoto, as his successor when he stepped aside in 2011, and Mike Hearn, who along with Andresen is one of five senior developers.

For months Andresen and Hearn have been locked in an argument with the other three lead programmers over whether the "blocks" in which bitcoin transactions are processed should be enlarged from their current 1 megabyte, so as to enable more than three payments to be processed per second.

The new version, which calls itself Bitcoin XT, would increase the block size to 8 megabytes, which would allow up to 24 transactions to be processed every second. That is still a fraction of the 20,000 or so that VISA can process, but would increase every year, so that bitcoin could continue to grow.

Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built on, as the extra computer memory needed would shut out many of the thousands of individual "nodes" that currently power the network.

Some reckon the split could spell the end of bitcoin. But Hearn, speaking to Reuters on Tuesday, said that whether or not Bitcoin XT was adopted, the crypocurrency would live on.

Andresen and Hearn argue that it was Nakamoto's intention for bitcoin to be scaled up as technology developed so that it could widen its reach. But opponents argue that bitcoin was never intended as a rival to traditional payments systems.

"I have followed this from the beginning & I agree that it is an attempted governance coup,"tweeted Jon Matonis, founding director of the Washington, D.C.-based Bitcoin Foundation, of which Andresen himself is chief scientist.

"Bitcoin was designed to be protected from the influence of charismatic leaders, even if their name is Gavin Andresen, Barack Obama, or Satoshi Nakamoto," the user wrote.

We leave it to the reader to decide which is more responsible for the recent crash as one lead developer noted,

"If we thought it might be the end of bitcoin, we wouldn't do it,"

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Finally, we note that add that the biggest winner from this is gold

 The flight to central bank loss of control safety "pet rock" will never have governance problems.