A disillusioned high-profile developer has quit bitcoin — claiming in an explosive blog post that the “experiment … has failed.”
Mike Hearn has been a prominent part of the controversial digital currency’s community for years. In 2014, he walked away from a job at Google to work on it full-time. But after months of bitter infighting among bitcoin enthusiasts, Hearn has had enough.
“Why has bitcoin failed?” he asked in a post of Medium. “It has failed because the community has failed.” The digital currency is “on the brink of technical collapse,” he argues, and “as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.”
Bitcoin was created in 2008 by a pseudonymous figure known only as “Satoshi Nakamoto,” who has since vanished. It aims to provide a radical alternative to traditional finance and do away with the need for any central authority. It is powered by the “blockchain” — a decentralised ledger of all transactions that allows quick and cheap transactions around the globe, no central bank or regulating institution required.
However, there’s a technical upper limit on how many transactions the blockchain can process a second — putting a limit on how much the digital currency can grow. This limit could be raised, if sufficient people on the bitcoin network vote with their feet and move to a new software client that supports it.
There are efforts to do exactly this — notably Bitcoin XT, which was launched in August 2015 by Mike Hearn and Gavin Andresen, one of bitcoin’s key core developers. But there’s acrimonious debate about this upgrade — and many users who used XT were targeted by DDoS attacks knocking them offline, discouraging uptake.
This is a key part of Hearn’s complaints, who also attacks “censorship” on bitcoin forums of discussions about raising the limit. “For the first time, investors have no obvious way to get a clear picture of what’s going on. Dissenting views are being systematically suppressed,” he writes. “Technical criticisms of what Bitcoin Core is doing are being banned, with misleading nonsense being peddled in its place. And it’s clear that many people who casually bought into Bitcoin during one of its hype cycles have no idea that the system is about to hit an artificial limit.”
Another concern is centralisation, focused around China: “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.”
This centralisation, he argues, betrays bitcoin’s original. decentralised vision. “Bitcoin has no future whilst it’s controlled by fewer than 10 people. And there’s no solution in sight for this problem: nobody even has any suggestions. For a community that has always worried about the block chain being taken over by an oppressive government, it is a rich irony.”
Hearn also complains that one of the ways people are proposing to get around the limit without actually raising it will cause even more problems. Instead, people will be able to pay fees to jump to the front of the queue and get their transaction dealt with in a timely manner. But this solution will, he warns, allow “people to change the payment to point back to themselves, thus reversing it.”
“At a stroke, this makes using Bitcoin useless for actually buying things, as you’d have to wait for a buyer’s transaction to appear in the block chain … which from now on can take hours rather than minutes, due to the congestion.”
Censorship, hack attacks, technical incompetence, an inability to use in real-world transactions, a broken community — Mike Hearn paints a gloomy picture for the current state of bitcoin. He says he’s abandoning the digital currency altogether, and is selling his bitcoin: “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.”
So what’s next for Hearn? Interestingly, he’s joined a blockchain startup, according to The New York Times — R3.
Over the last year, bitcoin companies have struggled to achieve any mainstream appeal. The problem is that ordinary people just aren’t using the digital currency. BitPay, a high-profile bitcoin payments app, told Business Insider in June 2015: “We keep adding merchants — we’re up to over 60,000 now — but they’re selling to the same pool of Bitcoin early adopters.”
However, one area that people — and investors — are excited about is the blockchain. Many banks view the blockchain as a way to streamline their businesses and reduce costs. In effect, a technology designed to destroy the banks is being used to make them more efficient.
R3 is backed by some of the biggest financial institutions around, including Morgan Stanley, Goldman Sachs, JP Morgan, UBS, and dozens more.