Crypto firms have granted millions to Bitcoin developers in recent months. Here's why

Last week, Coinbase announced its first-ever sponsorship program for Bitcoin Core developers, calling such support "essential to  building an open financial system for the world."

The exchange is a bit late to the scene. At least 10 other firms — including exchanges, technology startups, and even the nonprofit Human Rights Foundation (HRF) — have launched similar programs in recent months. In total, these firms have shelled out an estimated $3.46 million, backing a total of at least 25 developers and projects.

Exchanges BitMEX and OKCoin along with crypto-friendly payments company Square have led the way, awarding what appears to be more than $3 million so far to developers and projects working to improve the Bitcoin network.

*Square has publicly disclosed grant amounts only twice — $100,000 each. Thus, the total assumes that amount to be an average. Source: Companies, Polylunar and The Block Research

For Coinbase, the new sponsorship program may in part be a response to criticism that some in the Bitcoin community have leveled at the exchange for not yet directly contributing to its development. But the larger trend speaks to an important question: If crypto firms don't fund Bitcoin development, who else will?

"Unlike most cryptocurrency projects, Bitcoin launched without a fundraise, while bootstrapping an entire industry," Manish Gupta, EVP of engineering at Coinbase, said last week in a blog post announcing the new sponsorship program.

Bitcoin, of course, does not have a company behind it. Instead, a coalition of independent and mostly volunteer developers has been charged with maintaining and improving its code. And unlike Ethereum, for instance, Bitcoin doesn't have an active foundation whose job it is to fund and support the technology's development.

As a result, "the bitcoin funding model is very much in a survival mode," Elaine Song, head of the grants program at OKCoin, told The Block. Crypto exchanges are "very much one of the biggest taxers of the ecosystem, so I think part of it is we do have a responsibility," she added.

Said Song: "We're trying to catch up to what we should have been doing years ago, and we're trying to create an infrastructure that's sustainable and scalable."

A BitMEX spokesperson echoed Song's sentiment: "We believe it is the duty of any business to help nourish the ecosystems in which they exist, giving back where possible to the projects from which they benefit — and from which their very business model may stem."

Where the money is going

Every grantor has its own priorities. For instance, Bitfinex, which, according to CTO Paolo Ardoino, has granted more than $250,000 to various projects in the last 12 months, has focused on Bitcoin's Lightning Network and other Layer-2 solutions.

Square, which declined to comment for this article, has invested in Lightning Network-focused projects too. The payments company, which has given out grants to 16 developers, designers and projects, has also shown an interest in Bitcoin privacy.

A few common areas stand out, though. One is simply the maintenance of the network. A key project category that Coinbase said it would consider funding involves improvements to network testing and the process for fixing bugs. For instance, the exchange aims to support the development of an automated software testing technique called "fuzz testing." 

OKCoin is also supporting the development of fuzz testing by way of its sponsorship of developer Marco Falke, whose research focuses on the technique. Falke is working on ways to better maintain the reliability and security of the Bitcoin network — from infrastructure-testing to quality assurance.

The exchange has also provided grants to two other developers — Amiti Uttarwar and Fabian Jahr — and has supported the open-source crypto payments processor BTCPay Server.

Uttarwar's work is focused on improving the test coverage of Bitcoin's peer-to-peer (P2P) layer. The current Bitcoin Core system supports only certain kinds of P2P connections, and Amiti's work enables "mocking another type of connection so that the test coverage can be increased," OKCoin said recently.

Meanwhile, the BTCPay Server project is also popular among grantors. OKCoin, Square and the HRF have all awarded funds to it. BTCPay Server is an open-source crypto payments processor that is private and censorship-resistant. The platform makes it much possible to collect donations in bitcoin — and make bitcoin donations — more privately than previous methods, according to Alex Gladstein, chief strategy officer at the HRF.

'Far from enough'

Bitcoin's lack of a formal funding model is actually "a huge feature, not a bug," Gladstein said, because it helps prevent the concentration of power. The fact that developers have to work voluntarily and compete for grants that companies voluntarily provide "is so much more healthy in the long run," he said.

Gladstein predicts that more exchanges and companies will start funding Bitcoin developers in the near future because "it's good for their bottom line."

Besides the potential benefits they stand to reap from improvements to the technology, crypto firms have another incentive, he said: it makes them look good to their customer bases. "If you're going to fund Bitcoin Core development, you're going to get praised for that no matter what your track record is."

Still, while funding has improved in recent months, it's still far from enough, said OKCoin's Song. "Bitcoin development needs to be something that people are incentivized to do, just like it is to be a software engineer at Google or Twitter or all these places."

"If we want Bitcoin to be a long-term solution to many of our world's challenges, then working on the core codebase needs to be a sustainable career choice," said Song.

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