In the Genesis block of the Bitcoin public ledger, a message left by the inventor of the blockchain is indelibly inscribed. “Chancellor on brink of second bailout for banks.” A headline taken from that morning’s newspaper, the phrase confirms the date on which the network came online. More abstractly, the words take on proverbial significance.

One may interpret the Chancellor of the Genesis block not to refer to any specific individual, nor to any particular geographical region. Rather, he represents trusted third parties, residing everywhere around the world, whose authority allows the excessive printing of currency by fiat and the reallocation of those effortlessly conjured funds. That this is not the first time our Chancellor has fired up the printing press connotes habit. That cohorts are the intended recipients indicates cronyism. That the general public pays through inflation, equates with coercion.

The trustlessness of Satoshi’s blockchain keeps us accountable, so that no centralized authority engages in the habitual employment of excessive money printing. The decentralized nature of the proof-of-work consensus mechanism defends against centralized cronyism. By restricting money printing by fiat, the blockchain creates a deflationary store of value for the internet age. Upon ensuring that the fledgling Bitcoin peer-to-peer network fulfilled such requirements, Satoshi disappeared, making Bitcoin a leaderless platform in the image of the Internet.

Will We Have A Say?

On February 25, 2017, the CEO of a third-party developer called Input Output Hong Kong submitted a formal apology to the Ethereum Classic community, following his company’s proposal to inflate the ETC monetary supply by 20% annually. “IOHK has recently released a treasury proposal,” Charles Hoskinson wrote. “I would like to apologize for its poor and confusing release to the general public.”

What stakeholders might have been expecting from the author was an explanation, specifically regarding the attempt at inflating the money supply. Of particular concern to miners was another provision, seeking to confiscate a percentage of their mining rewards, reallocating the funds to the control of IOHK’s proposed treasury. What the community received was not an explanation, but a sleight of hand.

Ethereum Classic is a smart contracts platform, allowing for automated payments, verified by the public ledger. The term “smart contract” was coined by Nick Szabo in 1994, describing “a computerized transaction protocol that executes the terms of a contract.” ETC is designed to run decentralized applications on top of the blockchain, allowing stakeholders to opt out of poor and confusing sounding schemes. In this case, however, IOHK had no interest in designing a smart contract where the ETC community could choose to opt out.

Hoskinson’s intention was to target the protocol itself, implementing code that would serve to increase the supply of ETC, paid for by the stakeholders through inflation. Miners would supply proof-of-work to validate the blockchain, but no longer be permitted the full payout. 20% of the reward would be redirected to IOHK’s treasury. Here is where the parallels to Satoshi’s proverbial Chancellor become discernible.

It became necessary for the CEO’s apology letter to blame the public for their confusion, rather than fess up to attempted money printing and confiscation. A formal apology would have pledged to forego any further attempts by the developer to target the investor and miner constituencies. Instead, Hoskinson plowed forward. He wrote, “More abstractly, let’s try to cut the inflation pie into more than a single piece for a single group.”

Crony Capitalism on the Blockchain

The apology letter invited ETC to deviate from Bitcoin’s model, where newly mined tokens are awarded in full to miners for providing the proof-of-work validation that secures the network. View the mining reward as “inflation pie” instead, and others clearly deserve a slice. Presumably, IOHK would design a voting mechanism to determine where the confiscated mining rewards go. If everything goes according to plan, IOHK employees currently perform “exactly the types of roles” expected to receive payouts. IOHK pays two community management employees to “manage” Ethereum Classic stakeholders, costs that could eventually be covered by the treasury.

From the Hokinson apology letter

ETC core developers, opposing the proposal, requested IOHK make their treasury a smart contract. Using contracts in place of confiscating mining rewards would allow stakeholders the option of opting out. Hoskinson replied on Slack, “Implementing a treasury as a smart contract solves nothing.” The reallocation of capital would need to be involuntary.

On Reddit, IOHK’s community management attempted to refute criticism of their company’s treasury proposal. The above attempt was casually dismissed by an ETC core dev. Based on upvotes in this particular thread, the public appeared to prefer viewpoints offered by unpaid participants over IOHK staff. Were the treasury imposed, and fulfilled Hoskinson’s intentions, it would serve to subsidize such manufacturing of consent. A centralization of resources, further incentivizing centralization of resources, reminds us of the habits of Satoshi’s proverbial Chancellor.

ECIP-1020 represents one recent IOHK service, provided by the other aforementioned manager. This Ethereum Classic improvement proposal, the first by an IOHK employee, sought to change the currency symbol from “ETC” to “⟠.” Submitted through the same formal process as ETCDEV contributor Matthew Mazur’s widely supported monetary policy upgrade, IOHK’s proposal to make mandatory use of “⟠” is neither code-enforceable nor useful. It is an attempt by an individual to make his mark on the community without concern for their needs. “[W]hile I pay Christian and Carlo, they ultimately work for you,” claims Hoskinson. If that were the case, how would we go about firing them for incompetence?

IOHK’s CEO was compelled to submit an apology, as his proposal to inflate the monetary supply subverted the interests of stakeholders. The core devs believe it undermined our security as well. “[M]ake it as a smart contract, please,” ETCDEV chief technical officer Igor Artamonov requested. “There’s no need to touch monetary supply or protocol.” Core developer Elaine Ou concurred. “Ethereum (classic’s) attack surface is big enough as it is,” she explained. “I am against adding more complexity to the core clients.” IOHK had already admitted to there being numerous security risks involved.

Rather than address their criticism in his apology letter, Hoskinson took a swipe at the core devs who guided us through January’s Diehard protocol upgrade. “Let me be blunt,” he said. “Taking someone else’s code, making some modifications does not make you a core developer of a project.”

Fear, Uncertainty and DAO

To persuade the Ethereum Classic community to implement his treasury, the author of the apology letter attempted to instill “FUD,” or “fear, uncertainty and doubt.” “The reality is that smart contract competition is going to get extremely tough in 2017,” he warned. “Tezos is launching with smart contracts. Rootstock will be a player in the second half of this year. Ethereum continues to evolve rapidly. There will also be many more.”

In the Bitcoin space, similar attempts at FUD are routinely employed by those attempting to unseat the core developers. Arguing for Bitcoin Unlimited, Roger Ver warned BTC could be overtaken by competitors. “I did my first Dashpay payment yesterday,” he wrote. “I moved $100K for ~0.3 cents, and was confirmed in the next block. Bitcoin used to work that well.” Suggesting Bitcoin welcome a contentious hard fork, he wrote, “That the combined market cap of ETH & ETC was greater after the fork means the market viewed it as a good thing. A lesson for Bitcoin?”

As someone who witnessed the DAO fiasco play out in real time, I find it disquieting to hear someone invite a contentious hard fork upon Bitcoin. Ver further argued, “What is seen: Bitcoin reaching all time new highs. What is unseen: Highs that would have been reached had we followed Satoshi’s road map.” In response, Szabo wrote, “What is obsessively seen: transactions/second. What is unseen: without strong security Bitcoin would be a junk game token, not global money.”

Such prioritization of Bitcoin’s security has yet to be successfully undermined. We should take such tasks as Szabo’s upon ourselves in Ethereum Classic when similar methods of emotional manipulation seek to weaken our security. “If ETC wants to stay relevant and survive, then we cannot be the litecoin of smart contracts,” Hoskinson warned in his apology letter. “To me, the worst thing we could do is be overly conservative.” This is somewhat astonishing to hear from an ETC developer. ETC’s raison d’être was to provide a more conservative, more decentralized, security-conscious roadmap than the Ethereum Foundation was willing to follow.

FUD from the Hokinson apology letter

IOHK’s lack of discipline explains why their treasury scheme is content with complicating the ETC protocol, inviting new attack vectors, as with Slock.it’s exploitable smart contract. It explains why the company is comfortable with confiscating mining rewards from the miners, risking alienating them and fomenting revolt, as took place following the Ethereum Foundation’s contentious DAO Fork. And it explains why the third-party developer seeks centralized control to impose a capital reallocation scheme, endorsed by potential beneficiaries on their payroll, just as Slock.it, composed of former Foundation members, was the first intended recipient of the DAO contracts.

Let us not lose sight of our values here. We will be targeted with FUD, in hopes that we are suggestible. We will be subjected to character attacks, as the ETC core developers have been. We will be told that serving to empower bad actors is all we can do to survive. But if Ethereum Classic sacrifices its principles and falls prey to protocol-layer capital reallocation schemes, what manner of survival will that be? Incentives will drift from providing valuable services to colluding in rigging the treasury payout mechanism.

Unprincipled people will oppose a meritocracy because they know they cannot compete on an even playing field, and will employ ad hominem because they know their arguments do not stand up under scrutiny. Opposition to inflating away our store of value, and opposition to predatory confiscation of our capital, are founding principles of blockchain governance. But these principles will remain, only so long as we fight. Satoshi’s proverbial Chancellor is ever roaming, desiring his next fix.