To briefly recap, we kicked off this series by learning how Bitcoin works at a basic level. I started with Bitcoin because eCash is a continuation of Satoshi’s original project and shares not only the same genesis block as Bitcoin but also much of the same fundamental principles.
We followed that by diving into some of the history surrounding XEC’s predecessors–BTC and BCH–before revisiting the rise and fall of Bitcoin Cash and ultimately the birth of BCHA (which was rebranded to eCash on July 1, 2021).
Finally, in the most recent installment, we took a high level look at the XEC roadmap to see what is on the horizon, bringing us to the present, where I want to discuss a couple of items you won’t find on the roadmap but could be two of the most exciting things this project has going for it.
I am of course talking about the New Coinbase Rule (“NCR”) and the Global Network Council (“GNC”).
The New Coinbase Rule
The last sentence of the Bitcoin whitepaper states: “Any needed rules and incentives can be enforced with this consensus mechanism.”
I’ve often asked myself why did Satoshi include that language? Is it significant that it’s the very last sentence of his paper? And why did he feel the need to include both rules and incentives and not just the former?
For me, it demonstrates that Satoshi believed Bitcoin couldn’t remain static. He understood that in order for Bitcoin to grow and survive, the network would need to evolve, not only with new rules, but also with new incentives.
As for why it’s the final sentence in his now famous paper, I think it was his way of succinctly capturing everything else he might have wanted to say but didn’t. And that in the end, it’s all about consensus.
In 2017, when Bitcoin ABC forked Bitcoin Core and created Bitcoin Cash, they did so by essentially creating a new rule that raised the block size limit from 1MB to 8MB.
Then in 2020, when Bitcoin ABC enabled the New Coinbase Rule (“NCR”) requiring miners to pay 8% of their block reward to fund development, it was not only a new rule but also created an entirely new incentive as well.
Those in the Bitcoin Cash community who disagreed with the NCR proceeded to fork Bitcoin ABC’s code and created the BCH Node client, which excluded the NCR. Their main argument was that the NCR was effectively a tax on miners and they believed it went against everything Bitcoin is meant to stand for.
But is it really accurate to call the NCR a tax?
A tax is defined as “a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law.”
I hate taxes as much as the next guy, but to me, those who see the NCR as a tax are just plain wrong. When the Bitcoin Cash network forked on November 15, 2020, miners who did not agree with the NCR simply switched to the BCH Node implementation and continued mining BCH as if nothing had changed. Were they punished by the law? No. Did men with guns come and force them to pay their 8% or threaten them with jail? Again, the answer is no.
You can argue all you want, but those are the facts.
To me the NCR isn’t a tax, it’s simply a demonstration of the free market at work. Instead of seeing it as a form of taxation, I see it as a form of consensus.
Those who believe the work of Bitcoin ABC is worth 8% of the block reward can choose to mine the XEC chain while those who don’t are free to mine any other Bitcoin fork. The same way I’m happy to pay $10 for a Jersey Mike’s sandwich because I think they taste better while someone else might choose instead to pay only $5 for a Subway sandwich. Isn’t that how the free market works?
Another argument I’ve seen is that the NCR goes against the idea of credible neutrality. Vitalik Buterin wrote that “a mechanism is credibly neutral if just by looking at the mechanism’s design, it is easy to see that the mechanism does not discriminate for or against any specific people.“
I understand the logic of this argument as the NCR seemingly favors Bitcoin ABC. But I also believe the logic fails to look at the big picture by not recognizing that the mechanism is designed such that anyone can fork Bitcoin ABC’s code and try and outcompete them.
Meanwhile, those who think the value Bitcoin ABC provides is worth 8% of the block reward are happy to support their efforts. In fact preventing anyone from doing so would go against the very principles of a free market economy.
I for one am ecstatic to finally have the option to use and invest in a network that has stable funding for development led by a proven team with a solid track record.
While BTC and BCH rely on developers who work for donations and sponsorships, XEC has developers who are paid directly out of the protocol. This brings a new level of professionalism and predictable funding to the base layer. It also finally aligns the incentives of the protocol developers with the rest of the ecosystem. Rather than being incentivized to hold the network hostage in order to get paid, the developers at Bitcoin ABC are incentivized to make the eCash network as valuable as possible.
This is because with every block that is mined, half a million XEC plus 8% of transaction fees are sent to Bitcion ABC’s wallet. At the moment this address shows a balance of over 23 billion XEC, none of which has been touched since its inception. This is because ABC has been careful with the funds they had remaining from their BCH days and have so far been able to survive without having to sell any of their XEC.
But eventually they will need to sell in order to pay for everything they plan on building. On an annual basis that means over 26 billion eCash, or roughly $6M at current prices, will be available to fund development. And the higher the price goes, the more money there will be to recruit talented engineers and build out critical infrastructure that can serve the entire XEC ecosystem.
In my opinion, the NCR has the potential to become one big positive feedback loop. The motor that finally leads to a blockchain that actually scales and can serve as a viable alternative to the current financial system.
And yes, while it’s true that no other Bitcoin fork has developer funding baked into the protocol, I am fully aware that there are other cryptocurrencies that do. For example, Zcash and Dash both have built-in funding mechanisms as well, but I believe what distinguishes eCash from those projects is the process by which this funding mechanism was established.
Something that’s often overlooked is the fact that the NCR was emergent rather than planned from the start. Another way of putting it would be that it arose as a result of market forces and an iterative process more than as a result of central planning. It happened because certain criteria were met, like the presence of a competent developer team that over the years earned the right to charge the market for their services.
I very much look forward to seeing how the NCR fuels the next stage of development as Bitcoin ABC begins ramping up their team as we finally embark on our journey to the moon.
The Global Network Council
I described above how 8% of each block reward goes towards developer funding, but what I didn’t mention was that only half of that is earmarked for Bitcoin ABC.
So what about the other half? (aka the other $3M at today’s prices.)
The usage of that money will be decided by members of the GNC.
Due to various circumstances that were out of their control, Bitcoin ABC was forced to shift their focus away from the GNC after last year’s fork. Instead they had to prioritize things like creating a whole new brand, building new infrastructure like wallets and block explorers to serve XEC users, not to mention coordinating with all the various exchanges to make the rebrand as smooth as possible.
Besides, there was no point of holding the GNC until the value of XEC rose such that the funds would be worth enough to matter. Fortunately, due to the rise in the price of XEC over the past 10 months, those funds have grown significantly in a short period of time.
This is money that can potentially be spent on anything from infrastructure projects intended to serve the entire ecosystem to profit-seeking businesses that could earn a return on the GNC’s investment.
I imagine anything that can help eCash accomplish its mission of becoming world money would be on the table. For example, community members looking to fund new ventures would be able to apply for a grant or subsidy.
We still don’t know the exact details of how the GNC will function or be organized, but I am looking forward to finally having a governance system that isn’t based on Reddit karma or Twitter likes. Because the GNC will be made up of actual stakeholders who must cryptographically prove they have skin in the game rather than just any bozo with a social media account.
I’m sure there will be numerous iterations of the GNC as it matures, but I am excited to be here to witness it from the start. Think about it this way, if you’ve enjoyed the amount of activity that my 100 million XEC giveaway has created, imagine what more than 130x that amount can do. I want to see individuals come up with new ideas and execute on those ideas in order to earn a piece of the pie. I want the GNC money to attract new people to the eCash ecosystem and motivate XEC supporters in ways we can’t even imagine. As Charlie Munger said, show me the incentives and I will show you the outcome.
I predict that one day the GNC can become a global force for good as XEC holders throughout the world will be able to pool their coins together to get a seat at the table and have their voices heard. For example, I am currently a member of one such group that holds over 50 billion XEC, and I can assure you that as a major stakeholder, I want what’s best for the long-term future of this network because I’m not interested in just another pump and dump, I’m interested in changing the world.
In Part 8, we will explore staking on eCash and what exactly that could mean.
Previous installments of this series: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6