Bitcoin miners are signalling their intent to support a new upgrade for the bitcoin blockchain that may solve the digital currency’s long-running scaling issue.
Several of the largest bitcoin miners (who create new bitcoins and support the blockchain), including AntPool, BitClub, Bixin, BTC.com and BitFury, have started showing their support for bitcoin improvement proposal (BIP) 91, by adding a piece of code to each new block of bitcoins they generate.
The miners were not expected to start coding their support for BIP 91 until July 21. Already, 66 percent of the last 144 blocks created signal support for it. The proposal needs 80 percent support to be “locked in” to the blockchain permanently. This will bring relief as it prevents the blockchain splitting into two separate chains, which would effectively create two different coins.
The Washington Post | Getty Images Haobtc’s bitcoin mine site manager, Guo-hua, checks mining equipment inside their bitcoin mine near Kongyuxiang, Sichuan, China.
“Barring any unexpected twists in the bitcoin scaling drama, a contentious fork will be avoided in the coming days,” Garrick Hileman, economic historian at the London School of Economics, told CNBC via email.
“The prospect of a contentious August fork has been hanging over bitcoin’s price like a sword of Damocles, and so the 20 percent plus price pop we’ve seen in the last 24 hours is not surprising.”
Bitcoin has recovered from a roughly 8-week low of $1,863 on Sunday to around $2329 today, according to Coindesk data.
What’s the problem with bitcoin?
For some time, bitcoin has faced a scaling issue, where the number of transactions that can happen on the blockchain at any one time is limited to 1 megabyte (1MB) every 10 minutes. This creates a backlog of transactions that need to be processed and slows things down.
The bitcoin community has been divided on the best way of solving this. One solution is a system called Segregated Witness (SegWit) which would increase the speed of transactions, but it required 95 percent support from miners and the community to be added to the blockchain and there has been resistance.
Uncertainty over bitcoin’s future has caused the price to decline in recent weeks. Bitcoin fell about 12 percent on Sunday morning, due to these concerns.
However, bitcoin miners are being forced to respond to the issue.
What’s the solution?
Several members of the community have rallied around a solution called BIP 148. This would involve a “user-activated soft fork”, where bitcoin users would force the blockchain to split by rejecting any block of bitcoins that did not signal support for SegWit. BIP 148 was due to come into force on August 1 and if the majority of developers didn’t agree on the proposal, the blockchain could split.
“Since a large faction of miners would continue to mine Bitcoin with non-segwit blocks in the case of the BIP148, then two Bitcoins would exist. One in which SegWit is active and one in which it is not,” explained Charles Hayter, chief executive and founder of digital currency comparison website CryptoCompare, told CNBC via email.
“This can have disastrous results for one of the chains or even both. This may be one of the main factors behind the explosive support behind BIP91.”
Can bitcoin avoid a fork?
To avoid this, miners are throwing support behind BIP 91, which would introduce SegWit2X to the blockchain. BIP 91 only requires 80 percent support, rather than 95 percent, to be locked in and would introduce the Segregated Witness system.
“BIP 91 has a lower threshold to get adopted which made its implementation more realistic and less risky. Adopting the BIP 91 also decreases the probability of a fork, something many people like,” Bram de Haas, managing editor of The Black Swan Portfolio, told CNBC via email on Tuesday.
“Bitcoin will avoid a fork for now but it is not necessarily terrible if it does not.”
Haas now expects bitcoin prices to rebound faster and faster.