Bitcoin’s Future Hinges on Donations and That’s Got People Worried
Last month, Bitcoin developer James O’Beirne sounded the alarm: The dominant blockchain might lose some very talented contributors if someone doesn’t step up to pay them for their work.
That work involves writing and maintaining code for the Bitcoin blockchain, tasks completely dependent on grants and donations from businesses and voluntary contributors. But relying on grants, stipends and free labor makes Bitcoin development prone to the ebb and flow of crypto markets – and goodwill.
This story is part of CoinDesk’s “BUIDL Week.”
The price of bitcoin (BTC) is currently down by well over 60% since its all-time high in November 2021. Consequently, many Bitcoin businesses – the main source of those grants and stipends – have tightened their purse strings and some have even been forced into bankruptcy, leaving many in the community anxious about how Bitcoin developers will get paid in the future.
“It’d be really nice to see more Bitcoin businesses step up,” O’Beirne tweeted. “This could get bad.”
Steven Lee, who leads Spiral, a subsidiary of Jack Dorsey’s Block that focuses on funding Bitcoin development, isn’t as pessimistic and chalks up the gloomy funding situation to the current slump in crypto asset prices.
“You have to recognize that we’re in the middle of a bear market,” Lee told CoinDesk in an interview. “Some companies and funders that were doing a really nice job of funding developers have had to reduce that due to financial pressures and the bear market.”
Adam Back, CEO and co-founder of Bitcoin infrastructure firm Blockstream, chimed in with a response to O’Beirne’s SOS and pointed out that the recent deluge of layoffs may have forced cash-strapped crypto exchanges to cut spending and opt out of renewing developer grants.
Read more: So You Want to Be a Bitcoin Developer?
What happens if funding dries up?
How bad could things get if the bear market persists, funding dries up and Bitcoin development grinds to a halt? What’s so critical about the work Bitcoin developers do?
Gloria Zhao is a “maintainer” for Bitcoin Core (or just “Core”) – the most popular software for connecting to the Bitcoin network. She approves updates to Core suggested by other developers and knows a thing or two about the project’s inner workings.
“Every software project requires maintenance,” Zhao explained in a podcast interview. “Up to 70% of software project activity is actually maintenance work, and I think … it’s more than that in Bitcoin Core.”
Many people only pay attention to big protocol upgrades like 2021’s Taproot, which improved Bitcoin’s privacy, scalability and security. Smaller incremental wins and ongoing maintenance don’t get as much recognition, but Zhao says that’s where most of the work is.
“The vast majority of changes are just, like, bug fixes,” Zhao explained. “And then a very small minority are maybe something like Taproot or something like Package Relay where you’re trying to make a protocol change.”
According to a report by New York Digital Investment Group (NYDIG), a Bitcoin-focused investment firm, the ongoing Core maintenance Zhao is referring to is carried out by roughly 40 to 60 active developers every month. Zoom out to include the broader Bitcoin ecosystem, and that number jumps to anywhere from 600 to 1,000 developers per month. That’s essentially how many Bitcoin developers require funding on a monthly basis.
Many crypto projects go bust because of fraud, malicious hacks, or even regulatory pressure; FTX, Ronin Network, Tornado Cash are a few examples. Not as many make headlines for shutting down due to funding issues.
One cautionary tale is the Cardano decentralized finance (DeFi) project Ardana.
Ardana raised $10 million in 2021 to work on stablecoin minting and foreign exchange services. After a year of attempting to become “the MakerDAO and the Curve Finance of Cardano,” the project was forced to call it quits, citing “funding and project timeline uncertainty.”
While Ardana and Bitcoin are two completely different animals, Ardana’s demise serves as a stark reminder of what can happen when project funding runs out.
Lee doesn’t believe Bitcoin, even in the most dire funding situation, will ever go completely bust.
“Even in the worst-case scenario, there’s still several organizations that fund Bitcoin development,” Lee explained. “As far as I know, they’re not in a situation where the budgets can disappear, and that includes Spiral and also includes Chaincode Labs and Brink.”
A recent report by crypto venture firm Electric Capital supports Lee’s perspective. Despite a bloodbath in the crypto markets, the number of full-time developers in the general blockchain ecosystem grew by 8% to an all-time high of 61,000 developers in 2022. The data is even more impressive when reviewed over a five-year period: The number of monthly active developers in the Bitcoin ecosystem has tripled since 2018 and stands at roughly 1,000 active developers every month. Ethereum’s developer count has swelled five-fold to almost 6,000 contributors over the same timespan, according to the report.
Spiral isn’t the only organization dedicated to funding development on crypto’s dominant chain. Brink was named the top funder of Core last year by crypto research firm BitMex Research.
Read more: Brink Emerges as the Top Funder of Bitcoin Core Development, BitMex Research Says
Chaincode Labs (a Bitcoin research center and O’Beirne’s previous employer), Blockstream and large crypto exchanges like Coinbase and OKCoin all have active grant programs for Bitcoin developers. The Human Rights Foundation is a well-known proponent of open-source cryptocurrencies and even runs a Bitcoin Development Fund. On Feb. 21, the organization doled out $475,000 in grants to 10 Bitcoin projects across the world.
This diversity of funding sources isn’t accidental. Spiral has a four-part framework for what it calls, “sustainable open-source Bitcoin development.” One aspect of that framework is “multi-entity funding,” which emphasizes the need to obtain funding from multiple sources.
“Since I’ve been in the space, I’ve referred to a 10-by-10 model. And by that I just mean it’s healthy for Bitcoin development if there’s 10 organizations funding 10 developers each,” Lee said. “And I don’t mean that literally. It’d be great if there’s 11 organizations versus 10, but there shouldn’t be one dominant organization funding Bitcoin development.”
This concept seems counter to how the majority of blockchain networks approach funding. Most so-called decentralized networks are governed and funded by central foundations.
Ethereum, for example, was pre-mined via the second largest crowdsale on the Internet at the time and ongoing development is mostly funded by the Ethereum Foundation which held $1.6 billion in its coffers last year.
Bitcoin doesn’t have $1.6 billion lying around to fund development. A rough back-of- the-envelope calculation indicates $150 million to $200 million would be required every year to fund development in the entire Bitcoin ecosystem (assuming 1,000 developers receiving Google’s average $150,000 to $200,000 annual compensation for software engineers). Spiral’s total annual budget is in the neighborhood of $3 million, according to Lee.
The network’s lifeblood is the goodwill of its community, and that goodwill can come from organizations like Spiral or organically from entrepreneurs like Ryan Singer, who responded to O’Beirne’s concerns by offering to hire one or two engineers for a Bitcoin project he’s working on.
Singer’s engineers would be allowed to devote 25% of their working time contributing to Bitcoin.
“It was intended to cover contributions to the Bitcoin Core GitHub repository,” Singer told CoinDesk. “But in talking to candidates, I’m expanding it to also include the three major Lightning node implementations.”