Bitcoin’s ‘Hard Fork’ In The Road

The bitcoin community seems to be in between a rock and a hard place. Or, a fork in the road.

What’s been happening over the past couple weeks in the bitcoin community has centered on the debate about if bitcoin’s blockchain block size should get expanded. That would enable bitcoin to continue growing, gain more users and essentially get more attention from the masses.

But it’s not quite that simple. And that’s where the legality debate over what’s referred to as the bitcoin “hard fork” has originated. At least, according to one pro-bitcoin attorney, that hard fork of bitcoin could be illegal and could open up a whole new can of worms for bitcoin developers over liability issues.

“The creators of the new software face potential liability and criminal sanctions if they are deemed administrators, unless they register with the Feds,” Daniel Friedberg, a principal at the law firm of Riddell Williams PS in Seattle, told Forbes.

Plus, he added: “The implementation of a ‘hard fork’ would require exchanges to differentiate between bitcoin and ‘Bitcoin Classic’ or ‘Bitcoin XT’ bitcoin, as its customers would inherently have rights to either one or the other.”

As for the debate, the conversion about “old bitcoin” versus “new bitcoin” is what’s causing the divide among the digital currency ecosystem, and it’s bringing along plenty of controversy with it.

Because traditional bitcoin has a limit on how many can be produced and how many transactions it can handle, there are challenges the bitcoin community has faced since day one in terms of making it go mainstream. It’s also under the sway of a small number of people who control a large part of the bitcoin universe.

That’s created limits, concerns about its legitimacy and fears for its future. Those debates have also prevented bitcoin’s technology (blockchain) from innovating itself in order to change how the virtual currency is used. And now, there are bitcoin developers who have been discussing Bitcoin Classic, a rival to the old-school virtual currency. This vision doubles bitcoin’s recorded transactions (AKA blocks) and would help the network’s capacity grow.

As Friedberg points out in his legal argument, the impending hard fork issue creates a problem for bitcoin because there would be two versions of the software that would attempt to coexist. This would force the old bitcoin miners to now use the new transaction process and would create an entire new debate over liability, he argues.

There are skeptics who suggest that growing bitcoin’s capacity would destroy the virtual currency. And there’s another side of the debate that’s saying this divide in the bitcoin community is preventing any innovation from occurring. This has left the bitcoin community split, which could potentially delay the conversations about blockchain innovation as it relates to how it could transform a financial system many believe is out of date, clunky, costly and inefficient.

But, for now, the lawyer argues that having a new fork in bitcoin’s code would open up an entire new batch of legal issues for the new creators.

“Unlike Satoshi, the mysterious creator of the original bitcoin software, who has remained anonymous and, therefore, outside the reach of law enforcement, the developers of both Bitcoin Classic and Bitcoin XT are publicly named,” Friedberg detailed in his argument to Forbes. “The creators of Bitcoin Classic or Bitcoin XT who are deemed administrators would need to register with FinCEN [the U.S. Treasury’s Financial Crimes Enforcement Network] as a money service business (MSB). Failure to register can result in imprisonment of not more than five years, as well as civil penalties.”

That complicates things for the investors, users and the entire bitcoin community, he argues. It could also open up bitcoin exchanges to more legal issues and complicate the entire process of enabling bitcoin transactions as an exchange, he explains in his argument.

And that’s something the bitcoin community likely doesn’t need right now. It seems to be between a rock and a hard place, indeed.