Leaderless: Bitcoin Foundation plagued by allegations of self-dealing and embezzlement

By Michael Carney , written on March 27, 2014

From The News Desk

What’s the role of an industry trade group and how much authority should companies place in the hands of these unofficial leaders?

That’s the question much of the bitcoin community is asking at the moment as the Bitcoin Foundation, the industry’s unofficial custodian and mouthpiece, faces allegations of self-dealing and embezzlement.

According to the Foundation’s own website, it exists to “standardize, protect, and promote the use of Bitcoin cryptographic money for the benefit of users worldwide.” Several hundred bitcoin companies are members of the Foundation and have donated heavily to fund its operations. The organization is led by a board of prominent crypto-currency entrepreneurs, investors, journalists, and academics, chiefly its Chairman, CoinLab founder Peter Vessenes who has been the subject of the most skepticism and scrutiny.

The spotlight was first shone on the Foundation’s leadership by controversial bitcoin blogger Ryan Selkis, aka the Two-Bit Idiot. On March 2nd, following the unraveling of Mt. Gox, Selkis wrote that Vessenes and Executive Director Jon Matonis would be stepping down prior to the conclusion of their current terms, “[seemingly recognizing] the need for the Foundation to clean house in order to revitalize its image in the coming months.” Days later, when forced to retract that prediction, Selkis began an aggressive, and occasionally manic campaign calling for their immediate ouster due to a failure of leadership.

At his most livid, Selkis called the current board “illegitimate” and demanded senior leaders across the bitcoin ecosystem stage a coup or kill the Foundation altogether – a position from which he later backed down, but not before writing:

Peter Vessenes and Jon Matonis are not scapegoats. They are not innocent bystanders. And they are not ethically entitled to remain in their board seats through later this year.

Selkis then promised to reveal “damning facts” if his demands were not met, including the those relating to: the Foundation ignoring warning signs of Mt. Gox’s failure as early as April 2013; Foundation directors exploiting their positions to withdraw funds from a failing Gox while the general public was losing their shirts; and conflicts of interest between director’s roles within the foundation and their personal bitcoin businesses.

After a several days of self-described backlash from the bitcoin community, Selkis issued a concession and never published those damning facts – despite maintaining that his accusations were “100% truthful.”

Selkis’ lightning-rod status cannot be denied and has made it easy for many to write off his claims as those of a man seeking attention – he’s acknowledged on multiple occasions plans to write a book about bitcoin’s recent scandals – and also hoping to enrich his own bitcoin insurance startup through spreading fear. But it bears noting that for all his bluster, Selkis has also been the source of a number of accurate and impactful breaking news stories, not the least of which was publishing Mt. Gox’s Crisis Strategy documents ahead of its eventual bankruptcy.

Now, however, it’s not just Selkis who’s beating the drum for changes atop the Bitcoin Foundation. CSO Andreas Antonopoulos, who’s is held as close to a deity as anyone within the bitcoin community – a list on Reddit once ranked him below Satoshi Nakamoto but above Mother Teresa and Jesus – has also called for leadership change. Speaking on the Lets Talk Bitcoin podcast yesterday, Antonopoulos called the Foundation “rotten from the top” and said that he wouldn’t be surprised to see it implode due to embezzlement:

They certainly have received many funds. Where are those funds, who controls those funds, when were they last audited, are they actually solvent, or have all of those funds disappeared into a big black hole? Just remember who was in the leadership until recently, who is in leadership today, and what their track record with ethics has been.

And, I would suggest that I would be not surprised at all if the foundation implodes in a giant embezzlement problem sometime down the line or funds get stolen – within quotes or not within quotes – something like that. It’s bound to happen because these things happen not because of technical failures, they don’t happen because of bad actors, they happen because of failures of leadership. And the foundation is the very definition of a failure of leadership.

Those are incredibly strong words and not the kind of accusations to be taken lightly. It bears noting that Antonopoulos didn’t suggest any direct knowledge of embezzlement or criminal wrongdoing, nor did he provide any evidence to that effect. He simply said that he views it as inevitable due to the character and competence of the Foundation’s leadership – leadership that until recently included Mark Karpeles, the CEO who led Mt. Gox into bankruptcy, and Charlie Shrem, the bitcoin entrepreneur recently charged with money laundering, among other offenses. Antonopoulos' statements are complicated by the fact that he is a volunteer member of a Bitcoin Foundation working group, a fact that he acknowledges within the podcast.

So where does this leave the Bitcoin Foundation, it’s current leadership, and the entirety of the bitcoin community as it fights for credibility and legitimacy among regulators, investors, merchants, and everyday consumers?

Many have downplayed the importance of the Foundation, and therefore any failures of leadership that have occurred inside it. The consensus by these naysayers is that the Foundation has no real authority and, thus, can simply be ignored.

But that position ignores the reality that the Foundation has been a central point of communication for the media and key regulators, including Congress and the New York Department of Financial Services, as they seek to understand and react to this increasingly mainstream new financial technology. In that way, the Foundation holds immense power to impact all those who are betting their time, money, and careers on the crypto-currency revolution.

The crypto-currency community is still grappling with the questions of how to present a unified and representative voice for what is still a nascent and highly distributed industry. But while there remain more questions than answers about the inner-workings of the Bitcoin Foundation, it’s clear the time for ignoring questions about its leadership has passed. Transparency and decisive action are badly needed.

Andreas Antonopoulos declined to comment for this story, while the Ryan Selkis and the Bitcoin Foundation did not respond to requests for comment (each was contacted ~2 hours prior to publishing). We will update this story if additional information becomes available.

[Image by Brad Jonas for PandoDaily]