Bitcoin's nightmare scenario has come to pass

Over the last year and a half a number of prominent voices in the Bitcoin community have been warning that the system needed to make fundamental changes to its core software code to avoid being overwhelmed by the continued growth of Bitcoin transactions. There was strong disagreement within the community, however, about how to solve this problem, or if the problem would ever materialize.

This week the dire predictions came to pass, as the network reached its capacity, causing transactions around the world to be massively delayed, and in some cases to fail completely. The average time to confirm a transaction has ballooned from 10 minutes to 43 minutes. Users are left confused and shops that once accepted Bitcoin are dropping out.

Bitcoin transactions are confirmed every time miners create a new block on the networks chain. Each block takes about ten minutes to mine, and can hold 1MB of information. At current volumes, there are more than 1MB worth of transactions asking to be confirmed in that time. To solve this bottleneck, many in the Bitcoin community have called for increasing the block size to 2MB.

This sounds simple, but has proven to be a highly contentious issue. A schism has developed between the team in charge of the original codebase for Bitcoin, known as Core, and a rival faction pushing its own version of that open source code with a block size increase added in, known as Classic.

The two sides are competing for users and miners

Anyone can cast a vote for their preferred code by running a Bitcoin node powered by that software. But the miners provide the computing power that will decide the winning code, kind of like delegates in a US presidential election. Most of the largest Chinese miners, representing the majority of mining resources, have thus far sided with Core.

Over the last few days both sides have accused the other of using increasingly aggressive and dirty tactics. The Core team says the network is congested because Classic advocates are spamming the network with low fee transactions miners can't be bothered to accept. Classic says that users who attempt to run nodes or mine blocks with their software have been hit with DDoS attacks that cripple their computer networks.

Many in the US Bitcoin community had hoped that hitting this crisis point — a network maxed out, transactions faltering — would result in closure, with miners quickly moving to adopt whichever chain proved more valuable to their economic interests. But so far the debate is dragging on without one side claiming a clear victory, leaving tens of thousands of consumer transactions stranded in limbo.