Bitcoin price peaks on faster transactions

The bitcoin jumped to a peak of US$4,125.17 yesterday, a 15 per cent gain since last Friday, after a plan to quicken trade execution by moving some data off the main network was activated last week.
The bitcoin jumped to a peak of US$4,125.17 yesterday, a 15 per cent gain since last Friday, after a plan to quicken trade execution by moving some data off the main network was activated last week.PHOTO: REUTERS

It rises above US$4,000 in a first, bolstering related businesses

HONG KONG • Bitcoin soared past US$4,000 for the first time on growing optimism that faster transaction times will hasten the spread of the cryptocurrency.

The largest digital tender jumped to a peak of US$4,125.17 yesterday, a 15 per cent gain since last Friday, after a plan to quicken trade execution by moving some data off the main network was activated last week.

The solution, SegWit2x, had been so contentious that a new version of the asset, Bitcoin Cash, was spun off earlier this month in opposition.

The split grew out of the tension between growing demand for the virtual currency and some design features that had fuelled that popularity - the decentralised verification procedures that ensured against hacking and government oversight.

While this month's confrontation ended up as little more than a speed bump in bitcoin's more than 300 per cent rally this year, concerns remain about the capacity to increase transaction volumes.

"Up until now, a lot of people didn't really believe bitcoin could go any higher until the scaling issue is resolved," said Mr Arthur Hayes, Hong Kong-based founder of bitcoin exchange BitMEX. "With this actually being implemented on protocol, theoretically the amount of transactions that can be processed at a reasonable speed is going to be much higher, so a lot of people are very bullish about bitcoin now."

Because of a cap on the amount of data processed by bitcoin's blockchain, transactions started to slow as its popularity boomed. The community was then divided between the SegWit2x solution backed by a group of developers and another supported by miners that sought a larger increase in the block size. The latter then became Bitcoin Cash.

While SegWit2x has garnered enough support for activation, challenges remain. Its next stage involves doubling the block size to 2MB some time in November, a possibility that is still mired in debate.

Reduced support could thwart this step, with some arguing that Bitcoin Cash - with a block size of 8MB - has obviated the need for another "hard fork" to upgrade the bitcoin again, Mr Hayes said.

The cryptocurrency's staggering price surge has bolstered related businesses. Digital currency exchange Coinbase announced last Thursday it has received a US$100 million investment.

The supply of bitcoin is capped at 21 million, compared with 16.5 million that had been mined as of Saturday, according to blockchain.info.

"People are starting to price in the consumer demand from Coinbase's US$100 million fund-raising round," said Mr Justin Short, London-based founder of trading platform Nous.

"That's a lot of advertising budget. Every US$1 million of marketing brings new demand, which increases the price as the supply is limited by design."

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A version of this article appeared in the print edition of The Straits Times on August 15, 2017, with the headline 'Bitcoin price peaks on faster transactions'. Print Edition | Subscribe