Ethereum Classic Treasury: Response To Charles Hoskinson

Ethereum Classic, the Treasury, Mantis Team, IOHK, ETC Cooperative, ETC Core Team, Grayscale, and money, property, and agreements.

As I have stated in previous articles [1] [2] [3] [4], the proposed Treasury [5] for Ethereum Classic (ETC) poses many problems and risks for ETC and its “Code Is Law” philosophy.

The three main objections that have been raised are that:

1. The Treasury centralizes Ethereum Classic.

2. The 20% miner tax reduces the security budget of ETC by reducing funds to miners who invest in hash power.

3. The 20% tax is an excessive amount of money that surpasses multiple times the supposed purpose of the Treasury which is to pay for the cost of funding development and client maintenance.

Regarding the last point above, on May 31st of 2021 I was asked by a community member how much money would be paid to the supposed three core developer teams by the hypothetical Treasury in the next year.

I responded [6] on various social media platforms the following calculation:

#ETC corrupt Treasury miner tax:

365 days x 24 hours x 60 minutes x 60 seconds = 31,536,000 seconds in a year

31,536,000 seconds / 14 seconds average block time = 2,252,571 blocks in the next year

2,252,571 blocks x 3.2 ETC reward per block = 7,208,227.20 ETC total miner rewards

7,208,227.20 ETC miner rewards x 20% miner tax = 1,441,645.44 ETC for the Treasury

1,441,645.44 ETC x $67 ETC current price = $96,590,244.48 for the devs <— LOL

With a short term price resistance at $100 it is:

1,441,645.44 ETC x $100 = $144,164,500

With my 2021 price target of $1000 it is:

1,441,645.44 ETC x $1000 = $1,441,645,000 <- this is more than a billion

they sure want the CASH

So, in summary, at the price of ETC of $67 at the time of the post and this writing, the payment to the three teams would be $96,590,244.48 in the next year. If ETC were to trade at $100 again, it would be $144,164,500. And, if the price were my predicted $1,000 for 2021, the number would be $1,441,645,000, or more than a billion dollars.

The proposal of the Treasury is to continue the miner tax and development payments perpetually.

My and other ETC community members’ calculations of what would be the total cost of a developer team with around 10 to 12 developers is between $2 million and $2.5 million per year. Multiplied by three teams that would be a total cost of between $6 million and $7.5 million.

Due to the above comparisons, it is obvious to many ETC ecosystem members that the Treasury is not only centralizing and reduces the security of ETC, but it is an extremely excessive extraction of money from the network. Of course, many were justifiably outraged.

This makes it seem that the Treasury is an opportunistic money grab and a get-rich-quick scheme, rather than a genuine concern with ETC’s innovation and future development.

Charles Hoskinson’s Response

IOHK, the Mantis Team, and Charles Hoskinson are the original proposers and main promoters of the Treasury in ETC. I would describe Charles Hoskinson’s response on social media as a “non response” because he did not address any of the three objections above. This has been the pattern of IOHK and Mantis team members ever since they proposed the Treasury in August of 2020.

Below is an image of what he wrote.

Charles Hoskinson's response to my estimates of Treasury revenues in the next year. — Charles Hoskinson’s response to my estimates of Treasury revenues in the next year.

My Response To Charles Hoskinson

First Part

My first response is that Charles did not address the three main issues.

Charles basically argues for the treasury with the usual truisms as “money pays for research and development”, “money pays for infrastructure”, “money provides certainty to developer teams”, “money pays for marketing”, etc.

All those are obvious and known benefits for any organization, corporate or open source, that do not require clarification or constant repetition, unless there were an effort to obfuscate the complete picture of the situation.

The issues are centralization, security, and the core principles.

Charles would have a stronger argument if he could explain, in detail, how the Treasury would not be centralizing, would not reduce hashrate, and not be contrary to the principles of ETC.

I have the impression that such argument is impossible.

Another option is to accept that the idealized original nature and vision of ETC is not possible and honestly tell the community that ETC has failed, and that the new path is a totally different one. With centralized developer teams, the theatre of dividing the money to make believe it is decentralized, a government style free source of money thru miner taxation, and absolutely captured by the Treasury voters and the developers.

The above sounds very similar to when DFG and ETC Labs captured the ETC Github and announced in a letter that they would return control only if a foundation with a board was created. The difference was that they were less focused on extracting funds from the network as they actually invested and burned money buying ETC, paying for developers, gave money to startups, and funded other activities.

Second Part

My second response, although he did not actually address the issues, will be directly to his comments, which also contain fallacies.

Following are Charles’ comments in quotes, and then my responses below them.

Thanks Donald. Developers should work for free
Glad that you like communism

The above is an appeal to extremes to avoid answering the fact that the money redirected to the Treasury and to the developers teams is exorbitant.

My arguments is that, if ETC is to have a Treasury, it should be limited in time and the miner tax should be significantly lower so security is not diminished and there is still sufficient money to pay for developers.

As I wrote above, somewhere around $7.5 million a year would be ok. But hundreds of millions or billions of dollars is not ok.

That isn’t miner money
It’s the ecosystems money

That proof of work (POW) networks issue money for any cause or destination is a false statement. That is a misrepresentation of the design and structure of POW with incorrect abstractions as “ecosystem money”.

Perhaps Proof of Stake (POS) designers have included block reward taxes for other purposes in their networks, and Zcash in their network, but that was a later development.

The true nature and history of POW is:

1. Hash cash (1997)
2. Bit Gold (1998)
3. RPOW (2004)
4. Bitcoin (2008)

Bitcoin invented the POW based Nakamoto Consensus with blocks and rewards per block based on the three precursors above and the concept is:

1. That computers solve a costly puzzle to imitate gold in the real world and create digital scarcity
2. The puzzle is posted for the network of full nodes to verify its authenticity
3. Once verified the puzzle is added to the property ledger
4. The nodes credit a payment to the computer that solved the puzzle for its work
5. This payment is the issuance of X tokens (6.25 in the case of BTC and 3.2 in the case of ETC)

The token was actually invented by Satoshi because he could not find a solution for a component of Bit Gold which was a market to buy and sell the solved puzzles (block hashes). If not, the issuance of native tokens (BTC and ETC) would not even exist!

There is no other perspective or view point about this. The objective truth is that block rewards are ONLY dedicated to pay for hash power to protect the network.

The extraction of money for other purposes are later inventions and gimmicks by Zcash, Dash, and the POS networks. Some of which are get-rich-quick schemes.

Miners decide if the wage the system pays is good enough for them
And react accordingly

This is, indeed how it works. Rewards per block have a certain value, determined by the protocol in fixed payments and the market price of the tokens. Then, miners invest a sufficient amount in machines and electricity to try to win the block with the block rewards.

This is the logic of why reducing the miner reward by 20% reduces the hash power, thus the security of the network by 20%. There is no mystery here.

Currently etc pays 0 to the devs

That is correct and false at the same time.

Ethereum Classic does not pay anything to developers or even node operators because it does not owe anything to them and their revenue models are totally external to ETC.

The false part is that developers do not get paid:

– From 2016 to 2018 ETCDEV was indeed paid millions of dollars by an anonymous donor who owned ETC.

– Since 2017 Grayscale has setup the ETC Cooperative and has donated millions as well, part of which currently pays for developers of the Hyperledger Besu client.

– IOHK itself has paid millions to developers between 2016 and 2018 to build the original Mantis client.

– DFG and ETC Labs have paid millions to developers to maintain the Core-Geth client, the most successful client in the network right now, and to fund ancillary products such as developer tools.

The truth is the incentives of full nodes and developers are different and external.

The economics of full nodes and developers are:

Full nodes:

Are economic nodes or local verifier nodes. Economic nodes are exchanges, wallet operators, dapps, startups, pools or others who use the node to service their users and to connect to and send transactions to the network. Their revenue comes from the products and services they sell to their users.

Local verifier nodes are types of users who, due to the size and importance of their holdings, want to verify for themselves in their own trusted computers the whole history of the chain and their holdings, smart contracts, and addresses. These may include high security oriented or “prepper” individuals, large investors, corporations, custodial services, banks, central banks, and governments.

Developers:

Developers in Free Open Source Software (FOSS) projects like Bitcoin and ETC do not necessarily charge directly for maintaining and innovating on the protocols. They don’t charge for licenses, for example, like closed source software.

What developers look for is:

a. Sponsors:

Corporations or foundations that pay them for their valuable work. The corporations obviously have a profit motive for doing so.

b. Secondary or tertiary revenues:

Sometimes the developers of important FOSS projects earn revenues by being experts, so they serve as consultants, do development or implementation work for their clients, and/or they become influential speakers in the paid speaking circuit.

c. In the case of crypto, owning tokens:

Many developers have mined or acquired native tokens and have the goal of making their tokens very valuable in the future, so they work actively to improve the project.

In other words, block issuance WAS NEVER intended to pay for anything else than hashrate.

But honestly I’m tired of this fight and your toxicity
The community will decide
If the treasury wins, you can go somewhere else

Yes, I have stated that if Charles Hoskinson takes over control of Ethereum Classic through the Treasury I would leave because ETC will become centralized and completely detached from its Cypherpunk principles.

However, the issue of toxicity is the inverse, in my opinion.

If you have a network that is designed for security, and a new group proposes devices like a Treasury that centralizes and reduces the security of ETC, and fails to address the objections of the community, but still strongly pushes for the implementation of such device, then they are the toxic ones.

Indeed, the community will decide based on these considerations.

If it fails you can stay with your sinking ship

This “sinking ship” metaphor has been very negative for ETC’s image.

Charles has done an incredibly good job promoting Cardano, IOHK’s flagship project and blockchain, and his presentations and videos reach hundred’s of thousands of viewers.

Some of those viewers now have the impression that ETC is sinking and that it can only be saved by IOHK. That is not a good way of promoting ETC. And would be inconsistent with reality and the fact that there are no leaders or saviors of Ethereum Classic because ETC is truly decentralized.

The truth is that ETC is an incredibly valuable blockchain, with huge potential, and that is why IOHK is interested in participating in that future success. I do not think Charles Hoskinson, nor Grayscale and DFG, are doing charity for ETC.

We are all volunteering and investing time and money in one way or another because ETC has a very promising future and potential appreciation.

When people lie I call them out
The block reward is a price every holder of etc pays
Via inflation.

I did not lie. I presented numbers. And those numbers are unequivocally excessive to finance three teams.

As explained above, the block reward is the price users pay through inflation or fees to finance security by miner hash rate only.

Token owners, nodes operators, and developers, the other important constituents of a highly secure POW blockchain, earn money in other ways.

It does not belong to the miners
It’s the system’s money to pay for what it needs to be secure and evolve

As I wrote above, it is for security only. “Evolve” is another vague abstraction.

Evolution and “innovation” are tag lines many of the new projects have created to attack Bitcoin from a competitive standpoint. POW secure blockchains as Bitcoin and ETC are not about “moving fast, breaking things” as web startups. They are highly secure precisely because they are conservative and stable, not because they are constantly injecting new gadgets and risky upgrades.

Of course, to have three funded teams would be amazing for ETC, but the rationale that “it is for innovation” or “ETC is stagnated” is wrong. Neither Bitcoin nor Ethereum Classic are stagnated. Their “move slow, do not break things” way of working is deliberate and their main focus is to preserve the integrity and safety of money, property, and agreements in the networks, which in the cases of Bitcoin and ETC will be in the trillions of dollars belonging to individuals, families, corporations, and governments worldwide.

ETC in particular will, very likely, be the base layer of other POS blockchains such as Ethereum 2.0 and even Cardano.

No one else gets a voice, vote, or compensation for their work
The devs should work for free
And get the same upside as a passive investor

All network participants, including miners, mining pools, node operators, wallet operators, developers, investors, and volunteers get a voice in ETC. Me and Etherplan actually have a voice, and I am writing these lines, precisely because of such openness.

To the contrary, when the Treasury is implemented and directing funds to a few elite teams, then nobody else will have a voice.

Of course, developers should not work for free. But, again, they may have the secondary and tertiary revenue models I described above. But, if the Treasury were to be implemented; should their revenue be in the hundreds of millions of dollars or even billions of dollars?

That is the issue of my post, and I definitely do not think so.

To compete against bitcoin, eth2, and the entire third gen portfolio
Alongside their billions of dollars
It’s fucking madness

Actually, ETC is absolutely up to date with the latest technologies and is an incredibly sound and strong blockchain. This is how the free open source software model works. Whoever creates a useful innovation publishes it and then all systems are free to adopt it.

This is how, for example, both Ethereum and Ethereum Classic got and integrated zkSNARKs for privacy and proofs on the blockchain. This was the key innovation of Zcash, not their centralizing treasury, and all other systems were free to adopt it.

Again, of course ETC would benefit from its own local research to solve its own local issues such as network bloat and backward compatibility, but those do not need billions of dollars as stated above. Dev teams cost much less, innovation is shared in open source projects, and the concepts of “peer review” and “billions of dollars” are just expensive appeals to authority and marketing, but not real innovation by themselves.

In fact, the projects that claim to have billions of dollars for marketing and innovation are Polkadot, Internet Computer, Cardano, BNB/BSC, Tezos, and EOS. But POS is actually no innovation whatsoever in those projects.

POS is actually how the fiat central banking system works; Byzantine consensus is an old technology from the 80s and 90s; and distributed ledgers, sharding, sidechains, treasuries, and voting is how traditional systems have worked for decades, if not centuries in the case of the governance models.

Etc borrows all innovation from ETH
This ends with eth2
So what next?

Yes. The “Ethereum Standard” with its “EVM model” is the format that has established itself as the general standard of the blockchain industry for smart contracts. Any blockchain that does not follow such standard will lose and be out of the standard and network effects.

Even Polkadot, BNB/BSB, and Cardano, the most successful POS blockchains, follow the Ethereum EVM standard. It would be suicide if ETC did not follow Ethereum.

ETC has a very clear model and roadmap to follow when Ethereum migrates completely to Ethereum 2.0:

– It will stay as a POW highly secure blockchain serving as a settlements layer for POS blockchains and the rest of the world.

– It will be fully integrated, with smart contracts and execution inside the same secure environment, not deconstructed as the POS chains and even Bitcoin, which will have smart contracts and execution off-chain.

– Its blockchain state and database will be fully replicated globally across 100% of the nodes. Not sharded nor deconstructed as above.

– For the above it will migrate to SHA 3, integrate Flyclient and NiPoPoWs, implement backward compatibility technologies, implement solutions to reduce bloating as a fixed GAS limit per block, it will delete the training wheels of MESS and ETC Hash, and will even possibly integrate a limited in time Treasury with a small miner tax to pay for developer teams, but at real market prices.

The only major team currently working is repeatedly attacked by Donald and his cohorts

Again, ETC has three teams working on it; Hyperledger Besu funded by ETC Coop, Core Geth funded by DFG/ETC Labs, and Mantis funded by IOHK.

The only reason I have confronted Mantis is because they have not stated clearly that POW is more secure than POS, that ETC’s mission is to be a base layer smart contracts platform for the blockchain industry, that Cardano is an L2 transactional layer, and that the Treasury is centralizing but will be limited in time and amount of money.

When they adhere to these concepts and principles, I will be very glad to provide my full support to them.

The priority is Ethereum Classic, with its money, property, and agreements, not the persons, the social layer, or the developer teams. This is how it is made socially scalable at a global level.

So what the alternative? Just operate on a flawed model that does not work forever?

As I described above, the FOSS model and POW blockchains are not a flawed model. ETC has a complex history and it was unfortunate that it got attacked because it shares the same mining algorithm as Ethereum.

Indeed, just as MESS and ETC Hash, a limited in time and money Treasury may help ETC to gain further liquidity and hash rate while it achieves its leading position in the next few years at the base layer of the blockchain industry stack as a large player beside Bitcoin.

But, it has not a flawed model, nor will it just die and stay stagnated. That seems like an exaggeration.

Do you see the fees with ethereum?
Etc will have the same fees
So who pays to innovate out of that?

The high fees in Ethereum actually prove the success of the POW model at the base settlements layer.

ETC, just as Bitcoin, is meant to have low transaction capacity with high fees per transaction. This is the projected model that will replace the block reward model of paying for security in the long term.

Again, innovation may be paid by external participants, by whichever is the business model of the developer teams, or by a limited Treasury for a while.

What incentive do they have
They get paid the same as the passive investor who just buys tokens
That’s communism

The incentive they have is what has driven Grayscale, DFG/ETC Labs, and even IOHK/Mantis to spend millions in ETC.

The same that exists in Bitcoin with Blockstream, CashApp, and MIT who are some of the many who pay for its maintenance and development.

Many of us even work for ETC as volunteers because we all have personal, secondary, or tertiary incentives.

Conclusion

Charles has not addressed directly the three main concerns of the ETC community about the Treasury; centralization, the reduction of security, and what seems like excessive deviation of funds toward three developer teams.

However, his response to my social media post has given me the opportunity to rebut many of the fallacies in the pro-Treasury argument.

As I have stated before, I would support a Treasury, but only if its limited in time and the tax is significantly reduced and the developer teams present clear annual budgets and roadmaps.

If not, I will not support the Treasury and I think ETC will be much better off with the traditional Free Open Source Software model as up to now.