Ethereum: Bitcoin Price Decline Created $9 Million Funding Shortfall


Ethereum has released new details about the state of its finances, ending speculation about the project’s financial health that has persisted among the technology’s enthusiasts.

One of the most successful token crowdsales in history by some metrics, the ambitious blockchain-based decentralized application platform raised 31,529 BTC, or roughly $18.4m at then market prices, through the sale of Ether, its native blockchain tokens last July.

Of issue since has been the lack of clarity regarding how much real-world funding Ethereum and its related entities have had in reserve due to the subsequent decline in the price of bitcoin relative to the US dollar.

However, Ethereum inventor Vitalik Buterin today revealed new details about the subject today in a blog post dedicated to providing an update on the state of the open-source project, launched to the public on 30th July with its Frontier release.

Buterin wrote that the Ethereum Foundation, the Switzerland-based nonprofit that handles Ether’s financials and manages development funding, is facing budget constraints due to the declining value of bitcoin against the US dollar.

Buterin said:

“It is indeed true that the foundation’s finances are limited, and a large part of this was the result of our failure to sell nearly as much of our BTC holdings as we were planning to before the price dropped to $220; as a result, we suffered roughly $9m in lost potential capital.”

The former editor and founder of Bitcoin Magazine painted the project as in a time of “complicated transition” given that its needs have expanded along with its vision to launch a blockchain with built-in Turing-complete programming language.

When asked about the foundation’s hiring plans, Buterin told CoinDesk the group had “already cut some, and [was] cutting some [more personnel] soon.” However, he expressed optimism that as the Ethereum Foundation reduced its paid staff, developers and other employees would be hired by projects building on top of the platform.

“Note that a substantial number of Ethereum foundation subsidiary staff is going to be moving over to the rapidly growing for-profit Ethereum ecosystem over the next half year in order to bring more funds, interest and development effort into Ethereum-land.”

Overall, Buterin sought to suggest this was a natural transition for the project, one that would find it emerging from the incubation period supported by the initial funding, to a more open-source and varied funding model more comparable to the bitcoin network.

Buterin stressed that the major news from the day’s announcement was the financial support of Chinese multinational automotive giant Wanxiang, which is in the process of launching a non-profit called Blockchain Labs.

Wanxiang representatives confirmed Blockchain Labs recently purchased $500,000 worth of ETH as part of its wider effort to support the technology.

Limited initial funding

The post notably listed figures representative of what Buterin claimed were the project’s holdings, equalling $2.52m held in 200,000 CHF, 1,800 BTC and 2.7 ETH. At press time, 1 ETH was trading at $0.70 on bitcoin exchange Kraken.

These figures do not include a 490,000 CHF ($502,976) legal defense fund Ethereum said it is keeping on hold for possible legal defense.

Buterin went on to suggest that the Ethereum Foundation and its subsidiaries “do not have the manpower” to complete the current vision of the project, but cautioned that he does not believe that this puts the open-source project in jeopardy.

Monthly expenditures from the Foundation, Buterin said, are now due to fall from 410,000 CHF ($420,858) per month to 340,000 CHF ($349,201) on 1st October. The ultimate goal will be to reduce the Foundation’s burn rate to between 200,000 CHF ($205,370) and 250,000 CHF ($256,818) per month.

“Assuming that we get there in three months and that ether and bitcoin prices stay the same, we have enough to last until roughly June 2016 at the 340,000 [CHF] rate, and perhaps up to Sep-Dec 2016 given planned transitions,” the post continued. “By that point, the intent is for the foundation to secure alternative revenue sources.”

According to Buterin, contributors to the Ethereum project are able to receive funds in ETH, BTC or CHF, though he was less clear about how such payments interacted with cryptocurrency markets, stating that ETH payments had not yet “touched primary ether markets”.

Buterin indicated that the Ethereum Foundation no longer had the funds to meet its hiring schedule in relation to project demands.

“A hiring schedule that was meant to last over three years ended up lasting a little under two (although bolstered by a ‘second wind’ from our ETH holdings),” he wrote.

Possible revenue streams

The post speculates on potential ways for the Ethereum Foundation to continue to take in funding from the community, with possible revenue streams including developer workshops and conferences, efforts Buterin suggested were already underway.

The project also committed to becoming more transparent about its finances as it seeks to work past short-term budgeting issues, suggesting it is working with Ethereum-based accounting software provider Consensys to record all its expenses in the blockchain.

Confusion about the handling of project funds can be seen in interest group forums, where speculation has persisted that Ethereum’s sale of bitcoin was having an affect on the bitcoin price as far back as last August. Further, details regarding how bitcoins raised as part of the effort would be used were scarce in its initial crowdsale communications.

Of note regarding the project’s future is that the price of ETH has declined in September, from 0.0059 BTC on 1st September to 0.0026 BTC at current market prices.

Image via Ethereum 

Blockchain TechnologyEthereumVitalik Buterin