Major Bitcoin Cash Miners Propose A Controversial Development Fund

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This Miner Insights piece was originally published in crypto mining publication MinerUpdate.

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A controversial soft fork forcing miners to forgo a portion of their block reward to fund development on the Bitcoin Cash network has been proposed by several large Bitcoin Cash miners. 

Quick take;

  • Major Bitcoin Cash mining pools propose allocating 12.5% of the block reward to a development fund after the May 2020 upgrade
  • The miners supporting the proposal plan to orphan the blocks of miners who do not comply
  • Bitcoin Cash miners who wish to resist the proposal will be forced to execute a user-activated soft fork

BITCOIN CASH DEVELOPMENT FUND PROPOSAL

blog post by BTC.top CEO Jiang Zhuoer detailed a controversial proposal for the May 2020 Bitcoin Cash network upgrade. Titled “Infrastructure Funding Plan for Bitcoin Cash”, the proposal emphasizes the importance of investment in Bitcoin Cash development and proposes that 12.5% of the block reward after the May 2020 upgrade is allocated to a fund to subsidize development efforts. It is proposed that the block reward is allocated for six months after the upgrade and is estimated to generate roughly $6 million USD towards Bitcoin Cash development at current BCH prices.

Similar development fund structures have existed in privacy-focused altcoin networks Dash and Zcash. However, transitioning from block rewards being fully dedicated to miners to a structure whereby miners subsidize development is a new proposal.

The proposal further outlines that the development fund will be established as an entity in Hong Kong. How the Hong Kong entity will operate is still under discussion according to a Reddit AMA answer by Zhuoer.

This is also not the first time such a proposition has been discussed by Bitcoin Cash miners. After a CoinGeek conference in May 2018, Bitcoin Cash miners discussed the possibility of funding Bitcoin Cash development by allocating a percentage of the block reward.

The CoinGeek conference discussion considered subsidizing development with 1-5% of the block reward. The state of developer activity in Bitcoin Cash has been on the decline since with research from Electric Capital highlighting that the average number of developers contributing monthly to Bitcoin Cash declined 32% from H2 in 2018 to H1 in 2019.

HASH POWER IN SUPPORT

Jihan Wu, Roger Ver, and Haipo Yang are among the supporters of the proposed fund and co-signed the original post. Bitcoin Cash mining pools associated with the listed supporters – BTC.top, BTC.comAntpool, Bitcoin.com, and ViaBTC – account for over a third of Bitcoin Cash hash rate over the past month. 

 Bitcoin Cash 1-month hash rate share snapshot taken on 25th of January; Source: BTC.com

With a large portion of the Bitcoin Cash hash rate coming from an unknown source, it is highly likely that a large portion of this hash rate is also attributable to the Bitcoin Cash mining pools in support of the proposal. Poolin co-founder Chris Zhu explained to MinerUpdate in a 2019 interview that features such as autoswitch mining can make the hash rate come from an anonymous source.

 

BITCOIN CASH CHAIN SPLIT POSSIBLE?

One of the more controversial elements of the proposal lies in the intent to orphan the blocks of Bitcoin Cash miners who fail to allocate 12.5% to the Bitcoin Cash developer fund. Orphaned blocks are blocks which were at one point confirmed as part of the longest proof-of-work chain but were excluded as a longer proof-of-work chain overtook the chain which the orphaned block was originally included in.

“To ensure participation and include subsidization from the whole pool of SHA-256 mining, miners will orphan BCH blocks that do not follow the plan”

Infrastructure Funding Plan for Bitcoin Cash, Jiang Zhuoer

This proposal does not require a change to the consensus rules. The threat to orphan blocks of miners who do not comply is one which blatantly signals the force the supporting miners hold over the future direction of Bitcoin Cash. It indicates that any miners in disagreement with the proposal will be ultimately excluded as the hash power majority who support the proposal will overtake the chain and exclude their block.

Bitcoin Cash has depreciated roughly 10% since Jiang Zhuoer published the upgrade proposition. The altcoin market has been trending downward over this timeframe declining approximately 6% while Bitcoin declined roughly 4%. The underperformance of Bitcoin Cash may be the market pricing in greater levels of uncertainty regarding the future direction of the network.

This proposal resurfaces the question of how decentralized Bitcoin Cash really is. If a handful of powerful Bitcoin Cash miners can succeed in forcing the rest of the mining nodes to comply with forgoing 12.5% of their block reward, what does this suggest about the state of the Bitcoin Cash network?

If a portion of Bitcoin Cash miners wish to resist, they will be forced to execute a user-activated soft fork (UASF). In this scenario, matters can get complex and a chain split will have to occur which would partition miners and developers, potentially resulting in fewer developers working on the Bitcoin Cash ABC protocol than there is today.

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