Bitcoin: A Failed Experiment?

January 20, 2016 | Elizabeth Knowles

Photo credit: Antana (CC BY-SA 2.0)

“I will no longer be taking part in Bitcoin development and have sold all my coins,” says Bitcoin developer Mike Hearn.

Bitcoin is a digital currency created and used electronically. It isn’t linked to a particular country or bank and isn’t printed, but you can exchange your regular currency to and from Bitcoins and use them to make purchases electronically.

Unlike a regular currency, Bitcoins aren’t simply printed by banks when more are needed. Instead they are “mined.” Bitcoin miners confirm transactions that take place over the Bitcoin network — keeping track of who paid what — and record them in a general ledger. To do so, they use a mathematical process and create a seemingly random set of numbers and letters called a “hash” that gets added to the official list. They earn Bitcoins for doing so.

There are many advantages to Bitcoins: no fees for transferring money, the source code is open source which means that anyone can verify it, it is decentralized so no one authority can meddle with it, an account is easy and free to set up, it is anonymous (although this could also be a disadvantage), and it is completely transparent since all transactions are noted in the ledger.

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However, Mike Hearn, a Zurich-based developer and long-time proponent of Bitcoin, wrote a recent blog post detailing how and why he thinks that Bitcoin has failed.

“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.”

Let’s look at his arguments. He says, “It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked ‘systemically important institutions’ and ‘too big to fail’ has become something even worse: a system completely controlled by just a handful of people.”

Chinese Bitcoin miners control over 50 percent of the mining, but they slow down the whole system because of the firewall imposed by their government.

Hearn continues by saying, “the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.”

Payment times are becoming increasingly long, with only a few transactions a second, and the value of a Bitcoin is fluctuating like crazy. Both of these realities make Bitcoin an unreliable currency.

“In the span of only about eight months, Bitcoin has gone from being a transparent and open community to one that is dominated by rampant censorship and attacks on bitcoiners by other bitcoiners. This transformation is by far the most appalling thing I have ever seen, and the result is that I no longer feel comfortable being associated with the Bitcoin community.”

If you are heavily invested in Bitcoins, it might be the right time to rethink things. On the other hand, many other Bitcoin users are not as pessimistic as Hearn. It was classed as the best performing currency in the world in 2015 after all.

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