Developer Holders

As with other FOSS domains, developers are probably users. In Bitcoin’s case, this means that early developers may well have been holders of some BTC while it appreciated in value by orders of magnitude. Developers who held a significant amount of BTC through the price increases may now be independently wealthy and able to continue contributing without a need to generate an income from this or any other activity.

For early developers of a young blockchain project, obtaining some of the underlying asset makes sense if one believes that one’s efforts will help to increase its value. This also serves to align one’s incentives with the health of the network, and allows one to benefit financially from price appreciation that may be in some part due to one’s work.

Developers who do not depend on any external party for an income are in the strongest position to push the development of a blockchain project in the direction that they see fit. Dependence on an external party for income may mean deferring to that party’s judgement about the direction development takes.

Historical Context

Early cryptocurrencies could be mined effectively with a variety of consumer hardware, in the early days CPUs were sufficient, later GPUs came to dominate mining and later ASICS (specialized chips which only mine a particular set of cryptocurrencies) were developed. As better hardware becomes available, the older hardware quickly becomes unprofitable to use. At the launch of Bitcoin, Litecoin and other early blockchains, mining was the domain of enthusiasts using whatever hardware they had available. The competition to find new blocks and obtain the rewards was not fierce, and so any dedicated enthusiast could expect to obtain a reasonably large share of the rewards. For very early contributors, all they had to do was set up one or more of their computers to mine Bitcoin and they would be able to accumulate some. There was a technical barrier here too, where a contributor would have the appropriate skills to set up a miner but outsiders (particularly non-technical people) would have found this much more difficult.

In 2020, new evidence emerged that “Patoshi”, the dominant PoW miner in Bitcoin’s early stages who is thought to be Satoshi and have mined and held about 1 million BTC, also utilized multi-threading, whereby a miner can more efficiently use their hardware by searching for multiple nonces simultaneously. This innovation was not included in the publicly released code, suggesting even Satoshi was not above holding back some inside knowledge to gain an advantage.

As Bitcoin gained recognition and traction, mining became more professionalized, with economies of scale and advances in hardware greatly limiting the degree to which hobbyists could participate beneficially.

For a group of developers starting a new cryptocurrency, there was now no guarantee that they would be able to mine any significant share of the coins before professional miners squeezed them out. By 2018, a new PoW blockchain could have firms with significant investment and hardware lined up to begin mining as soon as it launched (example: Grin). This left developer teams looking to launch new blockchain projects with a choice to either build in a funding mechanism through which they could receive funding and/or some of the coins, or to move to a donation oriented model for funding development.