The following is a summary of what I have seen and thought both in public and in private. Vast amounts of under the table arrangements may exist outside of my knowledge. My opinion may be biased in any number of ways.
In this writeup I attempt to describe the challenges we face and recommend a path forward.
Bitcoin Cash has a value proposition as a major, reliable permissionless cryptocurrency that can scale for mass adoption and aims to achieve said adoption aggressively. Such a mission require the following from its software, including both full node and other essentials such as an open source wallet:
1. Robust, well-tested software that is kept up to date and free of bugs to the best effort.
Contrary to what some might think, software does rot if not maintained as bugs are discovered and unfixed, new problems arise from developments in their environment, and new exploitation tools are revealed. At a minimum, a crew of highly knowledgeable maintainers are needed. We cannot expect them to work for free in a sustainable fashion.
2. New features that enable usecases and aid scalability.
We are in an upstart position. In order to gain network effect, new usecases are very desirable. A prime example is OP_CHECKDATASIG and the host of new smart contracts it enables. And then when we get those usecases, we will need features that enable us to scale to thousands of transactions per second safely without sacrificing other desirable qualities.
Most of the items on Bitcoin Cash roadmap are not cutting edge technology with the exception of Avalanche. Still, implementing them safely, in a demonstrably robust way, requires talent that is often very expensive.
While such talent sometimes volunteer themselves, such volunteering can be unreliable due to the sheer fact that lucrative opportunities exist for them. One may debate the level of funding required, but it is difficult to argue that no amount of funding is required.
These efforts benefit everyone on the network, particularly coin holders who see an increase in their asset's value. However, it may be difficult to extract direct, targeted and easily quantifiable revenue from this effort, which is likely why few are doing it.
Some may argue that it's unnecessary to pay anything and volunteer efforts are enough. Many of them may also think that it is okay to have software that is minimally maintained but without new scalability or usability features for a long time. That would be an unfortunate worst case scenario that is survivable but does not get us to global permissionless money.
It seems like most of the discussion is focused on Bitcoin ABC, with Electron-cash sometimes thrown in for the sake of diversity. Let's be honest with ourselves, this initiative is for Bitcoin ABC.
Any funds that could go to more purposes than the full node software will likely be applied at Bitcoin ABC's discretion anyway.
From a risk management perspective, the ecosystem is in a position that compels it to fund whatever ABC requests, in order to mitigate the threat of them folding or otherwise having a significant disruption.
Their competitors are either immature and objectively dangerous if used to mine (BCHD, Flowee and Bitcoin Verde) or unfavored due to a spotty record and perceived past unwillingness to serve miner demands in general (BU).
It is important to realize that unless you are willing to go without maintenance and improvement for a long time, or willing to fund a competitor acceptable to most, the risk is present, and someone gotta pay.
This is an unfortunate situation for the diversity of ecosystem and power, but we have to address the elephant in the room.
There are other things we could do to dig ourselves out of this hole in the future, but not today.
We cannot look away.
Glad we got here!
A list of potential parties who could do the funding:
Bitcoin ABC forms a company, promising returns, and investment funds give them money to work towards that goal.
This model is most famously used by Blockstream (BTC) and Parity (ETH/Polkadot). It carries an obvious problem that the business model of that company may not be aligned with the benefits of the ecosystem.
As the company entrenches itself by dominating developer count and influence, it becomes increasingly difficult to dislodge them. It will then only be a matter of time before the company starts extracting rent, given companies naturally gravitate towards profitability and rent-seeking is an easy way to do it.
Bitcoin ABC receives contributions from multiple businesses building on Bitcoin Cash, and return their expertise and prioritize concerns.
Widely cited as the "Linux Foundation model" and a desirable state to be in, this model requires multiple businesses on Bitcoin Cash profitable enough to be willing to contribute.
Currently there is a lack of such companies considering the early state and challenges the chain has faced since inception.
Bitcoin ABC receives payments from miners who donate their own coins voluntarily, on the theory that this is good for the miners' long term benefits.
Bitcoin.com has been doing direct payments from their pool on a small scale, and it's been widely speculated that Bitmain, who operates significant hashrate in addition to its prominent pools, sponsored Bitcoin ABC even more substantially.
From a purely miner perspective, this may be difficult to justify because miners have very thin margin. Miners who do not reinvest into their hashpower tend to get quickly outcompeted and shrink in size.
More importantly, the fact is an overwhelming majority of miner income comes from BTC these days, and there is no strong reason for many of them to care about BCH development other than the belief of some about future upsides.
Bitcoin ABC receives payments from a rule diverting a fraction of every coinbase to their account, backed by orphaning threats from de facto consensus rules.
This is the essence of the current controversial proposal on the table, even if versions may have different details.
This proposal purports to solve the "free rider problem" by mandatory payments from every miner; it further asserts that as difficulty adjusts, the "cost" is spread across SHA256 miners, making the fund's cost to "BCH miners" only proportional to BCH price ratio to BTC. Some pool operators and miners also assume that this will help the current hashrate oscillation in BCH.
The last assumption is certainly untrue, as total amount of the extraction is unmoved no matter the fraction of switch miners. Only a relative price rise against BTC can solve this problem, which is not helped by community fracture and a PR nightmare.
More fundamentally, this proposal changes the very nature of Bitcoin Cash from an entirely permissionless chain, to one where part of the distribution is diverted in protocol to a few trusted party hand picked by a fraction of its mining pools.
While many see it as an act of expedience and survival necessity, it is unclear whether this is a net benefit, especially considering long term adoption, investment and talent attraction implications where the currency is known as being privatized by a cartel. Such a hit to the chain's image is not undone even if, as the plan's initiators claim, it expires after six months.
Furthermore, such a demonstration of hashpower-based redistribution of coins have serious implications on censorability of the chain, and one may question whether it becomes permissible for the cartel to levy taxes on any coin or any transaction as long as they have done the necessary public relations legwork.
The fact that prominent actors are willing to address the funding issue head on, however, is still a positive sign.
Bitcoin ABC receives payments from a collection of major Bitcoin Cash holders who fund infrastructure to facilitate perpetuation and growth of their asset's value.
The payment can either be direct, assembled via an assurance contract, time-release a la Mecenas, or any number of other sophisticated setups.
There is one reality that is unlikely to change: BCH holders benefit the most from network maintenance and improvements, due to the appreciation of their coins. It is natural, then, for the biggest beneficiaries of network improvements to fund them.
Part of the difficulty, though, is Bitcoin Cash by design respects ownership of coins: It is much harder to confiscate confirmed coins than coinbase rewards. If a holder cannot be persuaded, it is impossible to coerce him into paying for anything.
The holders, however, should in theory be relatively easy to persuade.
As long as they contribute less than the risk-adjusted expected appreciation to their assets as a result of continued development of the full node, it is beneficial to contribute as an independent decision, regardless of any number of "freeloading" businesses and holders. This is especially applicable to large holders, who do not need coordination and can fund infrastructure projects by themselves and gain net profit through sheer asset appreciation.
One consideration among holders may be the difficulty of coordination. While very large holders can fund large projects like Bitcoin-ABC by themselves, if coordination from smaller holders are necessary, they might be afraid that there's not enough commitment from their peers to co-funding, and partial payments out of their own pockets will be ineffective.
This concern can be addressed by Lighthouse-style assurance contracts directly on the BCH chain. With it, all-or-none payments can be ensured.
Talents exist on BCH where one-off assurance contract funding transactions can be constructed within a few days.
If the concern is one-off payments may offer perverse incentives for the beneficiary, one may commit to schedule payment smart contracts like Mecenas, entirely onchain. It can even be combined with assurance contracts.
Several considerations to keep in mind when drafting a proposal:
1. Bitcoin ABC, the expected main beneficiary of any proposal, may have harsh relationships with many coin holders, which affects their decision. Mending that relationship and making them see eye to eye is key. It may be necessary to convey ABC and holder concerns to each other diplomatically.
2. Big holders may have unfounded concerns about "free rider problem". It is important to demonstrate to them the direct benefits of their investment regardless of how many people "freeload"; in fact, cryptocurrency is a unique space in that "freeloaders" who use the chain add to network effect, hence amplify the investment anyway.
3. It may also be beneficial to frame investments in terms of specific improvements on the roadmap, so that their benefit to adoption and value is more easily described.
Just six large holders each with 100,000 BCH can contribute $1 million each, 3% of their holdings each, and the mining tax proposal's amount will be matched.
They can do it every year and still come out with a huge profit, assuming the scaling benefits propel BCH to match today's ETH market capitalization several years later.
The more large holders join this proposal, the greater their returns vs investment - and it is profitable for them each regardless of how many "freeloaders" there are.
On the back of napkin, (or Excel), let's make a conservative projection - if you're a 100k BCH holder, and you invest $1 million per year. The scalability and reliability benefits propel us to a conservative target of today's Ethereum market cap by 2025. We also need to account for risk, but let's say they are offset by larger upsides on the other side.
Further consider that you just hodl, and the plan falls apart. The coin may collapse due to lack of maintenance, or it could adopt some strange value proposition that allows growth. Let's optimistically adjust to assume we stagnate as a store of value, and track the Federal Reserve's inflation target.
The stark difference in returns should be clear, regardless of whether anyone is "freeloading".
There should be a Mecenas contract that releases each six month's payments to Bitcoin ABC, or their designated agent, in monthly allotments.
If the recipient does not collect said allotment some time for any reason, the funds can be clawed back after some time.
The Mecenas contract should then be preceded by a SIGHASH_ALL|ANYONECANPAY partial transaction funding mechanism, with a target amount and the Mecenas contract address as output.
A tool shall be provided for interested holders, coordinated in private, to sign partial transactions and either add and tallied to a public website or a private, trustless agent. The transaction is made valid once inputs exceed the desired amount, and scheduled delivery via Mecenas contract can begin.
This process is repeated every six months.
Bitcoin-ABC shall demonstrate progress publicly before each funding period, both in software and a brief explanation.