Treasury Proposal for Ethereum Classic: Conscientious Concerns
Last week, Charles Hoskinson kindly proposed to collaborate with Ethereum Classic in response to the recent 51% attacks.
The community will discuss the proposal on Thursday. In advance of that discussion, I would like to share my thoughts to help ensure that the proposal receives the substantive consideration it deserves.
On behalf of Ethereum Classic Labs, I express our deep appreciation to Charles for his offer. It is generous, especially considering that our sector is often characterized by tribalism and zero-sum thinking. We welcome anyone willing to collaborate with and contribute to ETC or to the solutions that address the fundamental challenges in blockchain.
The IOHK team proposes to help address ETC’s security issues if the ETC community establishes a Treasury System in return. The Treasury would be funded by collecting a portion of each block reward produced by miners, and allocate that funding to development teams, including IOHK, ETC Coop, Ethereum Classic Labs/ETC Core Dev Team, and others.
Unfortunately, we think that the Treasury proposal is contrary to ETC’s core values. In practice, the Treasury doesn’t address the problem of how best to increase network security, which is the critical priority at the moment. In my view, it may actually destabilize both the technical and social networks, leaving ETC more vulnerable.
We respect the intellectual and technical contributions that Charles and the IOHK team have made to Ethereum Classic and to the development of Blockchain more generally. We invite Charles to continue to engage with ETC, though with alternative funding mechanisms.
Core Values
ETC is committed to being a truly public blockchain and decentralized community. We are trying to grow while remaining true to these values, without the benefit of a foundation, ICO, charismatic leader, or centralized entities. Many of ETC’s current challenges derive from this grassroots and somewhat purist experiment. It is also our defining strength. It remains to be seen if ETC can reach scale with this approach, or if the model followed by most other communities to decentralize over time, if at all, will prevail.
In times of crisis, it is essential to remain true to core values, which are the compass for decision making. A Treasury may have us abandon those values. While it’s tempting to seize this opportunity, I fear that it’s a Devil’s bargain we can’t afford to make.
Things Money Can’t Buy
The basis of the Treasury proposal is that ETC needs innovation in order to grow and innovation requires funding. I couldn’t agree more.
But ETC does not lack funding. On the contrary, we have deployed millions of dollars to actively maintain the protocol and build the ecosystem. Of course, the recent attacks confirm that there is a lot more to do. We are prepared to fund it.
ETC lacks, (1) developers and community, which is a problem that funding will not solve; and (2) diversity of funding sources. At present, ETC Labs and ETC Coop provide the bulk of support. The community would benefit enormously from additional sources of funding. But these sources have to be additive, rather than redistribute existing resources from one stakeholder to others.
Enlarge The Pie
The proposal aims to impose a tax on block rewards, possibly as high as 20%, taking income away from miners. In my view, this would drive miners away from ETC at the very moment we need more of them. Miners play an important role in the ecosystem as economically self-interested stakeholders. The business is too competitive and capital intensive to penalize miners into helping ETC. Instead, the ecosystem has to provide the economic incentives necessary for them to mine ETC consistently. These incentives emerge from the organic development of the community. We can’t tax our way to growth.
A Trojan Horse
A Treasury System is appealing. But it would require an entirely new governance structure that would change ETC’s culture. According to some estimates, the income from block rewards would total approximately $10.5M annually. Treasury management and funding decisions would likely become fraught, and ETC could suffer from the perception that we have turned a public good into a perpetual revenue stream.
One likely outcome is that ETC becomes centralized. Decision-making and power would be rapidly concentrated in the three initial entities receiving funding, resulting in a system of subsidies and patronage.
Another likely outcome is that ETC becomes stagnant. The evergreen funding provided to the beneficiaries would stifle innovation. Over time, they could become dominant rent-seekers, crowding out new projects and ideas, and protecting their self-interests despite the best of intentions.
Moving Forward
There is no quick fix to network security, a systemic risk that plagues PoW blockchains regardless of size or market cap. (The bigger the chain, the bigger the target). Nevertheless, I believe in the future of Ethereum Classic, and we are determined to protect the security of the ecosystem.
The ETC Core Dev Team is developing two solutions at present. One is a new mining algorithm, which would create a dedicated mining ecosystem on ETC, provided that the miner economics are attractive enough. The other is checkpoints, which relies on a different chain to notarize transactions at regular intervals. A 51% attack could still occur, but it would be limited, as it could only go back as far as the last checkpoint. Both solutions have risks, which must be considered carefully before proceeding, and we will continue to share our analysis of them in the coming days and weeks.
The shared risk of network security is best addressed through collaboration and new ideas. We are grateful for the ideas that we have received from friends and partners so far, and we welcome additional ones.
To that end, we will soon announce a new bounty for solutions to PoW network security. We think that engaging the best minds in blockchain to solve a shared problem is fruitful for everyone. We will be sharing details about the bounty soon.
Please, stay tuned.
Sincerely,
Terry Culver, CEO of ETC Labs
