Ok, that was an obnoxious title, but it sums up my feelings on the recent developer funding proposal pretty well. I didn't like it when I first read about it. (“Geez, don’t muck with the consensus level protocol for that.”) I really didn't like it after reading Peter Rizun's excellent recent article: The Best of Intentions: The Dev Tax is Intended to Benefit Investors But Will Corrupt Us Instead. And after giving it some more thought today, I really, really don’t like it.

Here’s why I think it’s so insidious. At first glance, it looks like the miners have gotten together to fund BCH development. But the reality is that the proposal would be funded by holders. (Although SHA256 miners would, collectively, also take a small hit—0.4% or so based on current prices—as a result of the reduction in the total value of competitively-mined coins.) But the payment by holders comes in the form of a reduction in the chain’s equilibrium hash rate (and thus security) for a given coin price. And that makes the holders’ payment easy to overlook, or rationalize. As someone on Reddit asked me earlier today: “How much security do we need?” Well, good question. That’s hard to say. You tend to find out after the fact if you didn't have enough. But yeah, we probably wouldn't miss a temporary 12.5% reduction in hash. It probably wouldn't be the difference between a catastrophic 51% attack succeeding when it otherwise would have failed. But that wouldn’t mean the decision had been a responsible one. (Heck, we could probably get away with a temporary 30% reduction so why not fund even more development—and maybe some BCH marketing and promotion efforts too?)

But now imagine if the proposal had been an alternative one in which the proposal’s real funding by holders had been more transparent and taken the form of a "one-time-only-never-to-be-repeated-we-promise" increase in Bitcoin Cash's 21-million-coin supply. The required increase would be super "tiny" (a 0.07% increase would yield $6 million at current prices —wasn't that the target raise?). "Holders probably won't even notice such a piddling effective reduction in their holdings. And anyways, they'll probably be more than compensated for it by the price appreciation that will flow from the improved software this will fund." If that had been the proposal, people would have lost their shit—and rightly so! They'd say: "No way! The 21-million-coin limit is a fundamental part of the protocol. It’s part of what you might call Bitcoin’s ‘social contract.’ That's a bright red line that shouldn't be crossed." Well, I'm suggesting that the same is true of the protocol rule that says that the coinbase reward—the full coinbase reward—belongs to the miner who mines that block. Indeed, the two are closely related. Investors who bought into Bitcoin did so with the understanding that they were buying into a coin with a certain fixed supply and a certain inflation schedule, and moreover with the understanding that that inflation—all of that inflation—would be directed towards incentivizing the chain’s hash rate security (while adoption would hopefully be growing massively over the years, thereby enabling transaction fees to shoulder an increasingly large share of the security burden as the block subsidy diminished over time).

Or look at things this way: if I acquired 51%+ of the hash rate and began orphaning all blocks other than my own so that I collected all mining revenue, that would be an obvious 51% attack. If I began orphaning all blocks that didn't "give" me some minimum fraction (e.g., 12.5%) of the coinbase reward, that would also be an obvious 51% attack. If I began orphaning all blocks that didn't give my friend some minimum fraction of the coinbase reward, that too would be an obvious 51% attack. That would be true even if my friend promised to use the funds for some really noble purpose, like supporting Feline AIDS research. And yes, as far as I'm concerned, that remains true even if "my friend" is some Hong Kong corporation and the “noble purpose” being promised is funding the development of better Bitcoin Cash client software.