Bitcoin has a built-in problem. Each new block is limited in size to one megabyte of information, which in effect limits the number of transactions in each block, meaning that the network can process around six to seven transactions per second. That makes it difficult for bitcoin to be widely used as a method of payment. The Visa card network can process more than 24,000 transactions a second.
Since 2014, developers have created new cryptocurrencies, mostly using blockchain software, to offer features they perceive to be lacking in bitcoin. Monero, for instance, was created in 2014 with the goal of offering more privacy than bitcoin; Ethereum was also created in 2014 with the goal of offering more scripting ability.
Bitcoin programmers responded with an idea they called Segregated Witness. When users make a bitcoin transaction, they digitally sign the transaction, and the signature makes up most of the transaction data. The implementation, by consensus among the main players in the bitcoin ecosystem, would make way for adding the Lighting Network, which is designed to scale the number of possible transactions in a block by moving multiple transactions between individuals or businesses into a channel on a second layer. Only when the channel is closed is the payment resolved, meaning that there is no need for the blockchain to record all of the individual smaller payments between two entities.
But some were not happy with the progress on making bitcoin into a viable payment method, including Roger Ver, one of bitcoin’s first and most ardent advocates. Ver introduced the idea of a new hard fork of bitcoin to create a new cryptocurrency called bitcoin cash. As one of the first players in bitcoin, Ver had purchased the domain bitcoin.com. And so, in the autumn of 2017, an extraordinary episode began to play out in the bitcoin world, and one which suggested that state actors were heavily involved in the campaign against bitcoin.
In 2015, Wired magazine wrote that “Bitcoin’s creator Satoshi Nakamoto is probably this unknown Australian genius”. The man named in the article was Craig Wright, and in the following months, Wright began dropping hints that he was in fact the creator of bitcoin. Gavin Andresen and Jon Matonis, two of the early supporters of bitcoin, stepped in to support Wright’s claim. But Wright’s attempts to prove his identity as Nakamoto by producing some of the private keys used by Nakamoto failed to convince critics, and Wright withdrew from the limelight, claiming the false accusations against him were not worth the effort. Wright’s failed foray into the bitcoin limelight seemed odd at the time, redolent of a spook-led operation to wrongfoot the movement.
But Wright was set to re-appear two years later when a set of developers supported by Roger Ver and Gavin Andresen invoked a hard fork of bitcoin to create the altcoin bitcoin cash, which came into effect on 1 August of 2017 with Ver as its main promoter. Ver spent money promoting bitcoin cash, telling journalists that bitcoin cash was the real bitcoin as intended by Satoshi Nakamoto. Wright began appearing with Ver, suggesting that 2018 would be the year of bitcoin cash. As bitcoin raced towards its peak in December of 2017 the CNBC show Fast Money invited Ver - a well-known name in the bitcoin world - to appear and comment. Ver took the opportunity to suggest that bitcoin was going to lose out to the real bitcoin, bitcoin cash.
Some bitcoin developers were outraged. Ver owned bitcoin.com, a natural destination site for anyone typing ‘what is bitcoin’ into a search engine. The Bitcoin Cash name was a play on Bitcoin itself, and the Bitcoin Cash logo was identical to the Bitcoin logo, but green instead of orange. And right at the moment that bitcoin was attracting a big audience on cable television, here was one of bitcoin’s original advocates stepping in to misdirect newcomers towards bitcoin’s doppelganger.
But what to do? Bitcoiners relished the absence of a regulator. If, as one commentator observed, a former Apple employee left the company and started a competitor called Apple Plus, Apple would have immediately had the project halted under copyright and intellectual property laws. Bitcoin was not regulated by patent, but by protocol, so there was no higher authority to appeal to. Bitcoin would have to live or die on its own merits. Craig Wright’s claim to be recognised as Satoshi Nakamoto, and Ver’s subsequent positioning of bitcoin cash as the real bitcoin of Nakamoto, now looked to be a gambit that had backfired. Many regarded Wright as a bad player, his re-appearance on the Ver Bitcoin Cash promotion eroding the campaign’s credibility. Other still smiled and remembered Ver’s early promotion of the honey badger meme.
When the price spiked to almost $20,000 in mid-December and then began bucking and sliding down to nearly $6,000 over the next two months, many could accept that this was just another wild fluctuation. Others looked for a more sinister explanation, believing that bitcoin’s institutional opponents were looking for ways to halt its rise - promoting bitcoin cash to produce confusion. In March, the Japanese bankruptcy trustee announced that he had been selling large amounts of bitcoin on exchanges since 18 December, one day after the price peak. A few days later, at $16,000 he sold another 6,000 bitcoins, and the price dropped to $10,000 before recovering. Hard drops in price followed each time he sold a batch of bitcoin. Until March, no one knew who this trader was. Other traders were amazed that the trustee would sell huge batches on the open market. Kraken had offered to handle the sale, as it operated dark pools for making large sales without tanking the market, but had been turned down.