This article comes from deribit, the original author: Derek Hsue, Su Zhu, Hasu & Brandon Curtis
Odaily Planet Daily Translator | Moni
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In this article, we will examine the importance of raising funds for open source development work, what financing mechanisms exist, and the trade-offs between these mechanisms. After that, we will apply the research results to Bitcoin and the broader cryptocurrency field, and analyze how the past has funded Bitcoin development and how this will evolve in the future.
In fact, modern digital infrastructure runs primarily on open source operations support system software (OSS) and is therefore "invisible" to most people. Just like the physical infrastructure in the form of roads, bridges, etc., digital infrastructure also needs to be upgraded, bug fixes, and improved in other ways.
In 2014, Google researchers discovered a serious vulnerability in OpenSSL, and the world immediately worried about the potential problems of these poorly maintained digital infrastructure. OpenSSL is a widely used encryption library that securely transmits sensitive information such as passwords and credit card information. More than 66% of web servers worldwide use OpenSSL. This "vulnerability" allows an attacker to steal information transmitted over OpenSSL. Soon after, another serious vulnerability appeared in the UNIX-based command-line tool Bash, a vulnerability called "Shellshock" that allowed an attacker to gain remote access and execute arbitrary code on the victim's computer.
In fact, these revealed vulnerabilities have been discovered for many years, but they are still being used by attackers in many cases, and they have also sounded the alarm for the technology industry.
Why do bitcoin developers need financial support?
Today, the fact that billions of people around the world rely on open source digital infrastructure suggests that we need to pay special attention to the optimization and security maintenance of open source digital infrastructure, but the reality is the opposite. The open source operational support system has many problems in terms of maintenance, and one of the root causes of these problems is the lack of funds.
- First, because the software surrounding the open source operations support system itself is non-proprietary, it is difficult to build a sustainable business model around it;
- The most important alternative at present is to obtain funds through donations, but this method is full of helplessness, because all parties want to pay for the common good, while others can use it for free;
- In the past, while retaining unauthorized access, it was difficult for open source operations support system software developers to make profit at the agreement level, but now this situation will change with the emergence of native cryptocurrency based on digital payments;
- On the other hand, public awareness has also changed. Especially after experiencing the “blood hole” and “Shellshock” loopholes, people are beginning to realize that if the open source operation support system software is not effectively maintained, it will still bring huge risks. Maintaining these system software is not free.
Are all financing "equal"?
For any infrastructure, the most important attribute is reliability, ensuring that current core functions are maintained and not deprecated. It is the foundation for high-level applications and a strong guarantee for users and enterprises. . In order to do this, we must get rid of special interests in the development process, and always implement the spirit of "user benefits above everything else." Therefore, the financing mechanism itself must meet the above two requirements, and those unreasonable financing mechanisms and network governance will bring great risks, such as:
- Concentration of power: If only 1-2 entities fund the development of cryptocurrency projects, they will certainly gain enormous power, and then move the project direction, they can fund the proposals they like, and reserve funds for disapproval proposals;
- Moral hazard: When for-profit employees maintain open source operations support system software, they may encounter moral hazard problems. In particular, this company is an active user of the relevant agreements, then they are likely to encourage developers to protect the interests of their employers, rather than the interests of other users, the direction of the agreement will also be driven by commercial interests;
- Protocol hijacking: An attacker could introduce malicious code into the protocol.
- The agreement is forced: the agreement is easily changed by the “coercion” of the lobbying party and the political party, and they will make the agreement develop in the direction of benefiting themselves.
How to raise funds for Bitcoin development?
Bitcoin networks are also a form of digital infrastructure, so they need to be maintained and improved, but developers who do these things can't do it. In fact, Bitcoin is in great need of continuous optimization and improvement because it is already an attractive target. On the one hand, Bitcoin allows users to store wealth outside of the traditional financial system. This alone has attracted many attackers; on the other hand, it attacks the bitcoin more than the current attacks on open source operations support system software. It's easy to “realize” because an attacker can quickly sell stolen bitcoin and can also bet on the bitcoin price in the derivatives market. (Star Jun Note: For example, shorting bitcoin in the derivatives market, once the attack is carried out, even if it is not successful, it will affect the price drop)
Therefore, it is very important that Bitcoin development must have a financing mechanism that is compatible with the original agreement and its user target incentives. So in the next section, we will examine how the current support for Bitcoin, the financing mechanisms under the open source mechanism, and how the funds evolve and future development. In addition, we will study an optimal structure to minimize the possibility of negative outcomes.
Exploring the financing mechanism under the open source mechanism
1. Unpaid volunteers
So far, unpaid volunteers are the most common participants in open source protocols. Although they actively contribute and maintain software, they do not have direct monetary compensation. However, unpaid volunteers may have other motivations, such as building skills and/or community reputation, ideological reasons, or may be really motivated by the project.
A typical example of OpenSSL is that the project is only maintained by unpaid volunteers, but after being shocked by the “blood loopholes”, a group of technology companies recently launched a plan to better fund key open source projects. Another example is actually Bitcoin itself. The project has been maintained by unpaid volunteers since the beginning of “Zhong Ben Cong”, but in 2012, external funds were first supported by Bitcoin developers.
The unpaid volunteer model has many advantages: First, although financial support is not provided, those who can contribute in this situation are certainly enthusiastic about the project and maintain a long-term strategic vision for improving the software; Secondly, developers in this model are more inclined and willing to collaborate with others. The barriers to entry into the project are relatively small. Almost any developer can submit a “pull” request on GitHub and gain insight into the software.
However, there is a risk of developer loss/flow in this model, because without direct compensation, some developers cannot continue working on the project for a long time. Whether it's exhaustion, lack of time, or lack of motivation, it's hard for developers to contribute indefinitely as software evolves, and expanding the developer community can be difficult. On the other hand, most open source operations support system software does not have a formal organizational structure or entity, and it operates more like a “market”, resulting in developers being able to independently review and submit optimization requests. Fred Wilson, founder of United Square Ventures (USV), criticized Ethereum for not having a direct, centralized approach to development. He believes that the decentralized approach to development in many cryptocurrency projects is not reasonable. Because this method cannot give accurate deadlines and delivery dates.
Sponsorship is another common form of support for open source operations support system software projects, in which companies and individuals can donate to non-profit organizations, which then allocate funds to developers or directly They pay for it.
Companies like Microsoft and Google are big sponsors of the Linux Foundation, a non-profit organization that hires developers to work full-time on the development of the Linux kernel. Stripe also has a program dedicated to funding open source projects, providing subsidies and support for the development and maintenance of many open source software, including machine learning, databases, and infrastructure.
Sometimes these support and sponsorships do not carry any qualifications, but sometimes sponsors may want certain features to be prioritized. But one thing is undeniable: patrons will certainly benefit from the long-term health and sustainability of open source systems/software.
The biggest benefit of the sponsorship model is the ability to coordinate interests between sponsors and developers. If the sponsored project creates a lot of value, then the sponsoring company (individual) will be motivated and then continue to fund it. In addition, developers now have the resources and support to better contribute to the project over the long term. It should be noted that open source software itself does not have commercial benefits, and it does not directly extract costs from the software itself.
However, if the number of open source software users is small, problems will arise. At this point, the continued development of this project will be a very sponsored entity, and the impact of this entity on the direction of the project will become larger and larger (regardless of whether the entity is driving or not).
At this stage, the sponsorship model has been relatively mature and has been successfully applied to many open source projects. Sponsorship is a powerful financing tool because it can coordinate interests well among all stakeholders and ensure long-term maintenance of open source projects.
3. For-profit companies
In this model, a for-profit company will provide a range of services for customers running open source operations support system software, such as installation, maintenance and support, which can benefit from commercial applications built on the protocol. For example, Gmail is a commercial application based on the open source protocol SMTP.
RedHat is another example. They are a company that provides services, training and support for the Linux open source operating system, helping companies to more easily trade with the Linux kernel and speed up software development and use; and bitcoin, for-profit The company's Blockstream is committed to profiting from products based on the Bitcoin native blockchain, including Liquid, side-by-side, mining, data streaming and more.
If these business applications are able to establish their position in the market and gain business revenue, they can continue to fund the corresponding open source agreements and projects. In fact, these companies are very interested in the long-term success of open source projects and are willing to provide them with dedicated resources and support.
It is worth mentioning that some people are skeptical about the feasibility of this model, because RedHat has much less benefit from open source services than companies like Microsoft and Apple, and it is not clear about this success model. Can it be copied by others? In addition, moral hazard can occur if the business benefits outweigh the common interests. In this case, open source software may become more and more difficult to get started and use, and the direction of protocol development will gradually transform into higher-level services and tend to "make money."
4, the protocol level is realized
The cryptocurrency brings a new financing mechanism, namely “provisional level realization”. The most typical example is the initial token issuance (ICO).
The initial token issuance relies on the project side to issue a small amount of native tokens as a value exchange unit for the network. In the earliest initial token distribution model, funds will be concentrated and experienced, and the tokens will be distributed according to the corresponding proportion. The project party will define the fund payment schedule in the development roadmap. When the project achieves a certain milestone, the token holder can vote to allocate funds. If the project cannot be implemented as originally proposed, or if the work is not completed as intended by the token holder, then the project contributor can hire another team to complete the project. Initial token issuance can be used in conjunction with a proposal system that allows token holders to evaluate project priorities in a token-weighted manner.
In practical applications, most of the initial token issuing projects have obtained most of the token income. Broadly speaking, few token holders will check whether the project has completed the milestone work as scheduled, which has led to many short-term projects that are short-sighted and will not look longer.
On the plus side, initial token issuance is indeed a “successful” approach to financing compared to other open source project fundraising methods, as billions of dollars have been raised so far and are also available to developers. A lot of resources are needed to build the agreement. On the other hand, this model usually gives a single company, or a group of developers a lot of power, and can also facilitate rapid decision making and iteration of the project.
Even so, this seemingly innovative open source financing model still has very serious problems:
- When developers get rewards immediately after the main online line, there is likely to be insufficient motivation to develop and maintain the software. In fact, some token projects have begun to realize this problem, such as Zcash, they hope to allocate protocol-level tokens to developers over time to alleviate this problem, and incentives can be in the form of inflation (some tokens will be automatically broadcast Come out to pay for the development of the network) or by paying for each transaction. Since the value of reward tokens depends on the healthy operation of the blockchain, developers will better contribute to the long-term development of the blockchain.
- Initial token issuance financing usually focuses on a small number of developers, making it difficult for external parties to make meaningful contributions. In addition, volunteers who provide free support may lose the incentive to continue contributing when others are paid.
- Finally, a centralized company or foundation can easily lead to controversy or legal review. Taking Tezos as an example, they raised more than $200 million in initial coinage in 2017, but the issue of control over the money sparked a year-long dispute; and Telegram, they were in 2018 Billions of dollars have been raised through token sales, but recently the US Securities and Exchange Commission considered these tokens to be unregistered securities and therefore prohibited the project from continuing to develop.
All in all, “protocol level realization” has been the most common method of funding open source cryptocurrency projects, but it is still unclear whether it can exist for a long time. Factors such as the practicality of the issued assets, whether the regulation will set obstacles, etc., may prevent this financing method from being used in the future.
How did the Bitcoin developers fundraise in the past?
Since the birth of the first creation block in 2009, the development and support of Bitcoin has come a long way. In the first few years of Bitcoin's birth, the entire network was completely maintained by “Zhongben Cong” and a small group of volunteers, but as bitcoin became more popular and market-priced, External developers are also beginning to be drawn in.
In 2012, Bitcoin investors and external contributors began to realize the need for more organizational support, which prompted them to create the Bitcoin Foundation, whose mission is to standardize, protect and promote the use of Bitcoin, a bit for global users. Founders of the Coin Foundation include Gavin Andresen, Charlie Shrem, Mark Karpeles and Roger Ver. The Bitcoin Foundation has played a pivotal role in the cryptocurrency ecosystem for some time and has supported several core developers such as Gavin Andreesen and Wladmir van der Laan. But by 2015, the Bitcoin Foundation’s funds were exhausted.
During this trough, MIT launched the Digital Currency Initiative to support Bitcoin, which was established in 2015 under the leadership of the MIT Media Lab and won Gavin Andreesen and Wladmir van. Der Laan, and support from Cory Fields. In 2016, they announced the establishment of a $900,000 Bitcoin Developer Fund and a donation from several large cryptocurrency exchanges. Since April 2015, developers supported by the MIT Digital Money Program have contributed to Bitcoin, accounting for 14% of all Bitcoin core contributions.
As time went by, other organizations that explicitly supported Bitcoin began to appear. A group of developers, including Gregory Maxwell, Pieter Wuile, and Matt Corallo, formed Blockstream with the mission of improving the Bitcoin core and building support services such as data services and sidechains. Blockstream has raised $90 million in venture capital funding, and its employees have made significant contributions to Bitcoin, such as Bitcoin Improvement Protocol (BIP), research on SegWit, confidential trading, encryption library libsecp256k1, lightning network, etc. .
In 2014, Alex Morcos and Suhas Daftuar created Chaincode Labs, which they use as another non-profit organization dedicated to supporting Bitcoin. Chaincode Labs specializes in the development, review, testing and maintenance of Bitcoin software and also provides training services for many aspiring developers. Developers supported by Chaincode Labs have also made many contributions to the Bitcoin network, such as cost estimation algorithms, Fibre networks, and BetterHash.
There is also an interesting part of funding Bitcoin developers: how to support active developers and then inspire those whales to “give back” the Bitcoin protocol. If the Bitcoin protocol can be effectively maintained and ensure the long-term healthy development of the network, it is beneficial to the stable growth of the bitcoin price and economically also benefit the Bitcoin holders. In this way, providing “donations” to Bitcoin support and development can be seen as an investment that benefits your Bitcoin assets. The “donation” of Bitcoin is very different from the donation of Wikipedia, because the final benefit of Bitcoin donors is much larger.
In addition to the several examples mentioned above, many other organizations today also directly or indirectly support the core development and maintenance of Bitcoin. Bitcoin, Xapo, and Coinbase are "bitcoin-centric" companies that rely on the health of Bitcoin and have previously supported developers who improve and maintain the Bitcoin protocol. Founded in 2018, Bitcoin Optech, a non-profit organization, has made invaluable contributions to Bitcoin expansion technologies, including quarantine witnesses, transaction batches, cost estimates, token selection, and lightning networks. Financial technology company Square recently announced the launch of Square Crypto, and also recruited six developers focused on Bitcoin and Lightning Networks, including former Google software engineer Steve Lee (currently a product manager), and they plan to recruit designers in the future. .
Overall, since the birth of Bitcoin, many non-profit organizations, academic institutions and large technology companies, as well as a variety of other organizations have contributed to Bitcoin. More importantly, most contributors are working hard to ensure that no organization has too much impact on the Bitcoin protocol (to prevent centralization), which is a success for Bitcoin from niche open source software to an important digital infrastructure that can be relied upon. Transformation logo.
*Note: This article does not list all organizations and individuals that contribute to the Bitcoin Agreement. Many developers are self-financing, and some are part-time or work for other organizations.
How will Bitcoin developers raise funds in the future?
If Bitcoin continues to evolve, there will be more and more companies and individuals that interact and rely on the Bitcoin blockchain as an infrastructure. When this happens, we expect more and more people and resources to invest in Bitcoin development.
At the same time, we saw the birth of a higher-level independent ecosystem based on Bitcoin, the famous lightning network. In the past few years, organizations such as Lightning Lbas, Radar, and Acinq have raised venture capital funding to begin developing lightning network protocols and building businesses around the agreement.
If the geopolitical importance of Bitcoin increases, then some governments and central banks are likely to hold Bitcoin directly through local mining infrastructure, which will also directly affect the success of Bitcoin. In this case, the government and the central bank will also contribute resources to ensure the continued development of Bitcoin (of course, this may also pose another threat to Bitcoin: the government may one day try to influence bitcoin through monetary incentives. Direction of development).
Finally, we hope that the money raised for Bitcoin developers will flow to software engineers.
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