Tech Transformers

Bitcoin breaks through $3,500 to hit fresh record high, now up 264% this year

Key Points
  • Bitcoin broke through the $3,500 mark hitting a fresh record high.
  • A change to the underlying blockchain technology called a "Segregated Witness" or SegWit is being implemented on Tuesday which is seen as a key milestone for bitcoin's future.
  • The SegWit will help solve the long transaction times on the bitcoin network.
The bitcoin community appears to have resolved the in fighting over the future of the cryptocurrency.
Vyacheslav Prokofyev | TASS | Getty Images

Bitcoin broke through the $3,500 mark for the first time on Tuesday hitting a fresh record high as uncertainty over the future of the cryptocurrency subsided.

The digital currency hit an-all time high of $3,525.04 before pulling back to around $3,481 early on Tuesday.

Bitcoin's record high marks a 264 percent year-to-date rise and comes after months of infighting in the cryptocurrency world.

Within the bitcoin community, a so-called "scaling debate" has been going on. There is a big backlog of transactions on the bitcoin blockchain — the technology that underpins the cryptocurrency.

The debate was over the way in which the capacity of the blockchain could be increased to speed up the capability of the bitcoin network. Major infighting within the community took place which led to two separate proposals on how to expand the blockchain.

Because of the two separate proposals, a "fork" took place which split the blockchain at the end of July. A new digital currency called Bitcoin Cash was created. Bitcoin Cash's market cap is just under a tenth of bitcoin's.

The majority of the community backed a software upgrade called BIP 91, which would introduce something known as SegWit2X to the blockchain. SegWit is short for "segregated witness" which would move some of the data outside the main bitcoin network to increase its capacity. This was received negatively by some miners because it would lead to fewer fees for them.

But miners have accepted the BIP 91 proposal which would increase the block size and the SegWit is set to be implemented today.

"Segwit activates this afternoon and there is a lot of hope that the network will unclog with lower transaction fees becoming the new normal," Charles Hayter, CEO of London-based digital currency data firm CryptoCompare, told CNBC by email.

"The SegWit activation opens up projects that bring some capability to the bitcoin network. Instead of bitcoin being held back by infighting, it is now blue skies of opportunity in what can be built."

Once the SegWit is locked in on Tuesday, there will be a two-week grace period to allow miners to upgrade their software. But the feeling is that the worst of the fighting is over.

At the same time, more regulators are continuing to make positive noises around the digital currency. In Switzerland for example, the financial market regulator gave Zurich-based Falcon Private Bank the green light on managing assets based on the blockchain technology behind bitcoin and other digital currencies.

All of these factors are likely to push the price of bitcoin higher this year, experts said.

"Given the technology's move towards scalability, more institutional investors are now considering to allocate funds to bitcoin, which may be exciting the market," Aurelien Menant, CEO of the Gatecoin cryptocurrency exchange, told CNBC by email on Tuesday.