In a blog post on Medium, Hearn said: “Despite knowing that bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. 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 left his job at Google, where he had spent eight years, to work on bitcoin full time, however he claimed in the post that the community has failed.
While bitcoin was designed to be decentralised and separate from large and systematically important institutions, Hearn said it “has become something even worse: a system completely controlled by just a handful of people”.
He also suggested that the bitcoin network is “on the brink of technical collapse” and that it is no longer a preferable alternative to the existing financial system.
The post pointed out that bitcoin cannot move existing money, has unpredictable and rising fees, and is already suffering from large backlogs and failed payments. On top of this, a new feature now allows buyers to take back payments already made, which Hearn says “makes using bitcoin useless for actually buying things”.
According to Hearn, the bitcoin network capacity is almost completely exhausted. It reached its peak volume of 700 kilobytes in June 2015, meaning it could process about three payments per second. This, Hearn says, is probably the limit of what bitcoin can achieve, unless capacity is increased.
He wrote: “When networks run out of capacity, they get really unreliable. That’s why so many online attacks are based around simply flooding a target computer with traffic. Sure enough, just before Christmas payments started to become unreliable and at peak times backlogs are now becoming common.”
Spikes in transactions trigger an automatic rise in fees, designed to drive some users away, and now this mechanism is making transactions gradually more and more expensive.
“Once upon a time, bitcoin had the killer advantage of low and even zero fees, but it’s now common to be asked to pay more to miners than a credit card would charge,” said Hearn.
He added that this capacity is not growing partly because too few miners currently control the blockchain platform bitcoin runs on – 50 percent of the ‘hash power’ is controlled by just two Chinese miners.
According to Hearn, the few that are in control are reluctant to increase capacity, partly because of a loyalty to the bitcoin product and a risk of sparking investor panic, and partly because of the restrictions of the internet in China, where the majority of miners operate.
On top of this, decisions in the core bitcoin community over whether raising capacity is feasible, or whether it would be beneficial, is creating divisions in the community, leading to what Hearn has called a “civil war”.
He said: “When parts of the community are viciously turning on the people that have introduced millions of users to the currency, you know things have got really crazy.”
Raising ‘block size limit’ has become “an emotionally charged subject”, and the camp is divided between whether or not the limit should be increased.
The blog also referred to censorship emerging in forums and conferences on bitcoin, which is affecting transparency for investors and preventing developments from being reported in the mainstream press.
“This worries me a great deal,” Hearn said. “Over the years governments have passed a large number of laws around securities and investments. Bitcoin is not a security and I do not believe it falls under those laws, but their spirit is simple enough: make sure investors are informed.”
Despite the issues with the currency, Hearn suggested that additional new players are emerging and forming new groups, and expressed confidence that the “entrepreneurial spirit” remains. However, he concluded that the community has to change in order to survive.
He said: “Bitcoin has no future whilst it’s controlled by fewer than 10 people. And there’s no solution in sight for this problem: nobody even has any suggestions. For a community that has always worried about the block chain being taken over by an oppressive government, it is a rich irony.”