With an Improved Price Performance, Bitcoin Faces a Debate Over How to Grow

The Dow Jones Industrial Average has skidded about 8% since the end of 2015, putting a scare in investors and prompting talk of everything from a market correction to another recession. Unnoticed, however, is that the price of the digital currency Bitcoin has followed an almost identical path, dropping approximately 8% in value since New Year’s Day to trade, as of mid-morning Monday, at $397, according to CoinDesk, a service that tracks the currency.

But while the stock market’s swoon has investors sweating, Bitcoin’s dip is simply the latest—and far from the most drastic—chapter in its long-term story of price volatility. It may also reflect a battle that has erupted in the Bitcoin community over whether, and how, the underlying infrastructure of the currency should be modified to accommodate a growing number of users and transactions.

Bitcoin investors and users by now have grown accustomed to the currency’s wild price swings, but last fall Bitcoin began a steady climb in value that saw its price more than double between the third week of August and Dec. 16. Since that mid-December peak of $465, it has bounced around in the $350-$450 range, hitting $430 on the first day of the year, sliding to a low of $358 at mid-January and recovering somewhat to its current level.

Still, these prices are a huge improvement over the situation a year ago, when Bitcoin was trading at $271 after a dramatic price collapse earlier in the month.

A development with longer-term significance, though, is a debate now at full roar in the Bitcoin community over how best to allow for growth. Specifically, the argument concerns whether to enlarge the capacity of the so-called blocks in the blockchain, the distributed-ledger system that records and tracks Bitcoin transactions, from 1 megabyte to 2 megabytes.

Proponents of the move, which include a number of so-called Bitcoin miners, the firms and individuals that create Bitcoin through solving complex mathematical problems, argue it will let Bitcoin usage grow more smoothly. Opponents, which include some Bitcoin developers, maintain the move would be an unnecessary intervention that would create a system incompatible with previous versions of Bitcoin’s software. This side argues it can increase the network’s capacity without doubling block size.

Meanwhile, Blockchain.info, a provider of Bitcoin wallets and data, reports that the number of its My Wallet users has grown from about 5.4 million to 5.8 million just since the first of the year. That number is growing more rapidly, having nearly doubled in a year. Users are performing around 200,000 transactions daily, again roughly double the number of a year ago.