The announcement in question. tl;dr Five large mining pools on BCH have announced their intention to donate 12.5% of block rewards mined during a six month period to a newly-established Hong Kong company which will then disperse the funds towards developers building Bitcoin Cash infrastructure. The controversial part is that they've announced their intention to orphan the blocks of miners who don't participate in this scheme, essentially making participation mandatory for other BCH miners.

This proposal doesn't come out of the blue; in fact, some Chinese miners have been pushing for some kind of "development tax" from the block rewards in one way or another for a long time. I understand the rationale behind their arguments and agree that there needs to be some kind of funding mechanism in place for infrastructure developers, but I am also somewhat apprehensive about the implications and down-the-road effects of this plan.

That said, I don't view this as an explicitly coercive "taxation" (in the sense of state taxation), because the decision to mine and participate on the Bitcoin Cash network is always voluntary. And one of the fundamental assumptions of Bitcoin is that miners can (and do) enforce rules and incentives, so I'm not convinced that this breaks the social contract of Bitcoin.

However, the announcement from Mr. Jiang leaves me with more questions than answers, and regardless of the merits of the plan itself, the way in which it was suddenly announced is already proving to be a PR nightmare.

In an attempt at getting more information, I got Jiang to agree to do an AMA on /r/btc, though his answers do little to bring clarity to the proposal. Some of that can be attributed to Jiang not being a native English speaker, but many of his answers indicate that the idea is still very much in the incubation stage and many key aspects have yet to be fully decided.

Some of the more common questions I'm seeing from the community include:

Who will manage the funds held by the Hong Kong entity?

Which projects are eligible to receive funding? On what criteria will funds be dispersed?

How will the organization be held accountable to the community? What transparency measures will be in place?

Would this proposal create new attack vectors or increase the possibility of a chain split? Mark Lundeberg outlines one such scenario here. (It's been noted that the four mining pools who signed the article only account for 28% of total BCH hashrate.)

Will the funds only be used for funding protocol development, or will they also be invested in projects that benefit the ecosystem through the community, marketing, application-layer software, and education?

Some of the pushback that this plan is receiving could have been mitigated by having a more concrete plan in place from the beginning. The people behind the plan were surely aware that it would be controversial and should have done more to anticipate the reaction of the community. The silence of the other three signers, Wu Jihan, Yang Haipo, and Roger Ver, has not helped.

While I don't think the plan itself is inherently a bad one (that's not to say I think it's a good one, either), I do think that the PR consequences and potential new attack vectors opened up by it are real costs that must be weighed against the benefits. Is the reputational damage to Bitcoin Cash, and the risk of an unforeseen chain split, worth a one-time capital injection of $6 million to the developers? I'm not convinced it is.

The proposal is clever in the way that it uses the hashrate dynamics between BTC and BCH to cause BTC miners to subsidize the "tax," but this comes at the expense of a lower hashrate for BCH. As Jiang points out in his article, BCH currently having 3% of the hashrate of BTC means accepting a drop to 2.6% of the hashrate in exchange for the funding, but what happens when BCH has ten or twenty percent of the total hashrate of BTC? A 12.5% handicap on mining profitability will make it more difficult for a hashrate flippening between the two chains to occur.

I also understand that the proposal includes a sunset clause that would cause the subsidy to expire after six months, but what happens after that? Presumably, the teams will use the money to pay for more developers. Will they be able to sustain their larger teams after the conclusion of the scheme? Is this setting a precedent to make such a fundraising scheme permanent?

If the five mining pools who signed the statement believe that giving $6 million to developers will have a significant positive impact on the Bitcoin Cash network, why not establish a fund and raise $6 million to be used for the same purpose? There's always going to be some concern about the free-riders who benefit from the funding without contributing to it themselves, but I think at some point we just need to acknowledge that we'll never get 100% participation on such an initiative and that some level of free ridership is an acceptable cost to bear. Bitcoin.com recently announced a $200 million Bitcoin Cash ecosystem fund. If Bitcoin.com believes that $200 million is an achievable target to raise for funding businesses building on Bitcoin Cash, then surely $6 million is a much more manageable goal. Jiang's post mentions that corporate donors have an undue influence on developers, and I understand the weariness about creating a Blockstream 2.0, but Blockstream was funded by legacy financial institutions that have every incentive to see Bitcoin fail. I don't doubt for a moment the skin in the game or the commitment to creating P2P cash from the four miners who signed the proposal.

To the miners who produced this plan, you guys really need to work on your PR skills. Had Jiang's post been introduced to the community as a proposal and not a signed declaration, you would have been able to test the waters and gauge the community response, giving you time to tweak the proposal and build support for the idea. As Jiang mentions in his post, endless debate results in inaction and at some point decisions need to be made, but I don't think the way this was published as a fait accompli was the best way to go about it.

To the community, some of you guys need to chill with the hysterics. Bitcoin Cash wouldn't even exist if not for the work of Jiang Zhuo'er, Jihan, Roger, and Haiyang, and it likely wouldn't have survived BSV's hash war attack without the proactive vigilance and efforts of these four men. To call these guys supporters of Bitcoin Cash would be an understatement, so I'm not sure why their motives are being doubted. This proposal isn't meant to activate for several more months, so there's plenty of time for discussion and for the plan to be walked back if it's decided to be truly untenable.