BCH mining tax is causing a real mess, as devs threaten chain split

The BCH mining tax (coinbase tax) proposal continues to sow discord within the BCH community. With less than two months to go before the controversial new rule is due to activate, several developers have proposed alternatives that would either help BCH avoid another contentious chain split… or cause one.

Known officially as the “Infrastructure Funding Plan” (IFP), the new rule would divert 5% of BCH miners’ block rewards towards supporting projects considered vital to BCH advancement. Miners who do not participate would see their blocks rejected by the network.

BU: tax and we fork

The most strident opposition to the IFP/coinbase tax so far has come from Bitcoin Unlimited (BU), a version of the BCH protocol running on 692 of BCH’s 1,474 public nodes. BU’s leaders have opposed the IFP on principle, saying it would corrupt BCH by introducing fiscal policy without accountability, and favor projects with the right connections. Chief Scientist Peter Rizun has suggested it could even raise antitrust and other legal issues.

In late January, BU developer Andrew Stone posted an improvement proposal (BUIP143) that would explicitly disallow the “coinbase tax” in the protocol code. This would effectively split the BCH chain, with both forks competing for hashpower (aka a “hash war”).

A less dramatic proposal comes from a group of prominent BCH developers called “Bitcoin Cash Node” (BCN). BCN would essentially be a mirror of Bitcoin ABC (the protocol that runs on a slim majority of all BCH public nodes) but with the funding plan code and signaling removed. The intention here is to allow miners to oppose the IFP while running a protocol that allows them to (in theory) stay on the main chain without BCH’s checkpointing system blocking their work from reorganizing back onto the main chain later. However it would require most miners to run Bitcoin Cash Node to be effective—if most remain with Bitcoin ABC and support the coinbase tax, BCN nodes would be orphaned anyway.

Bitcoin Cash Node aims to be a “neutral” alternative, but since the main point of contention is whether to pay the IFP/coinbase tax or not, it’s still taking a side. Its version 0.21.0 was released on Feb. 27 as “drop-in replacement for Bitcoin ABC 0.21.0.”

How would the IFP/coinbase tax work?

The plan’s main backer, BTC.TOP CEO Jiang Zhuoer, has suggested funding go to projects like protocol developers ABC or BCHD, popular wallet Electron Cash, or a hypothetical “foundation” that could oversee general BCH governance, marketing and development policy in the future.

BCH miners will signal support for the change in the lead up to May 15, 2020, when BCH undergoes its next six-monthly hard fork update. If two-thirds of the total BCH hashing power supports the change, it will activate (for those running protocol code that supports it). Miners would subsequently be able to choose from a list of projects they wish to support.

The “donation plan”, as Zhuoer calls it, would last for six months, until the next upgrade. He acknowledged there is significant opposition, and emphasized that it should not be a permanent addition—though there’s no way to guarantee this on a protocol that can be changed. If it didn’t work, Zhuoer said, one alternative would be to set up the General Foundation and fund it with voluntary donations, “then we could proceed with the hash voting next time”.

BCH’s governance and money problems

Opposition to the IFP has been both ideological and economic. It would impact BCH miners almost at the same time as BCH’s four-yearly Bitcoin block reward halving, as it continues to battle for mining hashpower against Bitcoin BSV and Bitcoin Core BTC.

In his BUIP143 proposal post, Andrew Stone wrote:

A mandatory tax undermines the voluntary and capitalist principles of Bitcoin. The practical effect of this tax will be to introduce fiscal policy to Bitcoin Cash, and indefinitely sustain a power structure, effectively a BCH government, that is answerable to no one.

Prominent BCH developer Jonald Fyookball (of Electron Cash) also said he’d initially supported the IFP proposal, but has since changed his mind. In a post summarizing the main arguments for and against the IFP, he wrote:

“I’ve come full circle on the IFP. First, I thought it was a good idea. Then, it seemed bad simply because it was very controversial. Finally, I came to generally oppose it on principle, because I believe this is tinkering with the protocol in such a way that introduces unnecessary human conflict (politics), and makes Bitcoin Cash less like sound money. That we already have a huge conflict and the IFP hasn’t even launched, is evidence in favor of this theory.”

Fyookball is right. BCH has struggled to gain adequate investment capital to fund either its protocol development or marquee projects that would drive its adoption, so the project needs to find financial resources fast. On the other hand, the proposed solution has created disharmony and led to several attacks on prominent IFP supporters, like (Bitcoin ABC lead developer) Amaury Sechet, BU’s Peter Rizun, and high profile investor Roger Ver—which is hardly healthy for the longer term.

There’s a sense that, whichever way the IFP issue is “resolved” in the short term, it won’t resolve BCH’s underlying problems re: disagreement over governance, and lack of financial resources. A community in conflict is also less likely to attract more users, or investors.

The IFP issue also highlights the benefits of a protocol that’s locked, or “set in stone”—which Bitcoin BSV introduced when it activated Bitcoin v1.0.0 “Genesis” at the start of February 2020. BSV developers understood the necessity of protocol stability for building a viable ecosystem, while other blockchains continue to learn that lesson the hard way, and slowly.

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