Bitcoin has failed, claims one of its top developers

One of the Bitcoin world’s most prominent figures has said the virtual currency has failed and that he has sold his entire holdings, claiming the movement is doomed.

Mike Hearn, a British programmer who quit a job at Google to work on developing Bitcoin full time two years ago, said it is controlled by China and that the network it relies upon “is on the brink of technical collapse”.

“There’s no longer much reason to think that Bitcoin can be better than the existing financial system,” Hearn wrote in a lengthy parting shot at sections of the movement.

“The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards. I will no longer be taking part in Bitcoin development and have sold all my coins.”

Hearn said that a technical limit on the Bitcoin network, which prevents "blocks" - the permanent records of Bitcoin transactions that are created every 10 minutes - going above a certain size, meant that the network had become overstretched and unable to deal with demand.

The currency relies on the creation of these blocks, which are added to a central ledger called the blockchain, to verify transactions. The blockchain, kept running by Bitcoin's users, is the foundation of the currency, recording every purchase and sale of bitcoins.

The current limit of 1MB, which has been in place since Bitcoin's mysterious creator Satoshi Nakamoto took the network online in 2009, allows fewer than three transactions a second, Hearn said. He claimed the network was "suffering large backlogs and flaky payments" but that squabbling within the community was preventing changes being introduced.

Bitcoin fell around 7 per cent after Hearn posted.

Hearn and Gavin Andresen, Bitcoin's chief scientist, have backed a "fork" in the Bitcoin code that would see the maximum block size raised to 8MB. The new network, known as Bitcoin XT, has generated outrage among some members of the community, who claim it would break with the original vision of the network.

Discussion of XT was banned on the Bitcoin subreddit, a popular discussion board, and Hearn said that those who had supported it, including major Bitcoin start-up Coinbase, had been attacked. One user, claiming to be Nakamoto, claimed that adopting XT would make Bitcoin "a failed project", although the post was widely believed to be an impersonation.

Bitcoin's open-source design means that 75 per cent of the network would have to adopt XT for it to be accepted, but only around 10 per cent have. In reality, said Hearn, two Chinese miners control more than 50 per cent of the network, and are reluctant to disturb the current system for fear of its price falling, meaning that XT cannot succeed.

He added that the Chinese government's limits on the internet are also given the miners there that control the network a perverse incentive to stop it from growing, because this would create more competition.

Many Bitcoin supporters online claimed that Hearn's departure was simply sour grapes for failing to win support for XT. Andresen said that the view was "too pessimistic".