Following what can be best described as a vocal exit of developer Mike Hearn, the long-simmering debate over whether to scale the bitcoin blockchain to promote wider use has escalated.

Though the exact lines of division remain blurry, the resulting media scrutiny has seemingly awakened the bitcoin mining and business community to what they perceive as a lack of movement by Bitcoin Core, the ecosystem’s largely volunteer development team.

As a result, businesses are voicing their support for Bitcoin Classic, an alternative proposal to a strategic road map proposed by Bitcoin Core that would increase the size of data blocks on the blockchain to 2MB, up from 1MB today. Bitcoin Core has advocated for Segregated Witness, a proposal that would result in more capacity, without necessitating a hard fork, a process by which a mandatory network-wide software upgrade would be needed.

Proponents of Bitcoin Classic contend that the solution simply introduces a choice into the market, and that, should their proposal succeed, they believe Bitcoin Core’s developers will simply migrate to a newly branded code base without much impact.

However, Austin Hill, CEO of $21m startup Blockstream, believes that, despite these claims, the lack of support for Core developers is creating a "toxic" environment.

Hill told CoinDesk:

"It's created an environment where a whole bunch of companies have been building on bitcoin, enjoying the hard work of a community of developers who are now saying, without saying thank you, I don’t like the color of what you shipped me so I'm going to abandon you."

In interview, Hill sought to give voice to what he called a "frustration" among Core developers regarding the perception that they have not sought to address the problem. Blockstream notably funds a number of the more prominent Core developers including Gregory Maxwell, Matt Corallo and Pieter Wiulle, the ecosystem’s most active developer.

"Since December, there’s been three versions of the Segregated Witness deployed [on the bitcoin testnet, a dedicated blockchain for testing]. I do think that part of it is optics and marketing. … There are people who are signed on to [Bitcoin] Classic, who are really doing it because they want to see this issue come to a resolution," Hill continued.

Providing support for Hill’s view is that Bitcoin Core officially opened the Segregated Witness testnet to developers on 21st January.

In the official statement from the group, the developers sought to stress the research that has so far gone into the proposal, which they contend has benefits beyond simply increasing the block size.

Vetted proposal

In his remarks, Hill emphasized the he believes not enough attention has been paid to the fact that Bitcoin Core carefully researched its proposal, a process that included two conferences, one in Montreal and Hong Kong.

“In the last six months, 15 to 20 research papers have been released and a number of those things have been coded and deployed. Some of the [proposed] changes, we can discuss them because of the work by Core devs to improve signature validation,” Hill said.

As such, Hill suggested there could be a message sent to the development community, should business interests align behind Bitcoin Classic, or another similar effort.

Hill went so far as to imply that some developers may grow frustrated with what is already an effort that tests their endurance. As put forth in The New York Times, some developers have even received death threats over their views on increasing the block size .

"When you have a community of developers that have put in thousands of hours without any major breakdowns or a security flaw … and say we’re going to do a one or two-pass fork and we’re going to change how the project goes by turning it into a democratic voting system, they may say 'That’s not what I worked so hard for,'" he argued.

Political pressures

Hill acknowledge there is an inherent political element in the argument, one made more pronounced that former Bitcoin Core maintainer Gavin Andresen is now writing code for Bitcoin Classic along with developer Jeff Garzik.

Though the names are well-known by the media, Hill said that both Andresen and Garzik are no longer as active on everyday coding, meaning they speak for themselves as individuals and may not best represent sentiment in the community.

“I know a number of Blockstream people are frustrated by people who aren’t discussing things with them, talking to other media outlets and advocating for another approach that they feel undermines their hard work,” he said.

(Note: Garzik has contested these claims, and his GitHub shows three commits made over the last month.)

Hill went on to suggest that he views the conduct of the discussion as more contentious than the actual ideas, which are similar to a proposal put forth by Blockstream co-founder Adam Back that would scale the network to 2MB, 4MB and then 8MB over a period of years.

"If a lot of their hard work and what they believe are proper tradeoffs are ignored, it’s a dangerous precedent and very discouraging to [Core developers]," he said.

Dangerous precedent

Despite his issues with how the process has played out, Hill sought to stress that everyone in the community shares a common goal of promoting the network, but that the sentiment of developers is crucial given their role in the network.

For example, he noted developers helped move the community to the proposals being considered today after working to analyze alternatives.

"We saw some people advocating for 20MB blocks saying if they didn’t adopt it the network would fall apart. But there’s real data that says anything larger than 3MB could break the network," he said. "The Core developers base their solutions on data, and we saw data."

Going forward, Hill implied that the industry should keep these factors in mind, even as other groups work toward solutions that could rebrand the code base and alter the governance aspects of the development process.

"The question comes down to priorities," Hill said, adding:

"Scale at any cost, I think most people would agree is very dangerous."

Austin Hill image via YouTube

Bitcoin ProtocolBlockstreamSegregated Witness

A group of Wyoming legislators has introduced a bill that, if passed, would ease a key regulatory burden on money transmitters in the state that work with bitcoin and other digital currencies.

HB0026, introduced on 20th January, seeks to add a definition for digital currencies to a list of "permissive investments", or assets like cash or securities that must be held by a money services business equal to the amount of its existing payment obligations, to the Wyoming Money Transmitters Act.

The four-page bill excludes virtual currencies like rewards points, and would take effect on 1st July of this year if passed.

As it stands today, a firm working in the state with digital currencies – currently not considered a permissive investment – must effectively maintain double reserves. Companies like Coinbase have previously said that this policy has kept them from serving the Wyoming market.

In interviews with local news source the Wyoming Tribune Eagle, legislators sponsoring the measure framed it as a means to attract businesses that have previously indicated that they won’t operate in the state.

State Sen. Chris Rothfuss, one of two state senators to sponsor the bill, told the Tribune Eagle that he believes digital currencies like bitcoin should be treated similarly to government-issued currencies, remarking:

"The legislation we’re providing doesn’t do an awful lot other than try to provide that level playing field. In my view, it needs to be treated the same as a ruble or a Euro, or any other currency."

State Rep. Tyler Lindholm, one of the bill’s three sponsors in the state House of Representatives, indicated that the bill might face opposition from other legislators unfamiliar with the technology.

"I’ve got two minutes to introduce the bill for the introductory vote, but essentially this is about keeping equal opportunities between currencies," he said. "A big reason for me pushing this bill is that we don’t want to run businesses, especially emerging technologies, out of Wyoming."

The full text of the bill can be found below:

HB0026

Image via Shutterstock

legislationmoney transmittersWyoming

Digital Asset Holdings, the blockchain startup led by former JP Morgan executive Blythe Masters, has raised more than $50m in a new funding round.

The firm announced that it had completed a fundraise involving 13 financial institutions. The round drew support from ABN AMRO; Accenture; ASX Limited; BNP Paribas; Broadridge Financial Solutions; Citi; CME Ventures; Deutsche Börse Group; ICAP; J.P. Morgan; Santander InnoVentures; The Depository Trust & Clearing Corporation (DTCC); and The PNC Financial Services Group, Inc.

A report by Bloomberg News indicates that the total amount raised was $52m. Digital Asset did not immediately respond to requests for comment.

Digital Asset also said that it is expanding the size of its board of directors from four to nine, adding representatives from JP Morgan, BNP Paribas, Deutsche Börse Group and DTCC. The firm said that an additional undisclosed director would be named at a later date.

Masters said in a statement:

"Our strategic investors have come together from across the financial services industry to help drive global adoption of transformative solutions which enhance the vital services that they provide."

One of the firms contributing to the round – the Australian Stock Exchange (ASX) – announced that it would receive a new post-trade settlement system developed by Digital Asset that will utilize a distributed ledger. According to Bloomberg, ASX contributed more than $10m to the round in exchange for a 5% stake.

Elmer Funke Kupper, the CEO of ASX, who has spoken in the past about the exchange’s exploration of distributed ledgers, said in a statement that he expects the technology to help his firm cut market costs. ASX had previously announced plans to overhaul its tech over the next few years.

"It could stimulate greater innovation by ASX and other providers of services to issuers, investors and intermediaries. ASX and Digital Asset will work together to design a solution and share the potential benefits with clients and regulators,” he said.

Image via Shutterstock

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Consumers' Research, the independent educational group and organiser of a recent blockchain workshop at Bretton Woods, has published a new white paper on blockchain technology.

The paper, released today, sets out to identify the opportunities presented by the technology, the challenges present today and potential solutions to those concerns.

Yet the report often invokes the possible advantages of transacting in digital currencies like bitcoin.

Joe Colangelo, executive director for Consumers’ Research, writes in the preface to the report:

"At the core of bitcoin is the ability to send money faster around the globe, improve property rights, and enable people who have never met to fully trust one another."

Colangelo goes on to write that the paper aims educate those unfamiliar with the technology and inform members of the bitcoin community of hurdles that may impede their ability to effect change.

Overall, the report is pitched as a vehicle for grasping the technology in what could be a key year for bitcoin and the blockchain.

New era of finance

In its preamble, the organisation makes strong reference to the original Bretton Woods Conference – a gathering of hundreds of delegates from all 44 Allied countries that took place in the hills of New Hampshire in mid-July, 1944, in the wake of World War II.

The financial system that emerged from that gathering established the US dollar as the global reserve currency.

Consumers’ Research argues that the financial system is on the verge of a new era, and invokes the spirit of that gathering to suggest that similar change is on the horizon.

"We believe that we now find ourselves in a situation not unlike that faced by our predecessors," the report states.

'Transformative' technology

While there are potentially a huge number of differing use cases of blockchain technologies, Consumers’ Research says, there is a narrower range of broader strategic goals blockchain opportunities seek to address.

Early on, the document's identifies and explains the five "transformative goals" that blockchain technology can achieve over time, which were identified by the authors of the paper with input from numerous collaborators.

The goals are: efficiency, consumer choice, access, privacy and protection, transparency, direct self-governance and human empowerment.

The document goes on to spell out how successive implementations of the technology can provide avenues for new use cases.

For example, the report states, next-generation blockchains can be deployed to focus on microtransactions, identity issuance, proof of asset ownership and more efficient, transparent governance.

Use case examples

The paper finishes up with some "exhibits" – detailed use case examples, such as "Smart Contracts: Building Blocks for Digital Markets" and "Game Theory and Collaboration: A thought experiment with Decentralized Autonomous Organizations".

While offering up both opportunities and challenges, the report states that, if approached correctly, the technology could be leveraged to affect real change in the world.

"There is no doubt that the potential economic benefits of smart property and blockchain-based title registries could have a transformative impact on the global economy,” the report’s authors write, concluding:

“[M]ost importantly, a vast subsector of humanity could be empowered by a long overdue assertion of their property rights. Getting property title onto the blockchain could provide a building block for financial inclusion generally."

Image credit: Art Phaneuf Photography / Shutterstock.com

Blockchain TechnologyResearch

For bitcoin industry veteran Tom Kysar, the ongoing debate over how the bitcoin network should resolve key technical concerns has, quite literally, hit home.

The former head of marketing for the now-defunct startup Koinify, Kysar lives with two bitcoin evangelists, both of whom he says are on opposite sides of a debate that has so far raged on blogs, forums and through headlines in The New York Times.

"I think it's confusing the shit out of a lot of people. The house is split. [One] supports Bitcoin Classic and [the other] ... he’s with the Bitcoin Core guys," Kysar told CoinDesk at The North American Bitcoin Conference (TNABC). "I think there’s a big problem with communication with people who aren’t involved in the conversation."

Kysar is referring to a growing rift in the bitcoin ecosystem following former Bitcoin Core developer Mike Hearn's decision to depart the project, declaring it dead due to what he perceived as unresolvable governance issues.

Since Hearn’s departure, many bitcoin miners, who process transactions on the open-source blockchain, and industry businesses have announced their intent to back Bitcoin Classic, a proposal that would increase bitcoin’s block size to 2MB, up from 1MB today.

At issue, is that this group has put forth the decision despite a recommendation from Bitcoin Core, the community’s largely volunteer development team that has backed alternate measures for handling the fix.

To Wayne Vaughan, founder of blockchain recordkeeping startup Tierion, the friction between business interests and developers is understandable. Project developers, he reasons, haven’t prioritized marketing, and as a result, are faced with the prospect that a competing team may offer a resolution.

Vaughan, however, isn’t worried about the bitcoin network, though he believes the process of selecting a scaling solution will continue to be divisive.

Vaughan told CoinDesk:

"I don’t know if the process has to be diplomatic and healthy. The [proposals] can compete against each other, but there will be a winner. Coming to consensus doesn’t mean everyone is happy and someone compromises, it just means that the market moves forward with that solution. I think that will happen."

Given the high-profile nature of the debate, it was addressed during a number of talks and panels, most of which were aimed at highlighting and informing the audience about the still developing discussion.

Mixed response

At TNABC Miami, the first major conference on the industry calendar, many startup executives remain convinced that the same process that has led to negative media exposure and a drop in investor confidence is what will enable bitcoin to persevere.

Many spoke to what they termed the positive qualities of bitcoin and its value propositions, including its decentralized architecture and governance, though they noted it was clear emotions are high and short-term sentiment diverse.

Matt Carson, of Avalon mining equipment distributor Block C, acknowledges there's a sense of unease in the industry due to what he termed "infighting".

One concern, according to Carson, is that there is agreement that the block size limit, the rule in the code base that caps blocks on the bitcoin blockchain at 1MB in data, is arbitrary, having been enacted by bitcoin creator Satoshi Nakamoto with the implication it would be adjusted later.

"It's disturbing that people who have the same end goal cannot seem to compromise on what is to me a very basic issue," Carson said. "If we were raising the number of coins or changing the block confirmation time it might be understandable."

He further suggested he believes the issue has at least encouraged industry businesses and developers to begin engaging in dialogue, even if this process has been messy.

"If we can get a solution, that will show how resilient bitcoin is. If we can have this level of people at each other’s throats and go on with business, then obviously Satoshi did something right," he remarked.

Governance issue

Mixed with overall optimism, though, was a palpable feeling that bitcoin’s current crisis was one not caused by technology, but by people and governance problems.

Brennan Byrne, CEO of security startup Clef, voiced the common view that the problem at hand is unique in bitcoin’s history, but not fundamentally an issue of technology.

"Blockchain tech is going to be awesome and change the world. But, bitcoin is now trying to figure out governance. Up to this point, everything has been coherent. Let’s figure out what we want and the developers will make it for us and now there’s a disagreement,” he told CoinDesk, adding:

”There’s no real way to arbitrate. There’s no authority to arbitrate and say that’s the end.”

But Byrne is convinced a solution will happen, even if the “right answer” isn’t immediately clear.

Should Bitcoin Classic become the preferred solution, Byrne suggested that miners and businesses could be in the driver’s seat on more decisions. On the other hand, he noted, the market could decide to follow the roadmap proposed by developers, leaving processes unchanged.

"The block size debate is not as a big as the fact that we have to figure out how to arbitrate a disagreement," he continued. "I think we’ll figure out a process and once that’s figured out, we’ll get it resolved and we’ll move forward."

Will O’Brien, a partner at VC firm Blockchain Capital, agreed with Byrne’s take that the long-term potential of the network remains unchanged.

"What's been lacking is governance and we’re going through an evolution in that governance right now," he said. "I believe it is being sorted and that the right people are looking at it."

Business impact

Still, Carson conceded that there is merit to the efforts by the Bitcoin Classic team, given that there is the possibility continued debate may push enterprise businesses to consider private blockchain solutions as opposed to the bitcoin blockchain.

Such a view was seconded by Shone Anstey, president of blockchain analytics startup BlockChainGroup, who said time was running out for discussions.

"I think we need to just go for the fork," Anstey said. "If you continue to waffle for another six months, you’re going to put more uncertainty into the industry. Outside people are looking in and are like ‘What’s going on?’, they’ve been talking about it for nine months."

As for the premise that bitcoin was at risk in an increasingly crowded marketplace, Henry Brade, CEO of Finland-based bitcoin firm Prasos Oy, was less convinced of any immediate or long-term risk.

Echoing statements made during the day’s mining panel, he said that he believes bitcoin will remain competitive, even in the face of private blockchain solutions, given that its distributed mining process provides a higher level of security than these technologies can achieve.

Brade said that while distributed ledger networks could be very useful for banks, but that these groups may eventually want the security that comes from bitcoin’s machine-intensive mining process.

“The private blockchain projects might fail because of a lack of security and they might want to tie other blockchains to bitcoin to tap into bitcoin’s security,” he said.

Building the bridge

Bitcoin Foundation executive director Bruce Fenton went so far as to change the topic of his address from Wall Street’s growing embrace of “blockchain” to the block size debate due to what he called confusion on the issue.

Though the foundation is oft-criticized and has had its recent own battles in the media, Fenton presented an understandable and empathetic talk on the issue, noting that he believes the debate to be an important industry first.

"Satoshi envisioned decisions being voted on by users. What he may have not been envisioned is that where users are now represented by miners and there are heavy influences from CEOs that have received a lot of venture funding," he said.

Fenton also put forth the idea that, even if the industry amicably decides on a proposal, the impact of pitting industry businesses against developers in a bid for public support would perhaps not be a process without implications.

"The criticism of the miners and CEOs is that the Bitcoin Core developers have not been responsible for the needs of the industry," he stated.

Fenton went on to liken the rejection of Bitcoin Core’s proposal for an effective if not actual block size increase as akin to a bridge building company rejecting the recommendations of its engineering team.

“This is very much a human problem, internally and externally,” he said.

But he believes the community would be better for having gone through the process, no matter how difficult or damaging.

Fenton concluded:

"There’s a perception this is an argument with no end in sight, that’s not the case."

Images via Pete Rizzo for CoinDesk; Josh Dykgraaf for TNABC

Bitcoin ClassicBitcoin CoreBitcoin ProtocolBlock SizeTNABC

UBS has donated the code for a blockchain-based trading platform to a nonprofit group funding research into a cure for HIV/AIDS.

The HEAL Alliance, a nonprofit group focused on supporting HIV research, plans to use UBS's code as part of a platform being developed by London-based financial tech startup Finclusion Systems, with the goal being to ultimately raise money using the technology.

The UBS Innovation Lab is one of the backers of the initiative alongside Microsoft, Intel, and the University of California San Francisco­ Gladstone Institute of Virology and Immunology Center for AIDS Research.

UBS donated code to the initiative previously developed for use in a proposed blockchain-based trade settlement system. The bank was one of several firms tied to the initiative, a group that also includes the CME Group, Euroclear, LCH.Clearnet, the London Stock Exchange and Société Générale.

The HEAL Alliance is hoping to raise $10bn selling 'social impact bonds' on the blockchain-based platform, which is currently undergoing testing and not collecting investments at this time.

Funds raised will be used to foster research into a cure for the autoimmune disease.

When reached for comment, UBS Group chief information officer Oliver Bussmann said that the initiative grows out of a previous effort to create programmable bonds using blockchain technology.

"This experiment confirmed the potential benefits: clearing and settlement on blockchain could be faster, more efficient and transparent while reducing settlement risk and operational cost," he said.

Bussmann continued:

"UBS is proud to contribute to the HEAL Bond on Blockchain and agreed to share the learnings of its 'Smart Bond' experiment with the HEAL Alliance.”

Pixeljoy / Shutterstock.com via Shutterstock

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