# What if Bitcoin had a treasury?
Messari
*Ryan Watkins*
https://messari.io/article/what-if-bitcoin-had-a-treasury

Like firms, markets, and governments, public blockchains are an [institutional technology](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811995). Not merely limited to provisioning scarce digital assets, public blockchains could also provide a foundation for a wide variety of social, political, and economic activities.

Key to this vision is the notion of sovereignty. In order to fulfill these aforementioned promises public blockchains must become sovereign - laws unto themselves and resistant to outside interference.

With the twin ideas of institutional technology and sovereignty in mind, it's unsurprising that many blockchain projects have proposed and implemented features usually reserved for sovereign institutions like governments. Nearly all public blockchains implement some kind of mechanism for redistributing value to certain stakeholders that provide invaluable services to a blockchain. Colloquially these mechanisms are referred to as [block rewards](https://messari.io/article/block-reward), but their analog is taxes.

To understand this phenomena, remember that supply inflation does not create value; it redistributes it. When Bitcoin issues new bitcoins to reward miners for their work, existing holders are diluted. At the current rate, Bitcoin holders are diluted by ~3.6% per year (soon to be 1.8%). This amount is Bitcoin’s annual issuance rate, and it is the economic equivalent of a tax holders pay to fund miners who secure the Bitcoin network.

In essence, Bitcoin spends its entire “fiscal budget” on defense. In fact, Bitcoin spends so much on defense it would rank 41st in defense spending if it was a country.


### Block reward innovation?
Some projects early on understood this dynamic, and looked to expand upon the uses of the block reward. One of the most significant expansions of the use of block rewards was to reserve a portion for blockchain development. Such proposals aimed to address the classic commons problem in funding public goods - a problem many cryptocurrency projects [intimately understand](https://messari.io/article/decentralizing-zcash).

Perhaps the first project to allocate a portion of its block reward for project development was Dash. Having been in operation for six years, the Dash blockchain has been entirely self funded, allocating 10% of its block reward every month to fund development. It currently funds the Dash Core Group, which leads Dash protocol development, and most recently received [$341,000](https://www.dashcentral.org/p/dash-core-group-compensation-march---apr) per month for March and April for its services. Funds not used in each monthly funding cycle are burned.

Further iterating on the idea of protocol funding was Decred. Instead of budgeting 10% of its block reward for protocol development and burning whatever funds were not used, Decred implements a treasury that builds and maintains a balance of coins received from its block reward. Decred has spent an estimated $7.3 million to date building out its ecosystem. It has allocated money towards a variety of initiatives such as [hiring a PR firm](https://proposals.decred.org/proposals/27f87171d98b7923a1bd2bee6affed929fa2d2a6e178b5c80a9971a92a5c7f50) and [funding a decentralized exchange](https://proposals.decred.org/proposals/417607aaedff2942ff3701cdb4eff76637eca4ed7f7ba816e5c0bd2e971602e1).


### Towards self-sufficiency
Dash and Decred are not the only projects to incorporate decentralized funding mechanisms. Many high profile “next-generation” blockchain projects including Polkadot, Cosmos, and Cardano have proposed their own decentralized treasuries. The chief goals for all these projects are sustainability and value creation.

> “Funding discussions force a relation of long and short term goals, the cryptocurrency’s social contract, priorities and the belief in value creation with particular proposals. This conversation means that the community is constantly evaluating and debating its beliefs against possible roadmaps.” - [Cardano Philosophy Paper](https://cardano.org/why/)

Remember the idea of blockchain sovereignty? Self-sufficiency is not only essential for how a public blockchain can resist outside interference, but also essential for not needing outside assistance.

Like many new ideas in cryptocurrency, it's not hard to see why decentralized funding mechanisms have a lot of mind share and funding behind them. Everything seems perfect on paper and promising on a small scale. However, to really think through the potential benefits and flaws of such ideas we can consider what these proposals would look like at scale.

### What if Bitcoin had a treasury?

If Bitcoin had Decred’s treasury system, and ran a similar budget, it would currently have a $9 billion treasury. At its peak in 2017, Bitcoin’s treasury would’ve been worth more than $25 billion.


Throughout its life Bitcoin could’ve spent a cumulative $400 million developing itself and its ecosystem. Bitcoin’s could’ve spent $32 million in Q1 of this year alone.


With Dash’s funding reward system, Bitcoin could’ve spent a cumulative potential $1.6 billion on its ecosystem, and $500 million in 2019.


With such funding Bitcoin could employ an army of builders to develop its protocol, attracting both missionaries who would otherwise work free, and mercenaries who would only work for profit. This would be in addition to all the organizations already building on top of Bitcoin. With a built in treasury Bitcoin could directly compensate tens of thousands of contributors. Furthermore, Bitcoin could fund many projects that may not easily be productized at a for profit company, if at all, including sidechains, payment channels, and interoperability solutions.

But perhaps most important of all, Bitcoin could fund itself into perpetuity and bootstrap the Bitcoin native economy without reliance on outside entities. The ultimate form of blockchain sovereignty is complete and unadulterated autonomy.

However, all this is not as simple as allocating a portion of Bitcoin’s block rewards in a treasury and spending it when needed. There needs to be a mechanism to decide upon what to fund.

### Governing the treasury
The question of how treasury decisions are made is a question of governance, and humans have been struggling with questions of governance for thousands of years.

> “Most problems of network governance, including those that appear unique for technical reasons, are actually not that different from challenges faced by traditional institutions. It shouldn’t therefore be surprising to see newly proposed governance mechanisms gradually evolve towards more tried and tested designs.” - Mario Laul

As once said “Democracy is the worst form of government, except for all the others that have been tried from time to time.” For public blockchains, in the absence of on-chain identity, which prevents the use of democractic governance, they resort to all the others. Indeed, to date, the only way that treasury decisions have been made have been through variations of coin-weighted voting. While some of the implementations of on-chain voting involve clever tweaks to prevent common exploits like borrowing funds to influence votes, all are effectively ruled by the wealthy. This may be fine when a community is small and the stakes are low like it is for projects with existing decentralized treasury systems. However, when you're playing with tens of billions of dollars and a large global community like Bitcoin would if it had a treasury system, decisions could be a lot more contentious. If public blockchains are to be [credibly neutral](https://nakamoto.com/credible-neutrality/) they simply cannot favor wealthy stakeholders by design.

In truth even democratic means of allocating a treasury are not always fair in practice. Beyond the obviously questionable bailouts, the United States’ recent $2.2 trillion stimulus package had a number of controversies despite having been decided by democratically elected officials. The $350 billion Paycheck Protection Program (PPP) for example, distributed the free money to larger more well connected companies rather than many of the smaller businesses who needed it most, and perpetuated many of the discriminatory practices of the channels it was distributed through.

Could any of the coin-weighted, on-chain governance systems produce better results than that of a democratic government?

It’s not clear.

### A worthwhile experiment
It’s good that projects keep iterating on decentralized treasury systems, for all their potential flaws. It’s hard to argue that projects would not be better off with decentralized treasury systems if they could nail their governance.

However, Bitcoin is no longer in the experimentation phase. Bitcoin may have a real shot at becoming a dominant non-sovereign store of value in the coming years, and it can’t afford to introduce instability into its system. Thus in place of an uncertain but potentially better future with a treasury, Bitcoin elects for a certain future with its status quo.

Bitcoin can’t promise that it will always be funded, but it can ensure that it’s new coins will always be distributed fairly.