Groundhog Day: Bitcoin Foundation's latest controversial board nominations lead to member resignations

By Michael Carney , written on May 12, 2014

From The News Desk

The Bitcoin Foundation appears to have stepped in it, again. Days after the foundation appointed a pair of new board members – Bobby Lee and Brock Pierce – nearly a dozen individual and corporate members are now resigning their association and withdrawing their sponsorship in protest.

At the heart of the situation are decade-old allegations against Pierce, a former child actor and failed dot-com entrepreneur, of child pornography, sexual misconduct, and embezzlement. Pierce has never been convicted of any such crimes, but his close association with several unsavory characters early in his career, and his habit over the years of running from, rather than facing such allegations directly, has given him anything but a squeaky clean image.

Over the weekend, Bitcoin Media Project published a brief video interview in which Pierce proclaims his innocence, saying:

It’s 15 year old news as its related to me and and it’s been publicly out there for ages and ages. And none of it’s true. None of my investors, none of my partners, none of my friends have an issue with it because they’re reasonably intelligent people who have had an ability to, you know, think for themselves.
Perhaps it’s the brevity of the statement, some 38 seconds, excluding the text-based intro. Perhaps it’s Pierce’s general shiftiness while delivering his message. But whatever the reason, Pierce’s explanation remains unconvincing for many involved with the Bitcoin Foundation.

The first Foundation member to publicly announce his resignation was Patrick Alexander, one of 384 annual members (and 150 lifetime members) of the industry association. Posting to the Bitcoin Foundation forum, Alexander writes, in part:

Unfortunately I must resign as an individual member of the Bitcoin Foundation.  Reasons are many, but the following are salient:

 - Charlie Shrem engaging in alleged money laundering and associated crimes.

 - Mark Karpeles misappropriating people's money to the tune of millions.

 - Brock Pierce being associated with alleged pedophilia. (Now newly elected to an industry seat)

The foundation members need to emulate very high moral values and ethics in business and in personal dealings, especially as it involves money. So far, the track record of prominent Bitcoin Foundation members has been abysmal. Within the same thread, which is limited to members, Alexander was joined in his resignation by lifetime member Olivier Janssens, QikCoin founder Stephen Sunderlin, Pierre Rochard, Patrick Levell, Michael Goldstein, Stephen Angelil, Dan Plante, and Christian Antkow. Rank and file bitcoin supporters have taken to Reddit and other forums to express similar outrage.

While each of these members expressed their ongoing support for bitcoin, it appears that the foundation’s association with unsavory characters – either in actuality or simply in appearance – was too much. Janssens writes:

If you commit to remove Brock Pierce from the board, I pledge to join as Platinum member and pay the $100k USD fee, within the next 24 hours. I also urge you to update the bylaws to prevent people from joining if they are involved in ongoing lawsuits (of the nasty kind), or have ever been convicted for anything nasty. Or if their image is potentially damaging for the foundation. 
It’s this comment about image that gets to the heart of the issue. While Pierce has not been convicted of any crimes, the Bitcoin Foundation can’t afford even the hint of impropriety within its leadership. Recall, this is the same organization that once put forth Mark Karpeles, CEO of the colossal failure that was the Mt. Gox exchange, as one of its leaders. The group has also included alleged money launderer, Charlie Shrem. Further, as I reported previously, prominent industry observers have raised questions about the integrity of Foundation Chairman Peter Vessenes, who was involved in the questionable bankruptcy of outsourced bitcoin mining company Alydian.

Many have been quick to write off the Bitcoin Foundation as an irrelevant organization with limited real power. As such, any loss of confidence in its leadership would be an issue confined to the organization itself. But as I wrote earlier this year:

...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 Foundation's primary function is to pay the core developers responsible for the underlying Bitcoin protocol and to foster education and awareness around bitcoin. It could also do well not to embaras the bitcoin community, something that it has struggled mightily with of late.

It’s been less than two months since the Bitcoin Foundation’s Vessenes controversy and four months since the Mt. Gox went from incompetent to insolvent without so much as a peep of warning from the industry’s most prominent association. Yet, here we are again.

The Foundation’s board is voted upon by its members (the vote is limited to industry members, and does not include individuals) meaning that the industry, by and large, has itself to blame for this mess. It’s admirable that Alexander and those following his lead have expressed their outrage publicly, rather than under the cover of darkness. But unfortunately, it may be too little too late.

Trust is something that is earned slowly over time but which can be destroyed in a matter of seconds. The Bitcoin Foundation has made a habit of destroying trust. It appears to be a long way from regaining that faith, assuming it’s ever able to do so.