Facing declining finances, criminal investigations of ex-board members and the ramifications of some poor management decisions, the Bitcoin Foundation has made some changes to its board and is considering a shift in mission to sustain its existence, according to Bloomberg.
During the advocacy group’s Dec. 15, 2015 board meeting, Executive Director Bruce Fenton said additional funding is needed to retain employees. At least $7 million disappeared in two years. Total assets were $12,553.06 as of Nov. 30.
Fenton said the foundation, which sponsors conferences, lobbies, and offers technical support for bitcoin, has to raise funds fast. He said cold calling ex-members has been considered. He is working on marketing materials to explain the organization’s purpose to prospective donors.
Foundation Value Questioned
Jim Harper, a senior fellow at the Cato Institute and a foundation board member, questioned whether the organization provides enough value to members to warrant its continuation, according to meeting minutes. Harper said asking for money is just throwing it away.
Olivier Janssens, also a director, said the foundation might not be fixable. The foundation’s challenges have come to symbolize those bitcoin itself has faced. Bitcoin supporters promote it as a decentralized, global currency for the Internet age, but the digital currency has proven to be more volatile than numerous penny stocks.
Bitcoin’s role in illegal activity such as money laundering has become a source of questions. Its price fluctuates with every bitcoin-related criminal investigation and regulatory clampdown.
The digital currency’s price peaked at $1,137 in November of 2014 before dropping to $183 in January 2015, following problems such as the collapse of the largest bitcoin exchange, Mt. Gox.
Ex-Board Members Charged
Two former foundation board members have faced criminal charges. Police arrested Mark Karpeles, former Mt. Gox CEO, in Tokyo and charged him with embezzlement. Charlie Shrem, the foundation’s former vice chairman, resigned before he pled guilty to helping launder money for Silk Road transactions, for which he is serving two years in federal prison.
Gavin Andresen, a former foundation board member who currently serves as chief scientist, sent an email saying he did not know if the foundation has a future. “It is very difficult to regain trust once trust has been lost, and the illegal behavior of two of the foundation’s former board members destroyed a lot of trust,” he wrote.
The foundation formed in 2012 to provide legitimacy for bitcoin. Bitcoin traded at about $13 by the end of that year.
The foundation grew with bitcoin’s popularity and included entrepreneurs and coders.
Congressional committees appreciated having an organization representing bitcoin, but politicians have also targeted the foundation for attacks.
A Justice Department prosecutor compared bitcoin to child pornography at an event in 2013 attended by Andresen, who bitcoin’s anonymous creator, Satoshi Nakamoto, appointed to lead bitcoin development, according to The Washington Post.
At the end of 2013, the foundation reported $7 million in assets. As bitcoin demand increased, the value of the foundation’s funds rose as well.
In 2014, the foundation began a European lobbying operation.
Bitcoin Price Hurts Foundation
By mid-2014, the organization’s funds fell to $4.6 million. The fall of bitcoin’s price took an immediate toll.
Following the Dec. 15 board meeting, Harper said he hired a lobbyist in Brussels in 2014 and then scaled it back since the money was gone. The foundation has cut its budget by 95%, according to meeting minutes.
The foundation’s conference business, meanwhile, faces competition from other events such as Money20/20 and Inside Bitcoins.
When bitcoin’s price fell to around $374 one year ago, the foundation said it would stop public policy efforts and focus on providing technical development since it did not have the money to do both things. Harper said there was never a plan to sustain the foundation when it thrived from the rising bitcoin price.
Weaknesses Become Apparent
The financial pressure has unveiled the foundation’s weaknesses. Harper said few supporters paid attention to expenses. Thousands of dollars per month had been spent on web services that would have cost a couple of hundred dollars.
Foundation board member Bobby Lee referred questions about expenses to Fenton, who did not respond to a request to comment. Lee acknowledged in an email that there were leadership and budget problems in the past.
Bitcoin, for its part, has weathered financial problems better than has the foundation.
The price has recovered to up to $426. Venture capital companies have invested more than $1 billion bitcoin-related startups. Technology and finance firms such as Overstock, Nasdaq, IBM and large banks are experimenting with bitcoin technology for tasks such as issuing stock, money transfers and contracts.
Other Organizations Emerge
Coin Center, backed by BitPay, has Washington staff working on bitcoin policy.
The one-year-old Coin Center and the Digital Chamber of Commerce, a trade association, recently formed the Blockchain Alliance to help law enforcement investigate illegal activity involving bitcoin’s technology.
Bitcoin evangelist Roger Ver, who provided the foundation with funds in the beginning, said the foundation’s decline will not affect bitcoin. He said there are different foundations. The name may change, he said, but the mission will continue.
Lee, however, wants to resuscitate the foundation. He said many believe in having a global, non-profit platform to advocate for bitcoin. Lee said the last 18 months were hard for bitcoin and its whole ecosystem. “I did not give up on bitcoin then, and I will not give up on Bitcoin Foundation today,” he said in an email.
Lee said the dissenters should resign during the December board meeting. Janssens and Harper elected to dissolve the foundation, but Lee and two other directors outvoted them. Harper agreed to step down while Janssens was removed from the board. Brock Pierce, chairman, said none of these actions is personal.
On Dec. 22, the foundation named three new board members. It is also considering a new mission statement with a focus on advocacy, regulatory efforts and technical development.
The board also voted to continue the foundation and establish an optional board seat for the mysterious creator of the digital currency if and when Satoshi decides to reveal him or herself.