When you’re focused on building a crypto project that is set to revolutionize the world, it can be a bore to get bogged down in legal details like software licensing. I get it.

But the reality is that open sourcing your project’s software might be the most important and irreversible decision you make.

For anyone launching a new crypto project, it makes sense to have at least a basic understanding of your options and the implications of the license you choose.

So to get you started, I’ve broken down this pretty dense topic in a Quick (and Easy) Primer on Open Source Software. And don’t worry, I’ve kept the legalese light.

What is Open Source Software?

Open source software is software that is licensed in a “free” and “open” manner whereby third parties may use and modify the software for their own purposes. In layman’s terms, when you open source your software you are giving it away to the world for free.

Open source software generally falls into one of two broad categories: “permissive” or “restrictive.”

Permissive licenses contain minimal restrictions and grant broad rights to licensees to use, modify and distribute the software. The MIT License is probably the most famous permissive license, which essentially lets licensees use, modify and distribute the software on whatever commercial terms they desire, including licensing the software to third parties for a fee.

So even though you’ve built the software and distributed it (for free), your licensees can charge others and make money off of your efforts.

By contrast, restrictive licenses or “copyleft” licenses restrict a licensee’s ability to distribute the software and modifications made to the software on terms other than those set forth in the original license.

Since nearly all copyleft licenses require that the software and its modifications be licensed at no charge, they leave future licensees unable to distribute the software for a fee. This makes sense since most copyleft developers are concerned with ensuring that their software remains forever open and free to everyone.

Steve Ballmer, former Microsoft CEO, famously declared copyleft licensing as “a cancer” that is useless to the commercial sector since for-profit enterprises cannot incorporate the software into paid products.

Three Benefits to Open Sourcing Your Software:

  1. Tap into a Community of Developers: If your software is licensed under an open source license, third-party developers may start contributing work for free. This can be a huge boost to bootstrapped startups with limited manpower, especially when it comes to finding and fixing security holes.
     
  2. Create a Loyal Community: Many open source projects are more than just software projects. They’re a community of like-minded developers changing the world. This can be very powerful, both in terms of contributions to the code, and also in terms of generating interest in the project.
     
  3. Support Innovation: Almost all software development relies in part on open source software. Contributing back to this ecosystem is important. After all, where would most of us be today if Satoshi decided to license Bitcoin as closed source?
     

Three Negatives of Open Sourcing Your Software:

  1. Cut and Paste Competition: Open source software means anybody can use it. Trust me when I say that nothing is more annoying than one day waking up to find your project has been cloned by a competitor who has nothing of additional value to offer. In a future article, I’ll discuss techniques to defeat these leeches.
     
  2. Free means Free: How will your project make money? Most open source projects survive by selling support services related to their software. But this is often more challenging than it sounds. There needs to be a compelling reason for users to seek commercial support in the first place, and, if they do decide to seek commercial support, what’s to stop them from choosing another provider?
     
  3. If You Build It, They Still Might Not Come: You’ve released your project to the world and now you can sit back while an army of amazing developers builds your software for free, right? Not exactly. Most open source projects receive limited third party support. Everyone loves to point to Linux and Bitcoin as evidence of why open source is great, but those projects are the exceptions and not the norm.
     
    At the DCG Summit last month, I had a brief conversation with Zcash founder Zooko Wilcox about this issue as both Horizen and Zcash are open source projects. Zooko surprised me when he said that the majority of software development work on the Zcash project comes from paid engineers and that the open source community contributes very little to Zcash’s core code.
     
    If Zcash, a billion dollar crypto project with cutting-edge cryptography, gets limited open source developer support, my advice is that you should have limited expectations about that free army of developers rushing to your github page. Your business plan must assume that the vast majority of work will come from paid developers.

What does this mean for Crypto Law Insiders?

When launching a crypto project, Insiders must understand the fundamentals of open source software and whether it’s appropriate for their projects. The best licensing strategy for each project will be different and depends on a variety of factors, including the goals of the project, the target audience for adoption, and the revenue model.

Warning: If you don’t decide whether or not to open source your software it’s likely that your engineering team will decide for you. Don’t put the entire future of your project in the hands of your engineering team, as they will not necessarily be aligned with your business objectives and are often the most ideologically biased.

For engineers, creating open source software is a way to “give back” to the development community and there is often a lot of prestige associated with it. But engineers are not known for their business acumen and usually fail to consider the financial implications of open sourcing software.

In my opinion, you would be much wiser to consult with a crypto lawyer that has experience handling open source licensing matters so you can understand the full spectrum of considerations. And if you’ve already hired a general counsel that doesn’t have specific open source experience, let him or her work with an outside law firm that does. Don’t cut corners here. This decision might make or break your project before it even begins.

Comments (0)

Leave a Reply

Your email address will not be published. Required fields are marked *