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Assessment and proposal re: the Bitcoin Cash infrastructure funding situation

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Avatar for im_uname
Written by   71
6 months ago

Edit: There are now Spanish, Arabic, French and Chinese versions. Thanks a lot to the translators!

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.

Problem description

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.

Do we pay for it at all?

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.

Why pay for one guy over the others?

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.

Wait, what?

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.

Okay, someone gotta pay for it whether it's pleasant or not. Who is someone?

Glad we got here!

A list of potential parties who could do the funding:

Direct Capital investment

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.

Sponsorship

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.

Miner payments (voluntary)

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.

Miner payments (mandatory)

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.

Holder contributions

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.

Considerations

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.

Proposal

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.

4
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Avatar for im_uname
Written by   71
6 months ago
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Comments

Great article. I think it be of greater use if it can be translated into all languages. Working on mine.

$ 0.00
3 months ago

$1000, what a tip!

$ 0.00
6 months ago

Money well spend! @im_uname has been instrumental in helping me see why it makes economical sense to donate and there is actually no free rider problem

$ 53.31
6 months ago

I still think this is insane (because that's what I earn in a month). Good for him!

$ 10.00
6 months ago

Thank you!

$ 0.01
6 months ago

Thanks Brother for supporting BCH best articles😘

$ 5.00
6 months ago

money must flow

$ 5.00
6 months ago

This is an excellent alternative, if it works.

"(...) The larger the difference between the value of the good and its price, on the other hand, the easier the entrepreneur's job. He can leave a generous margin for error by only listing the farmers of whom he is sure and charging each of them less than the dam is probably worth to him, yet still raise enough money."

$ 0.10
6 months ago

Great idea, can I translate it to Spanish?

$ 1.00
6 months ago

Feel free!

$ 0.00
6 months ago

this is a brilliant post! thank you to everyone who's (over the last few days) provided logic and reason to what started as a major clusterfuck and a lesson in horrible pr

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).

i didn't realize just how reliant the BCH community was on ABC. if their team is currently leading the charge, but clearly losing when it comes to adequate funding support, then this is obviously (ass-)backwards and should be immediately corrected.

Holder contributions

i don't see how THIS isn't plan A, but apparently there have been enough problems in the past coordinating this effort that the miners (pools) just decided to go it alone. can't really blame them


this article was a great education for me, in understanding ALL the various funding options that currently exist. I don't know what "Mecenas" is, but I guess that's next on my list .. my eyes are burning (they hurt) .. its been an incredible month (since i joined the community); haven't read this much since i first discovered BTC in '12 and went from Zero to Full cryptographer in 8 months.

with all the recent insights i've received into this wonderful community, i'll probably write an article soonish' as to what my "current" thoughts are.

1 on my list is addressing the 97% vs 3% hashrate currently split between the 2 dominant sha256 chains. any bright ideas on how to even out the imbalance??? (raise the price? how?)

$ 0.50
6 months ago

thanks for taking the time and fleshing out your thoughts

$ 0.50
6 months ago

I don't have anywhere near 100k BCH, but this is definitely something I would participate in.

also wait... how much money does ABC need? 500 kUSD/month? That seems like a lot. Can someone link some source for that (sorry, I'm rather out of the loop)?

$ 1.11
6 months ago

Assuming people are willing to put up this amount, a budget can surely be worked out. If nobody else, I'll talk to ABC guys about it and help them.

If there cannot be a budget no matter how much help is offered, then perhaps the plan should not be funded no matter the method.

$ 2.88
6 months ago

If nobody else, I'll talk to ABC guys about it and help them.

please do. how can we even talk about a funding method when we don't even know how much is needed.

$ 0.00
6 months ago

I dont think free-riders even exists. Coins are not like the state, where someone could just leech off from some aid. Everything is investment, work, business, speculation. Even the miners. Btw great article.

$ 0.20
6 months ago

nice article to read thanks bro

$ 0.00
6 months ago

im_uname, I know you're smart and I'm asking these questions wondering if I'm missing something:

  1. "Bitcoin ABC forms a company, promising returns, and investment funds give them money to work towards that goal." Can you tell me how a node implementation can promise returns?

  2. "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." I don't think there's any guarantees that funding infrastructure will facilitate growth of their asset's value, which is why I'm assuming whales are reluctant to give. Am I missing something?

$ 0.20
6 months ago

I know you asked im_uname, but let me comment on the second one:

I don't think there's any guarantees that funding infrastructure will facilitate growth of their asset's value

That's true. However what's also true is that infrastructure under-funding and/or development stagnation will certainly severely hamper any otherwise possible growth ("facilitate" doesn't mean "cause", just "enable"). Think fear, not greed. In other words: infrastructure funding is not a sufficient, but a necessary condition for value growth.

Also note that there doesn't have to be a guarantee for an incentive to work. A perceived possibility is likely sufficient (of course the clearer the advantage the more funding is possible).

To support my point a little more, let me talk for myself (while I'm in no way a whale, maybe a turtle or something): I've been donating to BCH-related projects and individual devs ever since BCH forked. Why? (at least) 2 reasons: 1.) I want Satoshis experiment to succeed and 2.) I want my BCH investment (which I greatly amplified vs. BTC post-fork) to "pay off" at some point. I did this without any guarantees (As an aside: I usually donate specifically "for past work", too, in order not to generate any dependencies or influences.).

$ 1.50
6 months ago

as a result of all the drama, i've quickly become educated on the many "issues" facing BCH; #1 on my list now is the terrible imbalance in the hashrate .. 97% to 3% is absurd.

I want my BCH investment (which I greatly amplified vs. BTC post-fork) to "pay off" at some point.

what are the BEST ideas (from you and/or the community) on how to increase the price and close the divide? as I'm actively working on a new project now (Nito.cash), I'd like to keep these things in mind as I continue to PLAN and BUIDL for the future

thanks!

$ 0.00
6 months ago

1 Increase utility that draws in users from outside BCH ecosystem. Those users can be individuals, businesses, governments, etc. Bitcoin Cash is for everyone, not just the tiny crypto community.

$ 0.25
6 months ago
  1. I posted that as an option with the intention to show that it's undesirable. Examples exist anyway as described...

  2. Nothing is ever guaranteed, even if the connection is more direct as in the case of an actual business. Bitcoin-ABC may also have made their case very badly in the past (see also Considerations), which is why we should help them if they're willing to be helped.

$ 0.51
6 months ago

All suggestions just postpone the inevitable death of BCH if it continues to be another nameless p2p cash coin. Don't fool yourself - being #4 is the same as being #24 - nobody cares in spite of the "bitcoin" prefix.

If we ignore the remarks above, let's postpone the death of BCH. We can do both proposals or we can make the miners' proposal active only if this suggestion collects less money (<$6m).

In the crypto space there will be place only for 1 "smart contract platform" and (possibly) for 1 "store of value" coin. Either of those 2 coins can be a successfull payment (p2p cash) coin either directly on-chain or indirectly as a stablecoin/2nd layer token.

My suggestion is let's raise more money than Blockstream and use only a small portion of that money to fund development.

$ 0.25
6 months ago

In the crypto space there will be place only for 1 "smart contract platform" and (possibly) for 1 "store of value" coin. Either of those 2 coins can be a successfull payment (p2p cash) coin either directly on-chain or indirectly as a stablecoin/2nd layer token.

I recently started a project (Nito.cash) that aims to bring together BCH (payments) and ETH (stablecoin + DeFi) .. i'm working to make the repo public in the next day or two; with a working "Developer Preview"

$ 0.00
6 months ago

it is difficult to argue that some amount of funding is required.

This should probably be "no" funding, if I understand the context properly.

$ 0.10
6 months ago

Thanks! Edited.

$ 0.00
6 months ago

Hey uname, it's me your cousin. I have this business idea you should invest in.

$ 0.16
6 months ago

Great post! As for holder donations: Heck ya! 6Mil is not enough in the long run. We need both ideas.

$ 0.00
6 months ago

Also important: Lighthouse developed by Mike Hearn at the time was also build to solve the funding problem for Bitcoin. Might even be better solution, "Crowdfunding platform for Bitcoin (Cash)": https://www.reddit.com/r/btc/comments/eubjqb/bch_dev_fund_why_not_crowdfund/

$ 0.10
6 months ago

I'm going to translate this post to French today (I assume you're okay!)

$ 1.00
6 months ago

Feel free!

$ 0.10
6 months ago
$ 3.50
6 months ago

please tweetit these translated articles😊

$ 0.00
6 months ago

Working on a Chinese version myself, will do when done

$ 0.11
6 months ago

ok

$ 0.00
6 months ago

Very great job done! "Problems identified are problems solved" Good one for identified the challenges and proffer solutions. The project should be translated into more languages. Thanks.

$ 0.00
3 months ago

[deleted]

$ 0.00
6 months ago

Bad Google Translated version, see comments, unreadable.

$ 0.50
6 months ago

thanks for letting us know. I feel bad I donated.

learned lesson

$ 0.00
6 months ago

Almost socialistic approach: the rich should pay for it because they are the ones to stand to benefit more... The donation schemehad already been tried and failed to garner huge support. Time to move on... Also the fact that this miner contribution happens or not doesn't change the reality of who controls the network and how distributed it is. It is only an expression of the power of the miners but doesn't change the reality underneath it.

$ 0.10
6 months ago

There is nothing less socialistic than investors putting up money for their own profit.

$ 50.29
6 months ago

Very long article but interesting great job bro

$ 0.00
5 months ago

Got this far and had to comment:

" where the currency is known as being privatized by a cartel..."

and
"...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."

When the miners and the developers team up to do something they think is good for the currency they do have massive power. Pretending they do not is the normal thinking strategy we use on a daily basis, but, it was never true.

Your point about "the necessary public relations legwork" is crucial here. BTC miners and developers worked together with a massive social engineering effort that allowed them to disable BTC's primary use case. That is an example of wielding the immense power to do something that is bad for the currency and the miners. And, they got away with it using fake people pretending they liked the idea all over social media. BTC is now a house of cards not because they used that power, but, because they used it to break BTC.

Like rolling checkpoints, if the miners and the developers team up to do something THEY AND THE COMMUNITY thinks is good for the currency it is considered an "upgrade". Because miner's rewards going to development of BCH is a great idea for BCH, those opposed to the dream of Bitcoin have aimed all their social engineering efforts at making it seem like a bad idea. They are very sophisticated and know what buttons to push to make it seem like a good thing is an attack on the principals of Bitcoin.

We do have to be very careful wielding this immense and dangerous power, but, when it is good for BCH and the miners, developers and BCH believers are all on board it is not going to crush BCH's reputation. We are already the currency that does "Upgrades". We just need to be very careful and we are getting a lot of feedback on the funding idea to help us avoid mistakes.

$ 0.00
6 months ago