Public Blockchain Projects Lack Proper Funding, Ethereum Co-founder Has Ideas
Vitalik Buterin, the co-founder of Ethereum, has been vocal about the lack of incentives for open-source Blockchain projects.
Vitalik Buterin, the co-founder of Ethereum, has recently been an outspoken critic of the lack of funding for public open-source projects. In a day and age where ICOs are raising more money than traditional venture capitalism, a need has arisen for alternative funding models for projects that contribute to community.
Public Blockchains like Bitcoin, Ethereum and Litecoin are different from other Blockchains in that their coins can be mined by the general public. Other Blockchains, usually those of newer startups, don’t have minable coins.
Their coins are instead issued during ICOs which can sell out extremely quickly. In such cases, a few investors could end up owning the majority of the coins. It is easy to fund startups through ICOs, but not nearly as easy to fund public Blockchain improvement projects.
A fundamental problem
The problem with the current market system is that prices for ICO tokens are set by companies arbitrarily, and investors have no room to negotiate. This leads to either massive initial buying by deep-pocketed investors, ICO stall-out when values are justified, or the possibility of fraud charges when companies don’t live up to the expectations of investors.
Many, like Buterin, are hoping that the popularity of ICOs will find its way into public projects, while at the same time providing new ways for investors to have some control over token valuation. While developers are currently making sacrifices for the greater good of the Blockchain community, perhaps there is a better way forward.
ICO balancing act
Buterin recently co-published a paper with TrueBit founder Jason Teusch, in which the industry leaders argue that the issue of ICO valuation is logical fork - ICOs provide a way for everyone to buy coins, and coins are available at a fixed rate.
The problem lies in the fact that, if coins are capped, not everyone may get a chance to buy, since the sale may end in seconds. However, if coins are not capped, and everyone can buy, the ‘total token’ number may simply skyrocket, vastly devaluing the coins.
The solution to this conundrum is not simple, since capped token sales appear value-driven but exclusive, while uncapped sales appear greedy, but open. However, the tech gurus have devised a simple yet elegant system to manage these issues.
The team explains that changing to an ‘interactive coin offering’ would provide a solution that would let the market for a particular coin expand and contract according to true value. Under such a system, buyers are able to make and withdraw bids for a certain amount of tokens at a certain value.
By allowing buyers flexibility which decreases as the ICO close date approaches, interactive offerings would allow free market forces to work while at the same time incentivizing buyers to buy in and stay in at real value propositions.
Open source as win-win
Another option is to turn to platforms that specialize in creating open source peer-to-peer networks. These platforms connect end users who see or experience a bug in the Blockchain they’ve encountered. On the platform, the users can note the problem and post a monetary reward for a fix.
Any developer on the platform can offer a solution to the various issues that have been logged. The most suitable solution is chosen, and the funds are transferred to the appropriate developer. But what’s in it for the users who are fronting the reward? First, they, along with all others, get to experience the speed and smoothness of a debugged Blockchain. Similar to when a local government repaves a highway, all drivers benefit from smoother roads.
Second, the platforms can be used to improve existing Blockchain systems. Users can request features they want to see, not just bugs they want fixed. As more people offer new features, more solutions will arise. This will spur on others to propose their own features, leading to even more resolutions. It is the gift that keeps on giving.
Some living examples
One company is focusing on the latter, building a decentralized marketplace for open-source collaboration. The platform debuts a safe way to fix bugs and build features on any project, including public projects. It doesn’t just work with Blockchain either, but with a variety of other fields. The platform will use cryptocurrencies to incentivize users to offer solutions to problems by giving them the opportunity to be compensated for their suggestions.
Other companies are seeking to do something similar in the gig economy market space by linking together contributors and project managers over peer-to-peer networks. For example, another project raised $5 million in less than a week by providing a similar P2P platform.
Contributors are able to pursue projects directly from project managers, and payment is escrowed in proprietary cryptocurrency. The growth of the gig economy (both from contributors seeking freedom, and project managers seeking specialization) will continue to drive solution-based platforms onto the market.
However, with open source projects, the need for support and feedback often creates substantial gaps in servicing. Monetizing specialized projects will make working on a public project much more enticing. By incentivizing open source solutions, and by allowing project managers freedom for seeking gig-economy talent, the solution market will grow and stabilize. This will yield better results at more attractive pricing.
As the Blockchain and ICO world continues to mature, solutions must be sought out for issues that are causing the most investor concern. Solutions like those proposed by Buterin and Teusch, as well as the companies seeking to incentivize open source applications, will continue to move the industry forward.