Bitcoin ABC developer Shammah Chancellor recently talked about development funding issues with the protocol because of a “market failure” and explores a potential alternative of funding, including Bitcoin Cash users adopting a “tithe” model, highlighting some challenges presented to a protocol without a built-in funding mechanism for development.
BitcoinABC developer @micropresident calls lack of funding for his team a market failure & recommends tithing.
Could a lack of funding be a signal that the market doesn’t want constant tinkering with the base protocol with perpetual 6 monthly hardforks? pic.twitter.com/XNCcZlEGWn
— Skylark_BitCoin ? (@skylark_bitcoin) September 23, 2019
According to Chancellor, “Bitcoin ABC, the software, is a public good” rather than a service with a directly-paying customer. He went on to call lack of consistent development donations a market failure, saying that “the developers of the node software have no way to make money” and that “there’s nothing to do that will generate a profit” outside of doing another job or side project, but this would take time away from node development.
As a solution, Chancellor suggests that “People should be doing a tithe as their commitment to freedom”. A tithe is the practice of paying a tax, often one-tenth of an something (i.e. income) and comes from old english when individuals had to pay one-tenth of their income or crop yield to the church or government. However, as a real-world solution, he suggests that people should be making a voluntary monthly donation to fund the development team. As a further explanation, he appealed to the fact that “there’s still public works, there’s still public goods that can’t [sic], there’s a market failure there”.
Funding methods in other industries that may not apply to cryptocurrency development
The concerns raised by Chancellor about development funding raises an issue presented to cryptocurrency projects with largely volunteer developer bases. The most common way to fund a project in a free market is to make revenue and a profit by creating a good/service that individuals value and thus will pay for, with common alternative models such as the freemium/premium subscription model has certain additional features behind a paywall, as well as the free gift model that will send the donor a free mug, t-shirt, book, etc. with a donation over a certain amount, incentivizing the donor to give a certain amount. However, the concept of public goods that the Chancellor mentions does pose unique problems since the software is released for free and anyone can use it without having to pay, creating a free rider problem.
Various Bitcoin Cash development teams recently launched a fundraising effort and set 800 Bitcoin Cash as their goal. They reached their initial goal of 800 BCH relatively quickly and then expanding the effort to 1600 BCH and even have breakouts for donations to specific development groups, such as Bitcoin ABC, for individuals to express their approval of one development group over another. This illustrates that while there might be a rollercoaster of fundraising concerns, the Bitcoin network is large enough that they are able to get funding whenever they need more money. However, this brings attention to cryptocurrency funding in general, since having to constantly ask outside parties for funding makes the network less decentralized and puts the network at risk of accepting money from a group with ulterior motives, such as nChain or Blockstream, or potentially a large economic actor in the ecosystem such as Bitcoin.com.
Dash’s elegant solution to development funding
Dash’s solution to funding is to build it into the network via the decentralized autonomous organization (DAO). Each month, 10% of block rewards are reserved for the treasury, which can be allocated to proposals that masternodes vote on whether or not to fund. Since each masternode must prove ownership of 1,000 Dash, they have a financial incentive to vote for proposals that will return value to the network and keep it growing, including development. This helps keep the network working for individuals that actually use the network rather than special interest groups, and solves the free rider problem and other challenges based on a donation model.