Can Bitcoin afford to maintain the core network?

Last month, Bitcoin developer James O’Beirne sounded the alarm: The dominant blockchain could lose some very talented contributors if someone doesn’t step up to pay them for their work.

That work involves writing and maintaining code for the Bitcoin blockchain, tasks entirely dependent on grants and donations from businesses and voluntary contributors. But relying on grants, scholarships and free labor leaves Bitcoin development vulnerable to the ebb and flow of crypto markets – and goodwill.

The price of bitcoin (BTC) is currently down well over 60% since its all-time high in November 2021. As a result, many Bitcoin companies – the main source of these grants and scholarships – have tightened their wallets, and some have even been forced to to go bankrupt, making many in the community anxious about how Bitcoin developers will be paid in the future.

“Would be very nice to see more Bitcoin companies step up,” O’Beirne tweeted. – This could get bad.

Steven Lee, who heads Spiral, a subsidiary of Jack Dorsey’s Block that focuses on funding the development of Bitcoin, is not as pessimistic and chalks up the bleak funding situation to the current decline in crypto asset prices.

“You have to realize that we are in the middle of a bear market,” Lee told CoinDesk in an interview. “Some companies and financiers who were doing a very good job of funding developers have had to scale back due to economic pressures and the bear market.”

Adam Back, CEO and co-founder of Bitcoin infrastructure firm Blockstream, responded with a response to O’Beirne’s SOS, pointing out that the recent deluge of layoffs may have forced cash-strapped crypto exchanges to cut spending and opt out of renewing developer grants.

How bad could things get if the bear market persists, funding dries up and Bitcoin development grinds to a halt? What is so critical about the work that Bitcoin developers do?

Gloria Zhao is a “maintainer” for Bitcoin Core (or just “Core”) – the most popular software for connecting to the Bitcoin network. She approves updates to Core suggested by other developers and knows a thing or two about the inner workings of the project.

“Every software project requires maintenance,” Zhao explained in a podcast interview. “Up to 70% of software project activity is actually maintenance work, and I think … it’s more than that in Bitcoin Core.”

Many only pay attention to major protocol upgrades like 2021’s Taproot, which improved Bitcoin’s privacy, scalability and security. Smaller incremental gains and ongoing maintenance don’t get as much recognition, but Zhao says that’s where most of the work lies.

“The vast majority of the changes are just bug fixes,” Zhao explained. “And then a very small minority is maybe something like Taproot or something like Package Relay where you’re trying to do a protocol change.”

According to a report by New York Digital Investment Group (NYDIG), a Bitcoin-focused investment firm, the ongoing core maintenance Zhao refers to is performed by approximately 40 to 60 active developers each month. Zoom out to include the wider Bitcoin ecosystem, and the number jumps to anywhere from 600 to 1,000 developers per month. That is essentially how many Bitcoin developers require funding on a monthly basis.

Many crypto projects go bankrupt due to fraud, malicious hacks or even regulatory pressure; FTX, Ronin Network, Tornado Cash are some examples. Not that many make headlines for shutting down due to funding issues.

A cautionary tale is Cardano’s decentralized finance (DeFi) project Ardana.

While Ardana and Bitcoin are two completely different animals, Ardana’s demise serves as a stark reminder of what can happen when project funding runs out.

Lee does not believe that Bitcoin, even in the most dire funding situation, will ever break completely.

“Even in the worst case, there are still several organizations funding Bitcoin development,” Lee explained. “As far as I know, they’re not in a situation where the budgets can disappear, and that includes Spiral and also includes Chaincode Labs and Brink.”

A recent report from crypto venture firm Electric Capital supports Lee’s perspective. Despite a carnage in the crypto markets, the number of full-time developers in the overall blockchain ecosystem grew by 8% to a record 61,000 developers in 2022. The data is even more impressive when considered over a five-year period. : The number of monthly active developers in the Bitcoin ecosystem has tripled since 2018 to approximately 1,000 active developers each month. Ethereum’s developer count has quintupled to nearly 6,000 contributors over the same period, according to the report.

Spiral is not the only organization dedicated to funding development on crypto’s dominant chain. Brink was named the top funder of Core last year by crypto research firm BitMex Research.

Chaincode Labs (a Bitcoin research center and O’Beirne’s former employer), Blockstream, and major crypto exchanges such as Coinbase and OKCoin all have active grant programs for Bitcoin developers. The Human Rights Foundation is a well-known proponent of open source cryptocurrencies and even runs a Bitcoin Development Fund. On February 21, the organization awarded $475,000 in grants to 10 Bitcoin projects worldwide.

This diversity of funding sources is not accidental. Spiral has a four-part framework for what it calls “sustainable open source Bitcoin development.” One aspect of this framework is “multi-entity funding”, which emphasizes the need to obtain funding from multiple sources.

“Since I’ve been in the space, I’ve been referring to a 10-out-of-10 model. And by that I just mean that it’s healthy for Bitcoin development if there are 10 organizations funding 10 developers each,” Lee said. And I don’t mean that literally. It would be great if there are 11 organizations against 10, but there should not be one dominant organization funding Bitcoin development.”

This concept seems contrary to how the majority of blockchain networks approach funding. Most so-called decentralized networks are managed and financed by central foundations.

Ethereum, for example, was mined via the second-largest crowdsale on the Internet at the time, and ongoing development is mostly funded by the Ethereum Foundation, which had $1.6 billion in coffers last year.

Bitcoin does not have $1.6 billion lying around to fund development. A rough back-of-the-envelope calculation indicates that $150 million to $200 million would be needed each year to fund development in the entire Bitcoin ecosystem (assuming 1,000 developers receive Google’s average $150,000 to $200,000 annual compensation for software engineers). Spiral’s total annual budget is close to $3 million, according to Lee.

The network’s lifeblood is community goodwill, and that goodwill can come from organizations like Spiral or organically from entrepreneurs like Ryan Singer, who answered to O’Beirne’s concerns by offering to hire an engineer or two for a Bitcoin project he’s working on.

Singer’s engineers would be allowed to spend 25% of their work time contributing to Bitcoin.

“It was meant to cover contributions to the Bitcoin Core GitHub repository,” Singer told CoinDesk. “But when I talk to candidates, I expand that to also include the big three Lightning node implementations.”