My first thought when hearing about the developer fund initiative was, "Cool initiative, developers could use more funding to mature and scale Bitcoin Cash faster". But, after reading, pondering on it and arguing/discussing a couple of points from the proposed plan I felt I needed to justify to many downsides and forgo the core of principles I hold dear in Bitcoin.

Preface

Miners vs. Pools

It should be made crystal clear that the current plan is proposed by mining pools, not by actual individual miners. They want miners to pay for infrastructure development by sacrificing part of their block rewards, but the pools themselves will not carry any of the burden. The pools (the promoters of this plan) will not pay a dime.

These pools have vastly more sha256 hash power at their disposal than what the Bitcoin Cash chain is secured by. They can effectively impose their will on BCH miners whenever they want if we do not oppose this as a community.

Key Parties

Miners

The actual hardware operators, the people/companies running mining farms. Responsible for capital investment into hardware and operational costs such as electricity. They usually run on small margins as they need to spend most of their earnings on operational costs and need to continuously invest in newer generation hardware to stay competitive. It is a cutthroat industry. Most of their income is in crypto, while most of their expenses are in fiat currency. They have to sell most of their crypto income to pay the bills.

We can assume most miners are not large crypto holders.

Pools

Provide a valuable service to miners who are not big enough to reliably solo-mine. Pools reduce the variance present in the mining business and make sure the miners get paid in predictable intervals for their share of provided work. Their revenue is 100% in crypto. They usually run on small margins because it is also a competitive business. Pools are exposed to less costs and risk than miners. But become very profitable due to the economies of scale principle.

We can assume that most of the pool owners are large crypto holders.

Developers

Teams and projects without a profitable business model stand to gain from the funding plan. Alas, if there is no business model and no way to motivate devs to work on it without throwing money from unrelated parties at them, if the project is not viable without coercing others into paying for it, should it even exist then? Is that an efficient use of funds?

Teams and projects with a profitable business plan, developer self-interest building/contributing to open source tools to make their own life easier, idealistic devs, stand to loose from this funding plan. They will get unfair competition as we plan to subsidise a large part of this ecosystem. Potentially even killing currently viable and profitable projects and businesses.

Whales

Early adopters and profitable business owners who make most of their revenue in crypto. They stand to gain the most and wont pay a dime. While this plan aims to produce a lot of short to medium term development resulting in effective value creation or at least the propagation of that narrative, it will be the wales who see the value of their bags grow substantially. If it works out the way they foresee.

Principles

Miner's Responsibility

Bitcoin is a very nice example of separation of concerns. In the case of miners it is pretty simple. They build and secure the chain by validating transactions and blocks through enforcing the current rules and providing proof of the work they expended.

The miners basically have two responsibilities here:

• Make sure they enforce consensus rules, so the chain remains healthy and they don't loose out on block rewards

• Make sure they run a profitable business

Incentives

Lets start with an excerpt from the Bitcoin White paper on the subject.

There is not much room for interpretation here, the inflation schedule is a subsidy for security which will be replaced in due time with a fee based model, which only becomes viable at proper scale. Additionally it is also a model to do a "fair-ish" initial distribution of newly minted coins until the inflation schedule runs out.

Syphoning capital away from the security model of Bitcoin towards developers (or any other aspect of Bitcoin that is not PoW) messes with the incentives and bitcoin functionality at a core level. It is very hard to predict the outcome of such possible change, but the potential upside does not weigh up to the fundamental risk we would take by changing this aspect of the Bitcoin incentive model.

Ownership

Since we just established that the incentive model of Bitcoin stipulates that block rewards and mining fees should go towards miners to provide (fund) security, it only makes sense that the coinbase address should be fully owned by miners. As they are the only party that can efficiently decide how the funds must be spent in order to keep their business and the chain healthy.

The white paper also clearly stipulates there is no central authority to issue newly minted coins. Unilaterally sacrificing part of the coinbase reward and sending it to a central council that will decide on how the funds will be spent breaks that constraint, however clever the scheme may be.

Let's be frank, one of the main reasons Bitcoin was invented is exactly to bypass these central councils, and leave executive powers to each individual party in the system.

I'm flabbergasted this is even on the table.

Cartels

In essence I have no issue with the emergence of cartels. What I do have an issue with is when they want to impose their will onto others.

They can execute their plan with the current cartel at hand, and whoever wants to join. They do not need to impose it on others by means of orphaning. They can simply set the example and measure whether their idea was brilliant enough for it to gain traction and adoption by virtue of the free market.

There is no need for coercion if the cartel has good intentions and is confident about their plan.

There are plenty of examples of cartels - or more politically correct named: consortia - in the open source development industry. They manage to do the job without coercion.

Free Rider / Tragedy of the Commons Problem

This theoretical problem does not apply here. Miners are not freeloading when not adhering to the cartel's wishes, they are merely doing their job.

It would be easier to argue non-contributing companies and app devs are freeloading even when they help grow adoption.

It's Not a Tax

It is. Apparently in politics, there is a pretty common saying: If you have to preface your plan with, "It's not what it looks like". Then you may want to go back to the drawing board.

I'd take that to heart, since this is very much a political campaign.

Organic Growth of an Open Platform

The system to evolve, grow and mature bitcoin should be loosely based on the open source system. Where parties build/contribute to open source tools out of self-interest. To make their own lives easier. To build an unrelated application on top of the platform. Third parties who want to sponsor or pay devs to build stuff they need. These parties will have the proper incentive to maintain the platform they are operating a profitable business on. Resulting in a sustainable positive feedback loop.

There are already examples of this in the Bitcoin Cash ecosystem. Just look at Bitcoin Verde building an index node with extensive functionality in the public domain. Which they use to power other software projects from which they earn a profit.

Or Tobias Ruck building Mitra in the public domain, out of idealism and technical curiosity? Or also to power other business ideas he has in mind?

All the people and companies writing and maintaining bitcoin cash libraries in various programming languages. To make their own lives easier and get products to market faster. Their work has immediate value, as they are solving acute problems which they have a business case for.

There are plenty more examples, I would love to read them in the comments.

I would argue those are the people and businesses we need to attract. Still the same old plan as before. I know we desperately crave more funding to expedite things, but I think we need to be very careful on how we go about it. I think the dev side of things can go on as is, for now. There will be growth.

The relative socially stable period of the past couple month appears to have actually done the job of attracting new talent. It's not immediately visible in value creation, but if you keep an eye on the dev community, you will have noticed it. This without a coercive funding scheme.

I think the best way forward is organic growth while sticking to our principles. From my own personal high level perspective I see that we have everything going for us as long as we can stick together, build social cohesion and drop silly ideas that touch on the core principles of what bitcoin is.

Conclusion

If we just look at the basic security incentive structure and the roles and interests of involved parties, we can already conclude that the current dev fund plan is not a good idea. We can safely assume this will turn previously BCH friendly miners, and likely the whole sha256 mining community against BCH. We won't have the same amount of friendly hash-power on standby to save us when the next shitstorm rolls in. They will not have the same incentive to protect us as they have multiple times already.

Additionally it may have detrimental effects on currently viable projects. We are about to fundamentally change the core principles and incentive structure of bitcoin because it is not evolving at a pace to our liking.

We can grow and we will grow. We have the platform. We have the community. We have the attraction. What we need to work on is being approachable and helpful to newcomers (the bitcoin cash spec initiative is a great development in that regard) and not look like chaotic bunch of toxic shit posters.

De-escalate

If we look at the key parties involved and their stakes it should be obvious that whales need to step up. They have proportionally the most to gain from infrastructure investment and its subsequent value creation.

Most importantly, they have the liquid capital available that could be used to supercharge BCH marketing, infrastructure or whatever it is that they think would benefit their holdings the most. It certainly isn't just for hodling and hoping us poor souls will work hard enough for free so to grow their bags on our backs.

I see only one way out in the short term, the only path to de-escalation is whales stepping up. Anything less or other than that will most likely result in Bitcoin Cash blowing up (in the bad sense). Even for smaller whales it would make sense to invest in infra to see their bags grow.

Remember kids, we're only 3% of the available hash rate. If enough miners feel like we are a cancer instead of a viable alternative, they'll kill us off. Like good guardians of the mining business they are.

Foundational projects like Bitcoin ABC and Electron-Cash are in dire need of funds. It really is to early for these kind of projects to rely on funding from organic growth and contributions out of self-interest. These are the projects in the space which innovate, create standards and build the foundation of our bitcoin platform. Sadly, all without a business backing them. The reality for now is that we need them to maintain the platform. Whales, step up!

But, these projects need to step up too! There is some housekeeping to do. Roadmaps need to be clear and detailed. Write up more specific and itemized proposals like all other projects have to do. There are 9 unfinished items on the roadmap. Put a $ amount on each one of them.