Bitcoin price crashes amid dispute over Bitcoin XT split

Bitcoin experienced a flash crash on 18 August, falling by $40 (£25) over the course of an hour to take its price to as low as $215. Cryptocurrency traders have blamed the price fall on the sale of 20,000 bitcoins through the trading platform Bitfinex, though others have cited uncertainty surrounding the digital currency's future for the cause of the volatility.

The price of bitcoin has since rebounded to around $235, according to CoinMarketCap, with a market cap of $3.4bn. "Emotions and uncertainty are at a high right now, and there are traders looking to take advantage of that," David Bailey, CEO and founder of bitcoin media firm BTC Media, said in a post on Reddit. "Beware of manipulation! 20,000btc sell on Bitfinex was combination of 10,000btc short and 8,000 long position being closed. 'Be greedy when others are fearful'."

In response, other members of Reddit's bitcoin forum where quick to point out that the price decline has coincided with a dispute between developers and miners over plans to split the code that underpins the network.

"The price of bitcoin has been very stable for six months," Reddit user trilli0n said. "The recent decline... comes at the same time as the uprise of XT. The fast declines in the past day come right after an XT block was mined."

Gavin Andresen, chief scientist at the Bitcoin Foundation, recently proposed a new version of bitcoin called Bitcoin XT. Andresen and bitcoin developer Mike Hearn believe that the new "forked" version is essential if bitcoin is ever to be used on any significant scale.

Bitcoin's blockchain – the digital ledger through which bitcoin transactions are logged – is made up of 1MB blocks. Hearn claims that this system will reach its limit at some point in 2017 if bitcoin's growth continues at its current rate.

"I feel sad that it's come to this, but there is no other way," Hearn said in a post on the bitcoin developer mailing list. "The Bitcoin Core project has drifted so far from the principles myself and many others feel are important, that a fork is the only way to fix things."

To address the issue of limited block sizes, Bitcoin XT would use 8MB blocks, however, unless it is unanimously adopted by the core team, Chinese mining groups have said they will not adopt the new software.

This could lead to a scenario where Bitcoin XT and Bitcoin core exist side-by-side on equal footing, potentially permanently damaging the prospects of the world's most valuable cryptocurrency.