Vitalik Buterin, the co-founder of Ethereum, recently announced that he will not be conducting an initial coin offering (ICO) for Plasma, an open-source scaling solution he has developed in collaboration with Bitcoin’s Lightning Network co-author Joseph Poon.
Incentivization Issues for Open-Source Projects and Scaling Solutions
As experts including Coinbase co-founder and former Goldman Sachs trader Fred Ehrsam have noted in the past, Ethereum still has many challenges to address and solve in regards to scalability. Ehrsam emphasized that the Ethereum network will have to improve by factor of 100 to serve decentralized applications (dapps) with millions of users.
“Large apps can’t run solely on chain and likely never will. They need off-chain scaling solutions. While it’s tricky to make accurate estimates when combining scaling improvements, it’s conceivable we could see a 100x improvement by the end of 2018, which would allow a 1–10m user app. Scaling is multidimensional. Different methods address different things,” wrote Ehrsam.
Currently, as Ehrsam explained, many Ethereum scaling solutions and projects are addressing different issues and challenges. Plasma is one of the highly anticipated projects that is expected to scale the Ethereum network in the mid-term and improve privacy measures by using ZK-SNARKs, a cryptographic system employed by the anonymous cryptocurrency Zcash.
In open-source projects, core developers tend to take pay cuts and salaries that are below industry standards for the benefit of the network, community, and industry. Ethereum and Bitcoin developers in particular are allocating the majority of their resources, intellectual capacity, and creative energy in improving the Bitcoin and Ethereum networks so that developers can build better applications, users can experience scalability, and businesses can work within a more flexible ecosystem.
The difficult aspect of open-source development projects and sustaining scaling solutions is the lack of incentives for developers. Most core developers rely on the performance of the native tokens of their blockchain networks as their main source of income. Hence, it can be said that most scaling solutions like Plasma and Lightning in Bitcoin and Ethereum are being developed by developers that are not being directly incentivized for their efforts.
Buterin’s Response to the ICO of Raiden, an Open-Source Scaling Project For Ethereum
Some projects have started to take the path of initial coin offerings (ICO) to raise capital in the short-term to fund their projects. Raiden for instance, an open-source Ethereum scaling solution, has announced its plans to run an ICO.
But, Raiden was criticized by Buterin and the Ethereum community that shared a similar sentiment in that Raiden does not need its own unique native token to operate, which defeats the purpose of the ICO. In response to Raiden’s ICO, and realizing the lack of incentives for developers creating scaling solutions, Buterin announced that he will be creating a personal fund to provide necessary capital for scaling projects and open-source development projects.
“I’m announcing that 100 percent of my OmiseGo + Kyber Network advisor shares will be either donated to charity (AMF, GiveD, SENS etc) or used to privately fund Ethereum second-layer infrastructure (state channels, multisig wallets etc), or some combination of the two. [Rules for funding Ethereum infrastructures are projects] must be 100 percent open source, no baked-in profit scheme (incl ICO token), must be good,” stated Buterin.