We are glad to announce that we have started our new approach to iteratively fund the development of our project using Lighthouse. Please find all details about our campaign at the crowdfunding2 section on our webpage.
In this article I would like to discuss the reasons why we have chosen that model.
To make sure that such a project will work in a fully decentralized way, we are challenged by several constraints – all leading to a single axiom: No single point of failure
How to avoid single points of failure?
While the overall technical and conceptual requirements of Bitsquare can be found in our whitepaper, the focus of this post is only the aspects related to our funding model.
A project starts with the people behind the project and the organizational form they use.
Projects like Napster, ecash or Liberty Reserve, although different in many aspects, have taught us an important lesson: A company behind the project is a single weak point for bringing the whole project down.
Bitsquare is a community centered project. We are not a startup and there is no investor demanding a return of investment or guiding our decisions. In the long term Bitsquare is aiming to convert into a DAO (sorry for the buzzword), but we first need the technology available for building DAOs to mature.
A further requirement for avoiding single points of failure is that the code follows free and open source software principles, so that even if the project in its current form failed, anyone else could continue to develop it.
It is important for us to stay within the legal framework because legal pressure is likely to happen and might bring down the project easily. And yes, we don’t like jails :-).
To run such a project with anonymous identities might be an alluring option, but we decided against operating anonymously for various reasons.
Where are we now?
We published our first alpha version funding the development with our own savings and managed to built up a small community of supporters and contributors.
The strategy to fund development with our own financial resources has met its limitations and therefore we need to reach out for other possibilities.
We decided to use an iterative crowdfunding model12 with Lighthouse for pushing the project towards a fully functional version 1.0.
Such a model comes with some difficulties:
It is not easy today to get attention in the Bitcoin media space.
There is a huge competition for getting the signal above all the noise. We don’t have any marketing budget for hiring PR professionals and it wouldn’t fit into our philosophy and style as well. We have limited time ourselves and already spent way too much time on those non-development tasks!
So we are highly dependent on our community to support us in our marketing and communication efforts.
The iterative approach does not give us any security for the next funding rounds and it is hard to keep developers in such an uncertain environment. To be in competition with companies in an emerging market like Bitcoin, that offer equity and high compensation to key developers, does not make the situation easier. To find and keep developers for open source projects which are struggling to just pay the basic living expenses, seems already to be an incredible difficult task.
We’re not claiming that our approach is the golden solution, it is just the best that we could come up with after much time of debating and considering and the one which aligns cleanest to our initial motivation why we started to build such kind of project.
What are the alternatives?
Some people have mentioned that a model where users are able to invest in Bitsquare would gain more attention.
That is certainly true but comes with a few difficulties: One basic restriction is that we are committed to stay in the legal framework, so any model which might be interpreted as IPO is outside of our considerations. Also as soon as we are taking money directly from the exchange (e.g. by taking fees) we would trigger licence issues as it could be interpreted in the way that we are operating the exchange. A more fundamental problem with an investment model is that anyone who invests in Bitsquare would expect to own something, which creates either a centralization or forking risk.
Lets have a look at some alternative models:
Using an App coin That approach might be the right solution for the right project. Unfortunately we have already proven that Bitsquare is working fine without an app coin. So introducing an app coin with the sole purpose for funding would immediately provoke a fork.
Voting shares DAO A model similar to NuShares is interesting and might be a future alternative. Unfortunately it is not trivial and comes with considerable effort to build or adjust the infrastructure needed for such a solution. Once Ethereum is out we might reconsider how we could turn Bitsquare into a DAO.
Find another alt coin or platform which is interested in sponsoring the project A P2P exchange is an important infrastructure for any platform.
New emerging platforms might be interested in sponsoring our project to have the possibility that people can trade their currency against a national currency without the intermediary of bitcoin.
One concern is the extra effort to move to another technology. Also bitcoin is still the most relevant crypto currency today. But to expand to other currencies is definitely a topic we will discuss after our v1.0 release.
It’s not easy
It seems the funding opportunities to develop such a project are pretty narrow. Hopefully not too narrow to allow our project to flourish.
We are struggling with a problem not unique to Bitsquare. The problem of the tragedy of the commons is shared with many other open source projects. A huge number of open source projects fail to come to completion because it is so hard to find adequate funding models. Being not “venture capital shaped” leaves you often without any alternative funding options.
The fact that we deal with money makes the situation more difficult as it introduces additional legal constraints, but it also hold some promise that there might be a solution utilizing the accessibility of bitcoin inside an application.
Open for a reality check
We tried hard to find a funding model which is closely aligned to our constitutional ideas of decentralization. Using that iterative crowdfunding model with Lighthouse seemed to be the best fit. We are aware that it is not easy and we need our community to support our efforts to spread the word and to reach our funding goal.
It is an opportunity for us and for the Bitcoin community to evaluate its values, to check where we are and where we are aiming to go. Bitcoin is not just the next PayPal, it has a revolutionary potential and that is the reason why we are in and why we are working hard to make that project a reality.
Committed to Satoshi’s vision of Bitcoin
In times when big banks and Wall Street giants are entering the Bitcoin space with investments of 75M USD in exchanges which are representing more or less the opposite of what we are standing for, it is time to act: It is time to bring new infrastructure to Bitcoin which is following Bitcoin’s inherent concept of decentralisation and protection of privacy.
It is in our hands whether Bitcoin moves more and more into a direction guided by banks and the existing power elite or if we can keep Bitcoin as what it originally stood for us early adopters, for that why we initially got excited about Bitcoin: To change the world, to help to distribute the overwhelming wealth of the few to the other 99%. To challenge the century old elites of power and help to make them obsolete. To force governments to redefine themselves in a new model, not based on the creation and control of money, but on the purpose of organizing communities to efficiently produce value for all participants.
And when already caught in such a solemn mood, lets finish with our favorite quote:
“To change something build a new model that makes the existing model obsolete”
—Buckminster Fuller