Bitcoin’s Price In Limbo As Struggle Over Control Of Protocol Continues

Bitcoin Price and ChinaIn January of this year, one of Bitcoin’s insiders got upset and left the Bitcoin arena. In doing so, he burnt the bridge, so to speak, and will not have a place with Bitcoin in the future.

Despite his harsh words towards Bitcoin upon his departure, and despite his severing all ties, the battle for control over the Bitcoin Protocol rages on. Many people within the Bitcoin community believe this man had ulterior motives and was on the side of mainstream banks, and their desire to co-opt Bitcoin.

Forbes has the details:

For the last year, the Bitcoin community has been embroiled in what is, on one level, a technical debate over how to upgrade the network to accommodate growing transaction volume.

The fighting reached a head in mid-January, when a prominent developer declared the currency a failure and left Bitcoin. It promptly lost about 15% of its value and hasn’t recovered.

What has been called “the block size debate” (referring to the megabyte limit for each group of transactions processed) has now grown into a power struggle, with the group of volunteer developers working on the protocol splitting into several camps.

“This is not really about block size,” says core developer Eric Lombrozo. “It’s really about the control of the protocol.”

What seems like a technical debate on the surface is actually deeply informed by human politics and personality differences. But because major players in the Bitcoin ecosystem are based in China, the outcome of this dispute in the Western Bitcoin community is also being influenced by cultural gaps between the West and China of which they may be only vaguely aware.

On Wednesday, one of the new teams, which has christened itself Bitcoin Classic and is supported by Coinbase, one of the most well-funded companies in the space (the original team is called Bitcoin Core), released a new version of the software making another attempt at an upgrade, which Lombrozo called “a tactic to shift power away from the Core devs.”

However, by Thursday morning, two dozen people representing almost 20 Bitcoin companies, many of which would be directly affected by the software change (and accounting for more than half of the network powering Bitcoin) formed a group called the Bitcoin Roundtable and released a statement effectively rejecting the new software, at least for the time being.

In fact, one of the very companies listed on the Bitcoin Classic website as if it were a supporter, HaoBTC, disavowed this new version of the software in an email. Chief strategy officer Eric Mu wrote, “We did use the word 支持 (translated as ‘support’), in both the CEO’s statement and verbally when meeting with Classic lead developer Mr. Jeff Garzik in Beijing. However, that is by no means to say that we will switch our mining power to Classic.”

Mining is the activity that sustains the network — and it distinguishes Bitcoin from previous Internet applications. Bitcoin is often described as a way to transfer money peer-to-peer, without a bank or financial institution acting as a middleman. For this reason, the Bitcoin community likes to describe the currency as “trustless,” meaning that a user does not have to trust a third party such as a bank to ensure the proper processing of a transaction. However, using Bitcoin does in fact require trusting a collective third party: the miners who process the transactions by recording the most recent transactions onto a public ledger containing every Bitcoin transaction in history, copies of which are kept on computers around the world.

As David Evans, a lecturer at University of Chicago Law School wrote in a 2014 paper, “the fact that the public ledger is decentralized — so there is not a bank or a government acting as the intermediary — may have interesting political or social value to some. But from the standpoint of considering economic efficiency there is still an intermediary, just a very different sort of one.” He says Bitcoin is much more complicated than a typical open source project because it involves managing and incentivizing a large network of laborers — the miners — to process the transactions.

This is the problem that competing Bitcoin teams are running up against: no one camp can very easily wrest power away from the other without the support of the miners — and about three-quarters of their current network power is located in China.

At the present time, in spite of tirllions of dollars at their disposal, the western mega-banks, JPM, BAC, Citi, etc, cannot wrest control of Bitcoin due to the fact that the majority of Bitcoin mining is done in China, and the miners are the ones holding the control of the protocol.

This has been an interesting battle to watch, and one thing is very clear: the battle will continue to rage on. Meanwhile, the Bitcoin price is taking a breather to see which way the power struggle goes.

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Growing Bitcoin Demand Will Lead To Higher Bitcoin Prices In The Future

Bitcoin ETN
Photo credit: Bitcoin Magazine

The financial industry has not only stood up and taken note of Bitcoin in the past two years, they’ve actively been involved in funding and developing Bitcoin ventures. Of course, one of the most well known is Coinbase, where you can buy Bitcoin with complete confidence and security. Coinbase has received two rounds of financing totaling more than $25 million.

The reason that the financial industry has become involved with Bitcoin is basically because of Bitcoin’s success. It’s growing popularity  has not gone unnoticed. Financial experts believe the growing Bitcoin demand will lead to higher Bitcoin prices in the future.

Now a Swedish company that has launched the world’s first Bitcoin-backed instrument on a regulated exchange in order to give investors exposure to the anticipated Bitcoin price rise in the coming months and years.

Bitcoin magazine reports:

XBT Provider, a Swedish company that has launched the world’s first Bitcoin-backed instrument on a regulated exchange (Nasdaq Nordic) is planning a global expansion following its success in the Scandinavian region.

The firm manages two Bitcoin instruments called Bitcoin Tracker One and Bitcoin Tracker Euro. The latter was launched with the approval Sweden’s financial supervisory authority, Finansinspektionen, on October 5, 2015, for the purpose of mirroring the return of the underlying asset, U.S. dollar per Bitcoin.

Bitcoin Tracker Euro as an exchange-traded note (ETN) has since become increasingly popular among investors on the Swedish regulated exchange, securing the title of the most traded  ETN on Nasdaq Nordic.

With the explosive growth and increase in interest in Bitcoin ETNs, the XBT Provider team unveiled the company’s plans for global expansion of their Bitcoin instruments in an exclusive interview with Bitcoin Magazine.

Success of Bitcoin ETNs and Instruments

Bitcoin ETNs and instruments, including the Bitcoin Tracker Euro and GrayScale Investment’s GBTC, have performed exceptionally well against major reserve currencies and global asset classes since mid 2015. Currently, a share of GBTC is being traded at $57.40, and since a share of GBTC guarantees investors about one tenth of a bitcoin, investors are purchasing Bitcoin using GBTC at an average price of $602.71 per coin. That is a premium almost 40 percent higher than the actual price of Bitcoin.

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