Collapse. It seems to be a word that is becoming more and more relevant in our everyday lives. The economic collapse of Greece. The collapse of the Petrodollar. The collapse of our civil liberties and constitutional rights. And the upcoming collapse of the U.S. Dollar. There’s a lot on our plate right now, but why not lay all the cards on the table? What would happen if Bitcoin collapsed? This possibility is much closer than you think, and efforts to avert it are underway, but what if nothing was done? Let’s pretend everyone just acted like everything’s peach fuss with Bitcoin and its current block chain trajectory. All the signs were ignored, and more and more people jumped on the Bitcoin bandwagon. Here’s a glimpse into one version of the future.
A Bitcoin Collapse is Very Possible
If all signs were ignored, that the Bitcoin Core capacity was ignored, in the very initial stages of collapse, you wouldn’t notice a thing. Your normal Bitcoin transaction would collect in a “memory pool”, where transactions go before appearing in the block chain. These transactions would be alive in a node’s memory only. The first sign of trouble would be the transaction times. Once the core capacity reaches 80%, about half of the transactions would double in confirmation time to 20 minutes. As capacity approaches 100% full, the transactions would start to create a backlog, and this is where it would get tricky.
The Bitcoin core is not designed to handle a backlog of transactions. The backlog creates a memory queue until the Bitcoin node does one of three things. Option one, the node slows down dramatically under the pressure. Option two, the node crashes or collapse when it tries to find enough memory and fails to do so. Or option three, the node is killed by the operating system kernel. The owner of the core needs to manual restart it, and notice that it has collapsed in some form. This takes time. While this is going on, Bitcoin wallets, not knowing the system’s internal strife, keeps sending in new transactions at up to seven per second. Like having three people stand on top of you, with a football team heading your way. Not good.
Would rebooting the node clear the memory and solve the problem? Yes and no. It creates brand new problems like double-spending. And the wallets will still keep re-doing the transactions until they get confirmations, so the problem will repeat soon enough, only now double-spending is on the menu, and the backlog will worsen. Now, the block size is at 1 MB, but this scenario did happen at the 250KB block size, two years ago. The solution was to increase the “soft block size limit” of blocks. There were a lot of angry people and wayward transactions, and this was with far fewer people in the Bitcoin network. It’s best not to replicate this after every two years of growth.
You could increase the fee you pay per transaction, but this also would create a wormhole in the opposite direction, exacerbating the Bitcoin collapse problem. You pay a little bit more, and the next guy pays a little bit more, and you don’t get a confirmation, so you redo your transaction at a higher price. You are just throwing spaghetti at a wall. People worldwide are generating more and more transactions to get confirmations, and nothing is getting done but a bigger and bigger backlog, destroying more and more nodes under the pressure.
Do you think the mainstream media might get tipped off that Bitcoin is having rampant fee escalation, double-spending worldwide, confirmations taking hours if at all, and internal systems crashing throughout the block chain? Like Bitcoin needs more bad publicity? The Bitcoin developers look bad, the currency would look bad, people would start to lose faith in the protocol. People start to sell Bitcoin, head into “cold storage” to sell dormant BTC, and meanwhile the backlog gets worse and worse.
This is what could happen if nothing is done, according to Mike Hearn, potentially turning Bitcoin into the MySpace of digital currency. And if Bitcoin goes down, it likely takes every altcoin down with it. Bitcoin businesses, trying to take it mainstream, would fold, or downsize, and move onto the next big thing. The “Network Effect”, the venture capital, and most importantly the belief in the protocol all would suffer death blows.
This upcoming, and fairly simple problem to solve is a good sign. It’s a sign that Bitcoin is continuing to grow, as expected. This is the kind of problem owners, and users should want to have. How to handle Bitcoin’s future growth. Visa does over 200 transactions per second. PayPal about 125. Bitcoin is stuck at seven, and it’s time to make a move forward. More transactions per second mean more people can use Bitcoin quickly and easily.
This Bitcoin collapse scenario can be averted with Bitcoin Core upgrades in the near future. You know what they say. An ounce of prevention beats a pound of cure. Bitcoin masterminds like Mike Hearn and Gavin Andresen are on the case and I, for one, am thankful for their proactive approach to Bitcoin’s overall protection. It’s a tough job, but someone’s got to do it.
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