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Fixing Incentives: The Miner-Activated Dev Fund would have prevented the formation of Blockstream.

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Avatar for J-Stodd
Written by   13
11 months ago

TLDR: We should have had a miner-activated and maintained developer fund since the beginning of Bitcoin. It was the fundamental lack of solid developer incentive structure that led to the social entropification of the protocol development. If it were not for this fundamental problem, Blockstream would have never formed, Bitcoin Core would not be the corrupt and greedy colluding force that it is, and the Bitcoin network would have never split.

Flash Back to the Early Days

Satoshi Nakamoto, the inventor of Bitcoin, left the Bitcoin project in 2011 after making a comment about WikiLeaks having "kicked the hornet's nest." The Hornet's Nest was the US Government and it's intelligence agencies, as well as the other governments in the world seeking for power and control. Before Satoshi made his permanent departure from Bitcoin, he handed control of Bitcoin Core, the original node implementation for Bitcoin, to Gavin Andreson.

Gavin had lots of good ideas and insights, however he feared his own potential abuse of power, and also may not have had the energy or resources to work on Bitcoin Core as much as he would have liked to. For these two primary reasons, Gavin Andreson handed some of the control to Bitcoin Core over to a handful of other regular protocol contributers. However, Gavin was not in good company. These other individuals were soon to betray Gavin, and take control of Bitcoin Core for themselves.

Bitcoin Core was soon to become corrupt, as they did not have sufficient or reliable funding for their efforts. So they sought after venture capital, and made secretive deals with a company that came to be known as Blockstream. Blockstream, a company in part funded by Axa and Bilderberg banks, became the main driving force for small-block or anti-scaling propaganda. Blockstream ensured that everyone who would work for them was paid well, and Bitcoin Core longer had a funding problem. But at what cost?

This company, Blockstream, didn't have a way to make reliable money though. It figured out that the only way to make the money it needed was to sell side-chains and science experiments to the public, but to do that, it needed to constrict the Blocksize on Bitcoin. Blockstream launched a propaganda campaign, in order to convince everyone that raising the blocksize and scaling would hurt decentralization and be detrimental to Bitcoin. But the propaganda wasn't enough on its own, so in order to succeed, it had to work together with Bitcoin Core and the maintainers of all relevant social media outlets in order to censor dissent and remove opposition to their propaganda. Because of this, the BitcoinTalkForums and r/Bitcoin became heavily censored.

The result of constricting the blocksize limit on the network was catastrophic. Transaction fees on Bitcoin rose from a small fraction of a penny to tens of cents, dollars, and eventually, tens of dollars. Mempool backlogs went from a little over ten minutes, to hours, to days or weeks. Major companies that used to accept bitcoin as payment, such as Amazon, Wikipedia, Microsoft, and many others were forced to drop it, due to their customers losing money to high fees and demanding refunds.

As a result, the community split in two, and those who didn't want to have to deal with a constricted network moved over to Bitcoin Cash.

What Went Wrong?

Well if you remember at the beginning of Bitcoin Core, before it became corrupt, one of the main problems was lack of funding. Nobody was paying Gavin to code, and when his successors kicked him out, nobody was really paying them either. In order to rectify this lack of (or poor) incentive, they formed Blockstream. From there the natural logical progression of Blockstream was to sell the Bitcoin protocol to us, by monetizing it in ways that fundamentally break it.

The lesson we should learn from this is that you shouldn't try to fix the incentive problems of a decentralized p2p movement using a centralized third party, as the very concept is antithetical to the design. However you cannot merely not fund developers, not funding them will cause them to become corrupt, by forcing them to seek out alternative ways of making money. So how should we fund them?

Well it seems that the Bitcoin protocol itself produces money. The block reward, including a trailing subsidy and a small amount of transaction fees, is a source of wealth that can be tapped into without relying on centralized third parties to solve problems. If all miners had to sacrifice a small amount of their money to the developers or project of their choice and could not keep it for themselves, then they would finally have a net incentive to fund development, as any small loss of money carries a huge opportunity cost to miners who specialize in extreme efficiency, and can only be profitable if they make but slightly more money than what they burn in mining.

The Utility of an Opt-Out Burn Address

Although, it can be argued: "What if this gives the developers too much money? What if too much money leads to it's own form of greed, corruption, and complacency? And this is a completely fair argument, as the marginal utility gained from additional money eventually reaches an equilibrium point, and becomes negative after that. People who win the lottery or get more money than they're willing to continually work for end up living frivolous and self-degenerating lives where they miss out on the simple things of life, and they lose sight of what's important.

So if all the miners have to donate money, then this could also cause developer corruption and misaligned incentives, correct? Well what if there was a burn address, so that miners could choose not to donate to devs? Devs that are failing to hold up their end of the bargain could stop receiving donations, and that money can either be redirected, or burned just to prove a point. All burned funds benefit the coin holders in a network, as it causes deflation of the money supply and therefore a likely rise in price of the asset.

The ability to burn coins also preserves the free will of the miners, as they shouldn't be forced to donate to development. What if they don't want more development, or they think that there is enough? Miners get the right to signal that the marginal utility of developers is approaching a negative value, by burning their donation instead of donating it.

The Legitimacy of Miner Governance

The Bitcoin protocol was designed to be governed by the miners. Any needed rules or incentives can be enforced by the miners, as determined by the Bitcoin Whitepaper which Satoshi Nakamoto wrote. The ultimate endgame of Bitcoin is and will be the logical conclusion of governance by Proof of Work. If the conclusion of Bitcoin is negative, then it will have been caused fundamentally by the protocol, and if the conclusion of Bitcoin is positive, then it will have also been fundamentally caused by the underlying protocol.

The miners are the rightful stewards of the Bitcoin Network, as delegated by Satoshi Nakamoto. Satoshi was the inventor of the Bitcoin protocol, so in some abstract sense he was the only man who got to claim a right to saying who has a right to control Bitcoin. In another sense, to argue that the miners are not the rightful stewards of the network would necessarily be to argue that the network is under a constant state of being attacked, and is doomed by its own design from the beginning. If you believe in Bitcoin through and through, you must necessarily believe in the rightfulness of the protocol it is built on.

Miners get to decide the direction of the protocol, and it is up to them to keep the network protected and operating efficiently. The miners have now strongly signalled their support for a "Miner Fund", in order to invest in the future of development on Bitcoin Cash, and i believe it is their fundamental right to do so.


The Miner-Activated Developer Fund is going to fix one of the most systemic incentive problems in Bitcoin, namely, the lack of an incentive model to incentivize developers to work on the protocol without introducing corruption via centralized third parties, and while keeping developers content with their allotment of resources instead of enabling them. If this model were to have been applied in the early days, Blockstream would have never been formed or needed to have been, and Bitcoin Core might still have Gavin Andreson in it, or would at least not be as corrupt as it is today. If these things were to have happened, Bitcoin would have never fragmented into so many different networks, and we'd be much closer to global adoption of peer-to-peer electronic cash.

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Avatar for J-Stodd
Written by   13
11 months ago
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Diverting rewards will eventually destroy BCH. This debate is a test to see if BCH will destroy itself.

$ 0.00
11 months ago

The Miner-Activated Dev Fund would have prevented the formation of the Death Star.

$ 0.00
11 months ago

Thanks dude!

$ 0.00
11 months ago

Dear J-Stodd,

As a crypto investor I have been looking since 2014 for better business models for cryptocurrencies and solutions to free-rider problem, where only a few donate and some donate little. I used to think having part of block reward / inflation go to infrastructure development, and even marketing and other projects creating adoption, is good way to get sustainable self-funding that aligns interests of builders with coinholders and avoids the tragedy of the commons problem that voluntary donations business model has hence why I liked Dash, Decred and Zcash.

But now that these projects have been running for couple of years, we see that they make little headway and are steadily losing ranking and significance. I think this is because, even when spending decisions are allowed to be made by coinholders, when piece of inflation is paying for everything, it causes voluntary donations in money, development and marketing, to collapse as now people expect to get payed. It also centralizes development and marketing as now everybody becomes dependent on this one funding stream. It also causes politics to emerge as now you have to sell yourself well in order to get funding from that stream, benefiting talkers over doers. For example if we look at Dash few projects that got funded created real value, real adoption.

I believe the ideological drive to do better as fiat, to have no inflation business model, to not coerce other people into paying for stuff, creates much more adoption, as everyone needs to self finance, or succeed in get voluntary donations, and everyone knows there are no leeches, rent seekers profiting from their hard work. Ethereum as well as Bitcoin Cash prove that voluntary donations business model can work.

Rest my argument in favor of improving and building out our voluntary donations business model instead of changing it fundamentally and losing voluntary nature of the project see:

$ 0.50
11 months ago

Nobody is being coerced to pay for stuff, that's a downright lie. Everyone is peacefully sitting in the comfort of their homes, voluntarily mining on the Bitcoin network because they want to, and there's no threat on their life if they either don't mine or do mine. And you're acting like you get a say in this because the money comes from inflation, which takes from you. This is downright dishonest too. Inflation can refer to both max supply and circulating supply, and the max supply is already predefined at 21M. You wouldn't call me locking up a bunch of money for a few decades then unlocking it "Inflation, therefore I get a say", would you? Of course not.

$ 0.00
11 months ago

If getting paid by miners means a thing will automagically work towards the interest of miners, then getting paid by the people means a government will automagically work towards the interest of the people.

$ 2.00
11 months ago

That has nothing to do with any arguments I made, at all. Developers should be paid, because if they don't, it creates a power vacuum where they want to get paid and are constantly tempted to become corrupt to do it.

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11 months ago