The economic crisis in Greece has turned some attention to Bitcoin again. The price of the digital currency has rallied over the past few days, partly because some Greeks have been snapping up the currency amid bank closures and cash withdrawal limits. It's trading at the highest rate since March, and Bitcoin bulls expect demand to go even higher if the situation worsens. Citing the Greek crisis, Coinbase waived fees last week for customers buying Bitcoin with euros.
But over the weekend, Bitcoin's software provided a well-timed reminder of why it's not the perfect financial system, either. Bitcoin transactions have been taking five times longer than usual to complete, according to Gil Luria, an analyst at Wedbush Securities. That's because the system for authorizing and approving transactions within the Bitcoin network has been functioning incorrectly. So anyone who sells a computer, say, on Craigslist for Bitcoin may want to wait five hours to confirm that the payment actually went through, Luria says.
The problems stem from a new version of the Bitcoin software that runs on PCs and servers underpinning the currency's decentralized system. Operators who haven't upgraded their machines to the latest software have put the whole system out of whack, and it's also preventing some people from generating new Bitcoin as part of a process called mining.
While Luria says the software issue will likely be fixed in the next couple of days, this isn't the first time it's happened. Similar problems have cropped up several times in recent years. “But I don't know that it's happened to this extent, because Bitcoin has never been this big,” Luria says. Part of that may be due to the increased popularity of Bitcoin. Nearly 120,000 Bitcoin transactions took place on a single day in early June, up 10 times from June 2011, according to CoinDesk, a Bitcoin researcher and news site.
When creating a system with no single overseer, these sorts of stumbles come with the territory. When a company decides to upgrade to, say, Windows 8, it can deploy the software to every computer on its network at the same time. With Bitcoin, however, it's up to each operator to install a new version on his or her own. “This is a test of a decentralized network,” Luria says. “Every time Bitcoin passes one of these tests, it gets stronger.” But if the issue isn't fixed within a week, Bitcoin will have a big problem on its hands, he adds.
In the future, Bitcoin software upgrades could go more smoothly if companies continue to take market share of Bitcoin machines from hobbyists. Businesses tend to stay on top of updates. KnCMiner, which sells Bitcoin mining equipment and operates a massive server farm for Bitcoin in Sweden, upgraded its software two months ago, says Nanok Bie, a marketing director at the company.
In the past year or so, mining for Bitcoin has become lucrative for only the largest operators. BTC Guild, a collective of such participating computers, shut down on June 30 because it couldn't turn a profit. The trend is expected to continue. But for a while longer, Bitcoin may not be the savior for economies in crisis.