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Bitcoin Cash will introduce developer tax

Rusty crown. Picture by lethbridge 1978 via flickr.com. License: Creative Commons

The big Chinese Bitcoin cash miners have announced in the future 12 , 5 percent of the mining revenue to a company in Hong Kong, which distributes it to the developers. To enforce this levy, they will block the miners' blocks that refuse to do so.

Financing infrastructure developers is a difficult topic at Bitcoin Cash. ABC lead developer Amaury Sechet has long complained that his team is suffering from a lack of revenue. After an appeal for donations by Roger Vers Bitcoin.com failed to raise enough funds – or for other, complicated reasons – Roger was only recently forced to disclose how his company was helping to finance the protocol development, but above all, he made further allegations earned.

Amaury has repeatedly, directly or indirectly, threatened to reapply for a real, well-paid job, or, worse, to do the “blockstream takeover”: to collect money from outside investors and to log Subject development to private business interests (in the case of blockstream, according to the story, these are the sidechains). Now the Chinese miners are apparently responding to these threats. They are presenting a plan that, to put it mildly, is extremely controversial – and which is also to be understood as an announcement.

The way out of the tragedy of the community

Jiang Zhuoer, CEO of BTC.TOP describes the plan in a blog post. With BTC.TOP, Zhour leads what is probably the most decided Pro-BCH pool. He has more than last week percent of all Bitcoin Cash (BCH) is mined with 2, 75 percent of Hashrate is also not insignificant for Bitcoin (BTC). However, his proposal receives the necessary weight from the partners who signed the post: Antpool, btc.com, Bitcoin.com and ViaBTC.

Zhuoer is aware that a mining levy is a controversial issue. But what is the alternative? The “current mechanisms through entrepreneurial donations” cause major problems. In this way, the companies exert an “inappropriate influence on the developers”. Zhuor points to Blockstream, which “centralized BTC development, preventing the BTC block size from increasing according to Satoshi's plan.” That Zhour, with the help of some of the most powerful BTC miners, is posting what is widely known as “conspiracy theory” is dismissed is important to understand the full political context.

In addition, corporate funding triggers a “classic community tragedy”: only some companies actually donate, while others become free riders. Therefore, despite all the controversy, it is “without a doubt a much better solution if the miners pass on part of the Coinbase reward to the developers.” If the developers had “adequate” funds, this would accelerate the development, “and quickly implement the roadmap, such as the Avalanche project. ”

How to enforce a developer fee

Therefore, Zhuor announces that the BCH mining pools BTC.TOP, Antpool, BTC.com, ViaBTC and Bitcoin.com are preparing to implement a six-month donation plan. This plan is intended to “provide BCH developers with enough money to accelerate development before we 2020 – 21 / 22 come into the bull market. ”He wishes“ that BCH will get better in the future and that the BCH / BTC price ratio of currently 4% to 10%, 20%, 30% or even more increases. “

The miners are over a period of six months 12, 5 percent of the blockrewards for “infrastructure development”. Submission should be activated after the next “protocol upgrade” – that is, the hard fork. This takes place on 15. May 2020 instead. The timing and duration of the project are not random; It also expresses distrust of the ABC developers, since this prevents them from writing the submission into the code by means of a protocol update.

Currently the developer tax would be scarce .) 000 Bring in euros per week. As the block reward of Bitcoin Cash halves in early May, it will only 20. 000 Euro per week (at current prices). This money will flow to a company in Hong Kong and “be used to pay developers of full node implementations and other critical infrastructure services.”

To ensure that all miners pay the fee, the pools involved will orphan all blocks that do not contain them. An orphaned block (“orphan”) is a block that was created correctly and attached to the blockchain, but is replaced by another – usually around the same time – block that manages to accumulate more hashrates after it.

By the way, “all miners” means Zhuor not just the Bitcoin cash miners. He means all SHA 256 – Miner. And that brings us to the part that makes the plan of the Chinese miners so exciting.

A tax for ALL

If you think about the tax for miners – it's nothing else – it seems at first glance that Bitcoin Cash is just 12 will lose 5 percent of its hashrate. But, according to Zhour, “after adjusting the difficulty on BTC, it's a completely different story.” He explains this with some rough numbers:

If 97% of the hashrate goes to BTC and 3% to BCH, and the BCH miners 12, give 5% of the reward , their share drops to about 2.6% and that of BTC increases 97, 4%. As a result, the difficulty of mining BTC increases and the mining there becomes less profitable. According to Zhuor, it is a total of 0, 375 Percent of the total SHA – 256 – earnings that disappear from the system and flow to the Bitcoin cash developers.


The difficulty of mining at BTC adjusts every 2016 blocks so that on average every ten minutes a block is found. With Bitcoin Cash and Bitcoin SV, on the other hand, the difficulty is continuously adjusted – every six blocks – to prevent the blockchain from suffering from massive fluctuations in block production. This has the effect that it is rational for a miner to distribute his hashrate to the three blockchains depending on the price and difficulty and to adjust the conditions again and again. Therefore, the hashrate usually fluctuates in a ratio that reflects the price relationships between BTC, BCH and BSV.

Isn't that perfidious? The miners involved in the agreement have barely 35 percent of Bitcoin mining hashrate. These are about 352 blocks or scarce 35 million euros in income. While Bitcoin (BTC) remains their most important source of income by far, they are openly hostile to Bitcoin developers and want Bitcoin Cash to overtake Bitcoin one day. Therefore, they use the (complex) mechanics of the hash rate oscillation between BTC, BCH and BSV to impose a small levy on ALL miners, which is passed on to the Bitcoin cash developers at their disposal.

So if someone mines BTC in the future, he will have a small share in it – just 0, 375 percent – donate to a Bitcoin cash fund. The Chinese miners tax all miners.

Open Pandora's Box

Having all blocks orphaned that don't pay the tax sounds bold. It's like opening a Pandora's box from which dozens of technical and political problems flow.

Let's start with the fact that a miner can use this for a double donation: He writes a transaction in a block and publishes it without the developer fee. The transaction will receive a confirmation – and then disappear again. Of course, there are also orphaned blocks under normal circumstances, with Bitcoin (BTC) only very rarely, with Bitcoin SV (BSV) occasionally through a stress test. Such orphaned blocks are created by chance and are difficult or impossible to plan. The Chinese pools are now introducing a mechanism for Bitcoin Cash that allows a block to be specifically orphaned. The costs for this are relatively low: a block is 5 after the halfing and minus the developer fee, 6875 Introduce BCH, which is just 1. 700 according to current exchange rates.

But it is worse. A miner who is hostile to Bitcoin Cash, say Blockstream or CoinGeek, could try to enforce a tax refusal by continuing to hashrate his chain with a block that contains no levy. Should he get away with it, he would under certain circumstances and depending on the application 12, earn 5 percent more than with the other mining options for his SHA – 256 ASICs. The longer such a struggle lasts, the more delicate it becomes for the Bitcoin cash miners to orphan the blocks; Should the blockchain be reorganized over 4 or 5 or 6 blocks, this could lead to much confusion in the ecosystem.

There is also a problem with the ChainLocks that Bitcoin Cash introduced on the occasion of the “hash war”. As soon as a block becomes ten blocks “old”, it is finalized by the nodes in the network and accepted as no longer changeable. The procedure is similar to the ChainLocks at Dash. It prevents reorganization of the blockchain over more than 10 Blocks. An attacker who temporarily more than 51 percent of the Bitcoin cash hashrate is available – at current rates that would be about 1.8 percent of the BTC hashrate – could secretly write a blockchain that pays no taxes, and then publish them to invalidate some blocks of the other miners. This would increase its earnings, destabilize Bitcoin Cash, and offer rich opportunities for double spending. The running costs to generate ten blocks would not even be 50. 000 Dollars lie.

Should it happen that the SHA – 256 – Hashrate cannibalized after the next halving, because the prices do not rise enough to compensate for the loss of the rewards, Bitcoin Cash should be the most obvious victim with this configuration.

Chinese miners demonstrate their power

The mining pools involved must therefore be fairly certain that they can push through the levy by safely and quickly turning off subversive miners. Which brings us to the political explosiveness of the topic: The pools operate from a position of strength – not only in the Bitcoin cash system, but in the entire Bitcoin mining.


It is interesting to look at the distribution of the entire SHA – 256 – look at the hashrate. The entire hashrate currently flows to 94, 8 percent in BTC and 2.6 percent each in BCH and BSV.

At Bitcon (BCT), the Pro-BCH miners involved in the agreement provide approximately 35 Percentage of the hash rate, at BCH they are around 33 percent and good for BSV 11 Percent. You make about 34, 3 percent of the total SHA 256 – Hashrate . )

BTC hashrate distribution of the last 7 days after coin.dance.

The most powerful BTC miner is F2Pool with 16, 5 percent. Although he is not directly committed to BTC, he uses his SHA 256 – hash power but only for BTC. The same applies to slush, the pool from the Czech Republic, the 4, 58 percent of the BTC hashrate bundles, as well as on canoe (4, 12%), byte pool (4, 03%), Bitfury (2, 75%) and NovaBlock (1,47%). The pure BTC pools – which one can assume that they don't find a tax for Bitcoin cash developers particularly great – bring scarce 33 percent of the entire SHA 256 – Hashrate on.

There is also a group of neutral pools that are not involved in the agreement and do not have a clear position, but their hashrate Distribute to the different Bitcoin blockchains: Poolin (16, 7% BTC, 4.9% BCH, 5.3% BSV), Huobi (4th , 8% BTC, 4.8% BCH) and ProHashing (0, 02% BTC, 0.3 % BCH, 1.2% BSV). These miners put together about 21 percent of the total SHA hashrate .

The fourth group has a more or less clear preference per Bitcoin SV . To her belong OKEx (5, 89% BTC, 1.6% BCH, 1.2% BSV), TAAL (1, 14% BTC, 3.7% BCH, 12, 1% BSV), CoinGeek (0.2% BTC, 9.8% BSV ), MemPool / Nour (0, 13% BTC, 6.2% BSV), SVPool (0, 05% BTC, 2.4% BSV), as well as some smaller pools (approx. 0, 05% BTC, 2% BSV). These pools together have about 8 percent of the total SHA hashrate .

In addition to the well-known pools are the unknown miners . At BTC they make up 4.3 percent, at BCH 49, 9 percent, and at BSV 46,8th. This unknown makes up about 6.6 percent of the global SHA hashrate . It is difficult to say where they are positioned and whether they are miners who want to remain unknown for image reasons or miners who may have an attack in mind.

The miners demonstrate that they are able to impose their rules on a blockchain like Bitcoin Cash and can enforce these rules against the resistance of the market. If they could not do this, the market would disregard the rules because they would reduce profits – in a way that hardly anyone would pay taxes if it were not mandatory. The miners thus take on a government function: they determine at their own discretion which conditions the mining is subject to and ensure that each miner submits to them.

If the mining pools are able to collect a tax – then they are able to enforce almost any rule. You could blacklist certain transactions and orphan each block that contains them. It would effectively censor Bitcoin Cash. You could also enforce KYC rules that, for example, only those transactions are put on the blockchain that are confirmed by a bank or a government.

The miners are thus exercising control over a blockchain. They are introducing a rule that is not part of the consensus protocol, but has the same power. Without going too far into conspiracy theories, one might speculate that this is a function that can be well received by the Chinese government, on whose benevolence Chinese miners depend. A model may be demonstrated here. What works with Bitcoin Cash could also work with Bitcoin SV, and who knows, maybe in the long term with Bitcoin (BTC) itself.