Donations and Patronage
Donation based funding is familiar from other FOSS and CBPP domains - sustaining projects like VLC media player and Wikipedia (through the funding of the Wikimedia foundation). In the cryptocurrency space, informal ad hoc donations are relatively common. For example, Andreas Antonopoulos (Blockchain educator) received $1.5 million in BTC donations after revealing that he was not wealthy and being mocked for it. Vitalik Buterin (Ethereum co-founder) has distributed some 1,000 ETH donations on twitter. The fact that cryptocurrencies make monetary transfers easy for their users has meant that it is common for people to list donation addresses, and sometimes sizeable donations are made to those addresses.
Monero has a well established Community Crowdfunding System (CCS) which coordinates crowdfunding for development work. Proposals are submitted and discussed by the Monero community, the proposer iterates the proposal until loose consensus is reached about whether the proposal warrants funding. The Core team moves proposals that have consensus support into a “funding required” status, where they remain open for donations. If and when the target amount of XMR is donated, the funds can be released to the recipient once the Monero community agrees that the listed milestones have been met. Monero’s privacy means that donations remain entirely anonymous and the recipients of funds do not know where those funds have come from.
In some ways this places Monero developers who are reliant on funding to work on the project in a weak position. For any work they wish to do they must ensure that it is in line with what the community wants (as adjudicated by the core team), and also hope that some people want it enough to donate their XMR. From a decentralization perspective, this is quite a strong approach as it gives many individuals the opportunity to make small donations and together fund specific pieces of work, without giving the intermediary (Monero Core team) direct control of significant resources. It may however be subject to a tragedy of the commons, as individual donators do not stand to benefit more than non-donators from their donations.
The Grin project is also donation-driven, and soon after launch a developer posted about their disappointment that a fellow developer’s campaign was not being funded. The Grin Technical Council manages a general fund which receives donations and which they spend at their discretion using a 3-of-5 multisig wallet (funds cannot be spent without 3 council members consent) and maintains records of income and spending. The Poloniex cryptocurrency exchange has committed to donating 25% of Grin trading fees to this general fund for one year. Grin seems to have had success funding development since then, striking up other ongoing funding relationships with stakeholders in the ecosystem. Grin is in the process of formalizing the role of the council (now “core team”) which manages the pot of donated funds.
Some funding arrangements exist on the boundary between donations and patronage.
In 2012 the Bitcoin Foundation was formed to support Bitcoin development and uptake, it funded a number of Core developers in a patronage type arrangement until it ran out of funding in 2015.
MIT’s Digital Currency Initiative stepped in to support Bitcoin development at this point and continue to support some Bitcoin developers. Funding from academic or non-profit institutions is a familiar source of FOSS funding, and there are other non-profits funding aspects of Bitcoin development, like Chaincode Labs. A variety of ecosystem actors also support development of particular aspects when it matches their business objectives.
The “Hard Code Fund” is a fund which collects donations and uses these to support the work of Bitcoin developers. As of June 2019 it had collected 50 BTC ($450,000) and was using this to support two Bitcoin developers, who submit monthly progress reports and receive payouts in BTC. The linked article about this story cites a figure of “less than 10 full-time Bitcoin developers”, and frames this as an open problem.
In Sep 2019 the OKCoin exchange launched a campaign to award up to 1,000 BTC in donations to named developers working on BTC, BCH and BSV. OKCoin users could vote for the project they would like to donate to, and each vote awarded 0.02 BTC (worth around $200). After one week the campaign’s donation total stood at 0.56 BTC, with a total of 28 votes being cast far. When the campaign closed only 47 votes had been cast (worth 0.94 BTC), but OKCoin boosted the amount donated to 20 BTC.
Jack Dorsey has announced that Square is looking to fund engineers and a designer to work full-time on Bitcoin and the cryptocurrency ecosystem, as a way to give back to the community. There are some other organizations that have similar patronage schemes in place.
In all of these cases, the donators have some influence over the project by deciding who or what they donate to. The level of autonomy the recipients have seems to be quite high in general, but there is also a chance that stipulations are made in private about what is expected in exchange for a donation or to receive further donations.
Donations are by their nature not a very reliable source of income, because they typically depend on the ongoing generosity of beneficiaries who are external to the production effort.