The "Dev Tax" proposal is worse than I thought (and I thought it was pretty bad)

Ok, that was an obnoxious title, but it sums up my feelings on the recent developer funding proposal pretty well. I didn't like it when I first read about it. (“Geez, don’t muck with the consensus level protocol for that.”) I really didn't like it after reading Peter Rizun's excellent recent article: The Best of Intentions: The Dev Tax is Intended to Benefit Investors But Will Corrupt Us Instead. And after giving it some more thought today, I really, really don’t like it. 

Here’s why I think it’s so insidious. At first glance, it looks like the miners have gotten together to fund BCH development. But the reality is that the proposal would be funded by holders.  (Although SHA256 miners would, collectively, also take a small hit—0.4% or so based on current prices—as a result of the reduction in the total value of competitively-mined coins.) But the payment by holders comes in the form of a reduction in the chain’s equilibrium hash rate (and thus security) for a given coin price. And that makes the holders’ payment easy to overlook, or rationalize.  As someone on Reddit asked me earlier today: “How much security do we need?” Well, good question. That’s hard to say.  You tend to find out after the fact if you didn't have enough. But yeah, we probably wouldn't miss a temporary 12.5% reduction in hash. It probably wouldn't be the difference between a catastrophic 51% attack succeeding when it otherwise would have failed. But that wouldn’t mean the decision had been a responsible one. (Heck, we could probably get away with a temporary 30% reduction so why not fund even more development—and maybe some BCH marketing and promotion efforts too?)

But now imagine if the proposal had been an alternative one in which the proposal’s real funding by holders had been more transparent and taken the form of a "one-time-only-never-to-be-repeated-we-promise" increase in Bitcoin Cash's 21-million-coin supply. The required increase would be super "tiny" (a 0.07% increase would yield $6 million at current prices —wasn't that the target raise?). "Holders probably won't even notice such a piddling effective reduction in their holdings. And anyways, they'll probably be more than compensated for it by the price appreciation that will flow from the improved software this will fund." If that had been the proposal, people would have lost their shit—and rightly so! They'd say: "No way! The 21-million-coin limit is a fundamental part of the protocol. It’s part of what you might call Bitcoin’s ‘social contract.’ That's a bright red line that shouldn't be crossed." Well, I'm suggesting that the same is true of the protocol rule that says that the coinbase reward—the full coinbase reward—belongs to the miner who mines that block. Indeed, the two are closely related. Investors who bought into Bitcoin did so with the understanding that they were buying into a coin with a certain fixed supply and a certain inflation schedule, and moreover with the understanding that that inflation—all of that inflation—would be directed towards incentivizing the chain’s hash rate security (while adoption would hopefully be growing massively over the years, thereby enabling transaction fees to shoulder an increasingly large share of the security burden as the block subsidy diminished over time).

Or look at things this way: if I acquired 51%+ of the hash rate and began orphaning all blocks other than my own so that I collected all mining revenue, that would be an obvious 51% attack. If I began orphaning all blocks that didn't "give" me some minimum fraction (e.g., 12.5%) of the coinbase reward, that would also be an obvious 51% attack. If I began orphaning all blocks that didn't give my friend some minimum fraction of the coinbase reward, that too would be an obvious 51% attack. That would be true even if my friend promised to use the funds for some really noble purpose, like supporting Feline AIDS research. And yes, as far as I'm concerned, that remains true even if "my friend" is some Hong Kong corporation and the “noble purpose” being promised is funding the development of better Bitcoin Cash client software.

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This article is very nice, thank you for sharing.

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4 years ago

Interesting Logic mate..

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4 years ago

"And yes, as far as I'm concerned, that remains true even if "my friend" is some Hong Kong corporation and the “noble purpose” being promised is funding the development of better Bitcoin Cash client software."

Wrong! Only BCH holders and SHA256 miners can decide what is an attack and what is not. Increasing the 21MM limit (or introducing any other change) is not an attack if holders and miners want it.

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4 years ago

Wrong! Only BCH holders and SHA256 miners can decide what is an attack and what is not. Increasing the 21MM limit (or introducing any other change) is not an attack if holders and miners want it.

BCH holder here. I've decided that this proposal is an attack. I've also decided that increasing the 21MM limit would be an attack. So I guess I'm ... Right! But seriously, your claim is a bit silly. Your position would essentially mean that a 51% attack is impossible because after the fact you'd be forced to say, "hey, look it happened so obviously a majority of the hash rate wanted to do it, which means it wasn't an attack."

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4 years ago

Sorry, I mean the MAJORITY of BOTH miners AND hodlers, of course.

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4 years ago

Sure, I suppose you could adopt that definition -- although it may be difficult to apply in practice given the uncertainty surrounding efforts to determine the views of holders. (Measuring hash rate is quite a bit easier.) But the reality is that whether a particular soft fork is a "51% attack" or a beneficial "upgrade" will depend on what definition you're applying, and/or your assessment of the merits of the fork proposal, and/or (in your case at least) your assessment of the level of support it has from miners and other holders.

I actually agree that an attempt to increase the 21MM limit is not necessarily a "51% attack." I can imagine a scenario in which it might make sense, assuming we determine that even global-adoption-level transaction fees are not enough to adequately fund security. At least I can imagine such a scenario decades in the future. But to be honest, I'd be happy with proponents for this proposal (or similar proposals) acknowledging that it's similar in scope / "severity," and in effect (at least in the sense that it's paid for by holders) to a proposal that would fund development via lifting the 21MM limit. Of course, if everyone understood that, my strong suspicion is that support for the proposal would drop to almost nothing.

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4 years ago

My strong suspicion is that if everyone understood what Bitcoin is (not a commodity), and that we need to measure the support of proposals, instead of driving blind on emotional social media wars, all would go infinitely smoother.

For miners we already have the BMP. There needs to be a platform for hodlers as well.

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4 years ago

Can't fault your logic.

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4 years ago

Because miners being forced to donate to developers (something good for BCH) leads directly to changing the hard cap (something bad for BCH)?

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4 years ago

Hitting the right buttons with the 21 million coins supply

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4 years ago

great work

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4 years ago

Baloney logic.

I believe it boils down to 'it will lower hash rate' making the coin less valuable to holders even if the price does not fall

And,

If we do this thing that is good for BCH, we are sure to go crazy and do terrible things due to the slippery slope.

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4 years ago

I believe it boils down to 'it will lower hash rate' making the coin less valuable to holders even if the price does not fall

Not quite. Here's how you might enumerate the key points:

  1. At first glance, the proposal looks like it's being funded by the miners, but in reality it's being funded by the holders in the form of a reduction in the amount of hash rate security they'll receive for a given coin price. That's one reason I describe the proposal as "insidious."

  2. The form of the payment / cost imposed on holders (i.e., a reduction in hash rate / security) also contributes to the insidiousness of the proposal because it's easy to overlook or rationalize. Because "how much security do we really need?" is a difficult question that's only really knowable in hindsight. This Hong Kong corporation probably could skim 12.5% of the coinbase reward off the top without being the catalyst for a catastrophic 51% attack. The situation is a bit like a jewelry store that decides to fund a kickass office party by temporarily reducing its security staff from two armed guards to only one. If they don't end up getting robbed during the staff reduction, that doesn't mean the move was a responsible one.

  3. If the proposal had been one in which holders paid more directly and transparently through extra inflation (i.e., a "one-time" increase in the 21MM coin supply), people would have absolutely freaked the fuck out. The opposition would have been much stronger than the opposition we've seen to the current proposal (which has itself been pretty damn strong).

  4. That opposition would have been justified.

  5. A similar level of opposition to the current proposal is justified because the two proposals really are quite similar. Both force holders to pay, and both represent violations of Bitcoin's "social contract." As I wrote in the article: "Investors who bought into Bitcoin did so with the understanding that they were buying into a coin with a certain fixed supply and a certain inflation schedule, and moreover with the understanding that that inflation—all of that inflation—would be directed towards incentivizing the chain’s hash rate security."

  6. In other words, certain strong Schelling points in Bitcoin--including the 21MM coin supply, the inflation schedule, and what that inflation funds (i.e., hash rate security, i.e., miners owning all of the block reward)--are VERY fundamental and important, and we shouldn't begin fucking with them absent an EXTREMELY compelling reason for doing so -- which we're not anywhere close to having vis-a-vis this proposal.

If we do this thing that is good for BCH, we are sure to go crazy and do terrible things due to the slippery slope

Well, I don't think this would be "good for BCH" for reasons outlined in Peter Rizun's article. But yes, there is a "slippery slope" aspect to my argument. Again, there are certain fundamental Schelling points that should not be tampered with, at least absent truly extraordinary circumstances. But the bottom line is that if you wouldn't support a proposal for dev funding paid for by an increase in the 21MM coin limit, you shouldn't support this proposal either. Indeed, as /u/jessquit argued, the former would actually probably be preferable at least in some ways. As he put it: "I'd rather it be funded by some extra future inflation! At the level of fundamentals the extra inflation would be invisible, and frankly at the moment we need all the hashpower we can get." I think he's got a point. A 0.07% increase in coin supply would be effectively "invisible" (at least if we ignore the massive hit to confidence the chain would take if it went down the road). But on the other hand, we might very well feel the loss of hash rate. Right now, BCH is tiny, both relative to BTC (only 4% or so) and relative to the larger financial world. Other chains have been the victim of successful, large-scale 51% attacks. It's not completely inconceivable that a 12.5% reduction in equilibrium hash rate could tip the scales.

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4 years ago

To me it seems you just said it in the same long, complicated and confusing way designed to fool people again.

"Coin holders pay for this" due to the loss of hash rate is kinda true and, IMO, pretty unimportant. We are already too low on hash, that's why BSV attempted a 51%. It failed and that attack coin still exists. It failed as other such attempts would because we have massive BCH-friendly BTC-Miner-hash waiting to protect us when needed. We also have battle tested developers who do what it takes to protect the only Bitcoin still seriously working to allow the scaling required to become peer-to-peer electronic cash for the world's people. Our dream makes us a major target. Development is what we need the most right now.

I am concerned about the exercise of the power of the developers and miners working together. I trust they have good intentions this time. Pretending we never exercise that power is dishonest. On BCH we call it an "upgrade" and we know it is a dangerous power to be very careful with. The troll narrative that because we do upgrades that are good for BCH, we will certainly lose control and do terrible things in the future is Baloney (nice way of saying BS).

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4 years ago

To me it seems you just said it in the same long, complicated and confusing way designed to fool people again.

Well, yes, obviously I was making the same argument. I was (very graciously, I might add) attempting to summarize / reframe my argument because you didn't seem to understand it the first time around.

"Coin holders pay for this" due to the loss of hash rate is kinda true

No, it's 100% true.

IMO, pretty unimportant

Yeah, who needs PoW anyways?

We are already too low on hash

Huh?! So that means it's no big deal if we go even lower?!

Development is what we need the most right now.

I disagree. As Peter Rizun wrote in his article: "The bitcoin protocol is very simple and was mostly complete in 2009 (by Satoshi). It is 11 years later and we should be moving towards a stable protocol (without block size limits) and the role of the 'protocol developer' should be waning." But even if you think that no, "what we desperately need most is more funding for devs, and the ONLY way to get it is to fuck with the consensus-level protocol," why not fund it with a tiny bit of extra inflation? After all, as you said yourself, we're already too low on hash. On the other hand, would we really even notice a one-time 0.07% increase in the coin supply limit? Really, what's the difference between 21,000,000 and 21,014,700? (That question was mostly rhetorical, but in case you're curious, the answer is 14,700.)

I trust they have good intentions this time.

You can pave a pretty sweet road with good intentions.

Pretending we never exercise that power is dishonest.

I'm not pretending we can't or shouldn't ever exercise the ability to modify the protocol. But again, I AM suggesting we shouldn't fuck with certain fundamental aspects of the protocol absent an EXTREMELY compelling rationale, which this proposal simply doesn't provide.

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4 years ago

You can pave a pretty sweet road with good intentions.

That is the plan.

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4 years ago

Sorry, I always forget that not everyone is a native speaker. My comment was a reference to a popular English proverb: "the road to hell is paved with good intentions." I think it's possible that was the plan here, i.e., that this proposal was a deliberate attack on the BCH chain, attempting to send it down the road to hell. But I hope that it was just well-intentioned naivete.

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4 years ago

Good pivot to confuse and imply more negativity. I do appreciate the appearance of concern though.

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4 years ago