Wednesday, October 7th, 2020, 38 days before the fork
In Part One of this series, I wrote about the IFP as a symbol, but now I want to discuss it in more practical terms. Specifically, why I think it will work, why I'm not worried about it killing Bitcoin Cash, and why it would be an utter failure if we didn't try it.
First, I want to focus on why I think the IFP will work.
It's widely agreed that there are essentially three different ways to fund development on Bitcoin. One is with donations or sponsorships, a second is from businesses that might profit from using Bitcoin, and the third is to put it in the consensus layer and charge miners to pay for development with a portion of the coinbase reward.
I think it's fair to say we tried the first option with Bitcoin Core, which eventually led to the second option when Blockstream entered the picture, which now leads us to hopefully trying option three this November 15th.
I understand people are having a difficult time accepting the IFP. It's a radical change, but one that I am confident will also seem obvious in hindsight. I know that many believe a donation model can work. You're encouraged by all the flipstarters that have been funded and how the community seems to have united in opposition to the IFP. But with all due respect, I think you're not seeing things clearly.
Since its inception, BTC has risen astronomically in value. Early investors made enormous amounts of money, and still the donation model proved inadequate and the network was taken over by those willing to pay core developers to do what they wanted rather than what was necessarily best for the network. Maybe if Satoshi had stuck around and used some of his coins to fund development things may have turned out differently, but as far as anyone knows, that ship has sailed.
For those of you that think the flipstarter model is sustainable, I want you to consider that in the past six months, flipstarter campaigns have raised a little north of one million dollars, but that's still at least an order of magnitude less than what is needed to realistically compete with all the other projects trying to become digital cash.
Making matters worse is the fact that all that flipstarter money has been distributed amongst so many different projects it will only be a matter of time before most of them are asking for more. This is the dark side of decentralization.
I applaud the people who have made and continue to make large donations in support of the Bitcoin Cash projects they believe in, but I don't think it's fair or appropriate that the entire ecosystem relies on the generosity of a handful of prominent BCH actors. In the Spring of 2021, will Roger and Marc be there to hand out thousands more BCH to projects that are unable to monetize their business? Can these donors be trusted not to steer the project in a direction that only benefits them?
Maybe you're thinking if number goes up I'll be happy to donate again. But what makes you think the work of BCHN, Knuth, BU, Flowee will make number go up? These are all the same people who have been around since the beginning of BCH, the same people who have contributed little to nothing for three years, and only now because of the IFP have suddenly found the motivation to do some work. Where were they before the IFP?
I know those of you who oppose Bitcoin ABC argue the same can be said of them. But I think a deeper look would reveal they have done a remarkable job considering the circumstances. They not only started Bitcoin Cash but they have been admirable stewards of this project since day one. They have protected it from befalling the same problems that plagued the previous attempts at a big block version of Bitcoin.
For BTC, the halving has come and gone, the lightning network is still 18 months away, and who knows if the institutions will ever come. Simply put, BTC is out of catalysts, but the same isn't true for BCH.
To me the IFP could be the catalyst for a whole new era of Bitcoin. Imagine seeing those first blocks mined with 8% of the coinbase reward being diverted to ABC's address marking the beginning of the Global Network Council. To me this isn't like the hash war of 2018 because it doesn't matter who has majority hash. So long as there are miners using ABC's code, a version of Bitcoin Cash that favors those who seek profits will continue to live on.
This is why I believe the IFP will work.
BCH doesn't currently have enough funding for infrastructure development. The IFP offers a solution. For the first time, Bitcoin Cash developers will be paid directly out of the coinbase reward to perform work. For the first time they will be directly incentivized to make the value of the coin go up.
This is different from simply buying some coins and hodling them. This is incentives on steroids. Most people like me go to work to earn a paycheck, but the difference here is that these developers are going to be paid in BCH, and the better job they do, the more their BCH will be worth. It's like giving an executive a bunch of stock options in a company, except these options are handed out every ten minutes and your job performance is going to be scrutinized every six months to make sure you're worth the expense.
Working for donations is completely different from charging for your services. Who wants to sit there and have to convince people you deserve their handouts when in fact you might deserve much more. Who decides to choose a career path or start a business where you can't charge people for the work you do but only ask for donations. Imagine a restaurant where people go because the food is great but payment is optional. Sure some people will feel obligated to pay some nominal amount, and a few rich people might even overpay just so they can feel like big shots, but I guarantee you no matter what, it won't be enough as there will certainly be more people who want a free lunch than those who don't, and in time the restaurant will be forced to close.
I view the incentives offered by the IFP as more than just money. It's an opportunity to create goodwill between the miners and the developers and have them work symbiotically to deliver a better product.
Bitcoin Cash isn't just about computer science, economics, and cryptography. It's also about people. BCH needs people who are both talented and passionate to build the network as much as it needs miners to secure it, and what better way to attract and retain those people other than signaling to them how much this ecosystem values their work. Do we really expect a 10x software engineer to want to work on BCH so he can at some point ask the community for a handout?
I believe the incentive mechanism of the IFP will act as the motive force that's been missing in Bitcoin Cash all these years. The fact that the 8% will really be paid for by all sha256 miners is only the cherry on top. In fact, I'm hopeful that the IFP will even help the Bitcoin Cash network in another unexpected way.
Recently we've seen a significant number of blocks being mined by an unknown miner that include no transactions other than the coinbase reward. It's like having no block at all since no other transactions get confirmed. I don't know if this an attack, but what I do know is that the miner with "Hath" in their coinbase text will now be less incentivized to mine BCH once the IFP kicks in and their empty blocks will at least be contributing to infrastructure development.
Charlie Munger is quoted as saying: "Show me the incentives, and I will show you the outcome."
For me, I see the IFP as incentivizing Bitcoin Cash protocol developers to produce an outcome where BCH becomes the best money the world has ever seen.
That is the Bitcoin Cash mission, to be money for the world and enable a truly free market economy.
To me, keeping a project alive through donations is a form of altruism, but growing a project by profiting off your work? That's free market capitalism at work.
*a previous version of this article incorrectly credited the Charlie Munger quote to Amaury Sechet.
This moves hashrate, and by extension security, to competing chains.