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In the first half of 2017, a proposal known as the New York Agreement was put forward which was meant to help speed up transactions and reduce costs on the bitcoin network. One of the key features of bitcoin is that it is supposed to be decentralised with the whole bitcoin community deciding on the future direction of the network. However, only a few individuals were in the New York meeting.
The proposal to change the bitcoin protocol had two phases: the introduction of an off-chain scaling solution called segregated witness or ‘segwit’ and an increase in block size from the previous one megabyte cap. The ‘segwit’ phase went through relatively smoothly and the 2x part was supposed to be implemented within six months but was abruptly cancelled on 8 November 2017.
The cancellation was confirmed in an email signed off by just six prominent figures of bitcoin. These six hold a significant amount of so-called hash power, which is used to sustain and validate the bitcoin ledger.
‘Although we strongly believe in the need for a larger block size, there is something we believe is even more important: keeping the community together. Unfortunately, it is clear that we have not built sufficient consensus for a clean block size upgrade at this time. Continuing on the current path could divide the community and be a setback to bitcoin’s growth. This was never the goal of segwit2x,’ said Mike Belshe, the lead signatory of the statement and chief executive of a bitcoin wallet and security company.
Proponents could argue this shows that decentralisation is working. The wishes of the many won over the proposal of a few.
Critics could argue however that the fact that such a small group locked themselves away, came up with a proposal, pushed through part one and then decided to pull phase two, shows that decentralisation isn’t working and a few key figures wield too much power over the network.
In a perfect world, a decentralised consensus works; one man, one vote. In reality, there’s obviously evidence that it doesn’t work. Hash power, and therefore power over the community, consolidates in places where electricity, land, and computer chips are cheap. Furthermore, those first to the table have the first mover advantage. It’s a sign of a potential failure for the vision of bitcoin creator Satoshi Nakamoto.
However, only time will tell how this plays out. Cryptocurrency advocates still retain hope. The idea of blockchain technology is less than a decade old and there is still a chance that the free market competitive nature of the wider system will find a solution. There are now hundreds of competing blockchain and decentralised ledger technologies out there.
While the bitcoin community may end up ripping itself apart, all the other core cryptocurrency development teams and communities may learn from these mistakes.