Over the last week the market has seen the bitcoin price stumble, supposedly triggered by the fears that the transactions in its network had reached full capacity. The price fell by about 9 percent over five days that followed February 29 this year. This is the second fall this year after January when the bitcoin price dropped by as much as 16 percent.
Fall in Bitcoin Price
Concerns that bitcoin transactions had reached full capacity were heightened when an increase in transactions on February 28 and 29 led to a slowing down of confirmations, with some of them failing altogether. Fears resurfaced that bitcoin developers had not taken sufficient care of the network capacity concerns. Bitcoin transactions are turned into blocks for processing. The maximum size of this block is restricted to 1 megabyte. These blocks are constantly verified by other computers that are part of the network. Mike Hearn, a famous bitcoin developer purportedly triggered the bitcoin price slide by proclaiming that he was abandoning the digital currency. Observers feel that the transaction volume had been spiked up by those who wished to showcase the bitcoin network’s vulnerability. As the number of transactions increased, the transaction times also increased proportionately. The average processing time for a transaction varied between 10 and 40 minutes. Some of the transactions did not go through at all. After the weekend, the bitcoin price settled at values between $400 and $410.
Bitcoin Price Threat
Bitcoin is a digital currency that works in a decentralized mode: that is, it is controlled by software and not by any government or bank. Only the small group of developers of bitcoins has access to this code. The standoff among the members of the group has given rise to some network capacity issues. One group nevertheless believes that nothing needs to be done. They believe that the competition for placing the transactions in the blocks will drive up prices and increase the fees. This would guarantee that the miners would take part in verifying the transactions in the future. However, experts opine that driving up the bitcoin price may cap its usefulness. Hearn, in his statement alleged that the software that controls bitcoins isn’t equipped to handle the rising transaction volumes, the digital currency is predominantly controlled by China, and the rising transaction fees may make it unsustainable. Hearn suggested of increasing the block size through Bitcoin XT software that he created (so that more transactions can be fit into a block). Less than 10 percent of bitcoin node operators adopted Bitcoin XT. In addition to this, Hearn is now been employed by R3, which is a startup backed by over 42 large banks in the world. His work is to explore the potential of the blockchain technology in the finance industry.
However, the current fears price slide have been pronounced as exaggerated by developers and prominent members of the industry. Moreover, a lot of money is at stake in the bitcoin industry. It is estimated that the overall value of the existing bitcoins is over $6 billion. Bitcoin startups have taken in more than $1 billion as venture capital. Observers, for many reasons, therefore, feel that the bitcoin price is reasonably resilient and is likely to rebound in a week’s time. However, they also agree that continued ego standoffs within the group of developers may spell trouble for the bitcoin price.