Bitcoin Foundation Members Resigning Over Brock Pierce Controversy – Is TBF Necessary?

May 12, 2014 16:36 UTC

On May 9th, the Bitcoin Foundation (TBF) announced election results for two new board members to replace Charlie Schrem and Mark Karpeles. Only 102 Bitcoin Foundation members were eligible to vote, of those 31 abstained. Bobby Lee, head of BTC China, was brought on board with 79% approval. Also elected, with 65% approval, was KnCMiner.com co-founder, Brock Pierce. KnCMiner is currently the sole purchaser of TBF’s $100,000 platinum membership.

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[dropcap size=small]A[/dropcap]s per TBF’s announcement, Pierce co-founded three other Bitcoin companies and “angel-invests” in Bitcoin startups. Conspicuously unannounced was Brock’s questionable history in regards virtual currency and proximity to child abuse. And that he owns Sunlot, a company seeking to acquire the remaining assets and records of Mt. Gox. This information was instead broadcast over Bitcoin Talk and Reddit. The ensuing controversy still rages.

Patrick Alexander Leads A Wave Of Resignations

It’s clear that the election of Brock Pierce has caused a rift within the community and the Foundation, with 9 people so far having publicly renounced their current or future membership in response. One company has revoked its sponsorship. A former lifetime member even pledged to pay the $100k platinum upgrade fee if Brock Pierce is removed from the board.

To place the number of resignations in context, TBF membership currently approaches 1,500 according to their site. Yet certain resignations represent a tangible financial loss. Also to be borne is mind is that the tally of resignations may grow in the weeks and months ahead, especially if TBF fail to satisfactorily address the evident problem.

Brock Pierce Dismisses His Detractors, Doubts Remain

In this brief clip, Brock Pierce replies on the record to the controversy stirred by his election. He makes the point that 15 year old allegations prove nothing and goes on to imply that those who question his recent appointment are stupid sheep.

Indeed, there is no definitive proof of the worst allegations. Apparently some individuals have since confessed to making false charges in this regard.

Yet there remains Brock Pierce’s business history as the founder of IGE. Internet Gaming Entertainment made (then lost) a fortune in trading MMO virtual currency and items for fiat currency. Notably, IGE traded World of Warcraft gold and items farmed by Chinese “players” and bot-operators, for wages verging on the exploitative. Blizzard, creators of the game, blamed IGE for inflation and disruption within the virtual economy. WoW’s lack of hardcoded rules to limit currency issuance, as any Bitcoin campaigner will tell you, made such inflation inevitable. Yet it was chiefly Brock Pierce who exploited the opportunity. Many within the WoW community felt IGE’s practices so detracted from the enjoyment of their $15 per month subscriptions that they filed a multimillion Dollar class action lawsuit against IGE… Which they subsequently won, but not before IGE was gutted and Brock Pierce had migrated to fresh ventures.

The parallels between Bitcoin and MMO currencies in the above history should be apparent. The last thing Bitcoin needs is further industrial-scale harvesting of monetary resources for short-term corporate profit, undertaken without regard for greater economic consequences. This history alone should have disqualified Brock Pierce, no matter how lavish his angel investments or prestigious his affiliated company’s paid platinum membership.

Concerning the more serious legal charges; circumstantial evidence (police discovered child pornography in a raid of a Spanish residence shared for over two years by Brock and his partners) and the social phenomenon of guilt-by-association have undeniably tainted Mr. Pierce’s reputation. Justified or not, a majority of TBF voters either failed to thoroughly vet their candidate or failed to anticipate the backlash to his election.

The Foundation’s Funding

According to my napkin math (see below heading, “The Bitcoin Foundation’s Flawed Membership Structure”), the price of the 1500 current memberships combined with donations to TBF’s Bitcoin address have raised nearly $3 mil.

TBF apportioned some of these funds towards the salary of Gavin Andresen, whose former position as lead developer is now held by Wladimir van der Laan. Few in Bitcoin would begrudge such recognition for those who tirelessly advance the code, often against uninformed or biased opposition. Certainly, no core developer will starve while they retain the goodwill of the Bitcoin community, whose generosity is well-known (2). Perhaps it would even be to a developer’s financial and reputational advantage to request donations or pursue bounties directly from the community, rather than tie their fortunes to a troubled third party like TBF.

Exactly how TBF’s funds have been disbursed among developers, lawyers and other parties is not a matter of public record.

The Bitcoin Foundation’s Flawed Membership Structure

TBF was formed in September 2012 by Gavin Andresen, Jon Matonis, Patrick Murck, Peter Vessenes, Roger Ver, Charles Schrem and Mark Karpeles. It is headquartered in Washington DC. Their memberships costs run as follows:

  • Platinum: $100,000
  • Gold: $25,000
  • Silver, large: $5,000
  • Silver, medium: $2,500
  • Silver, small: $1,000
  • Lifetime: $250
  • Individual: $25
  • Anonymous: $25

Basing membership to a trusted organisation solely on the payment of fees practically ensures the organisation will become untrusted over time. Fraudsters will balance the fee against the trust it brings to their scam. As TBF speaks to government and media as perhaps the most authoritative voice of Bitcoin, the fee to trust ratio will favour scammers until such time as TBF restructures or accrues an overwhelmingly bad reputation.

Butterly Labs and Mt. Gox are but two prominent examples from a lengthy record of trust purchased prior to trust betrayed. At no point has TBF apologised for its direct or indirect promotion of such scams.

That industry members also buy voting rights is another obvious problem with TBF’s structure. As TBF seeks a position of significant influence over Bitcoin’s value, image and direction, it’s unconscionable that the overwhelming majority of Bitcoin users go unrepresented within the organisation. This situation is the polar opposite of the ideals which informed Bitcoin’s design.

One must question whether TBF retains sufficient community trust to remain central to Bitcoin’s code development and legislative interface. Whether any such centralised agency is necessary, or a dangerous point of failure inevitably in conflict with the culture of a decentralised project, is another vexed question.

The Bitcoin Foundation Must Enact Meaningful Reforms Or Disband

The election of Bobby Lee was a step in the right direction of greater international representation. I advocated for his election here, as at least superficially promoting Bitcoin as a politically non-alligned currency.

Unfortunately, the appointment of Brock Pierce makes it a case of one step forward, two steps back. That the Foundation electorate were either unaware of Brock Pierce’s murky past or didn’t anticipate a related backlash are equally disturbing prospects. If the latter case, then there’s a gulf between the interests of Foundation members and the wider network.

Most users realise the foolishness of giving ammunition to Bitcoin’s detractors, particularly media-incendiary ammunition. This suggests a total disconnect between TBF and popular social hubs within Bitcoin. Contrast the public image obsession of r/Bitcoiners envious of the Dogecar marketing stunt against the Mr. Magoo media fumblings of the credibility-card-carrying “industry leaders” who endorsed Brock Pierce. Clearly, there is no communication between these two groups.

If TBF seeks to retain popular support, it should flush Brock Pierce and open its elective process and membership decisions to the community. There is an established reputation system waiting to be leveraged for the selection of honest, clean members. Even the simplest implementation of community-derived measures of trust into TBF’s membership and elective processes would greatly improve the current arrangement in which those with deep pockets are privileged irrespective of their character.

It pains me to say all this, as I recognise many sincere and talented members within TBF. This is a sad case of a few bad apples spoiling the bunch. Nonetheless, it needs saying. That several of my colleagues here and at other publications were unwilling to report on this story for fear of damage to their careers is anecdotal proof that TBF has become a dangerously centralised entity. Time will tell whether I’ve lowered my odds of interviewing certain industry players. Frankly, I’d prefer that outcome to Bitcoin being led over a cliff.

The Bitcoin Foundation, Misguided Or Malicious?

TBF’s decision-making process appears flawed to a degree that resembles sabotage. They’ve made too many poor decisions of which the current fiasco is but the latest example. Mircea Popescu alleges that TBF have deliberately hindered protocol development and specification, introduced a hard fork in March of 2013, and advocated the inclusion of Heartbleed-vulnerable code into the protocol. Damning accusations indeed, yet Mircea declined a request for supporting evidence.

Still, if the financial crisis has proven anything, it’s that banking interests are adept at regulatory capture. If they deem Bitcoin an obstacle to their oligarchic spree, state-capitalists would soon identify and likely attack the network’s weakest point. Infiltration and subversion of the closest thing Bitcoin has to a regulatory agency would likely bring the greatest bang for the buck. That intelligence agencies would assist their paymasters in such endeavours should surprise nobody.  So, as the Bitcoin protocol was designed to be resistant to technical interference by such sophisticated adversaries, it stands to reason that any key Bitcoin organisation should be similarly structured. TBF must decentralise lest it become a major liability.

Several compromised, high-level members means TBF has lost credibility as a group capable of withstanding powerful external pressures. While most within the community were willing to give Charlie Schrem’s indiscretions a pass, especially in light of big banks getting away scot-free with far worse misdeeds, the revulsion against Mark Karpeles left TBF fragile. The appointment of Brock Pierce comes as the final straw for many, this reporter included.

“The Bitcoin Foundation Is A Scam” Banners

These graphics serve to express criticism of TBF in a conveniently condensed format:

It is my personal opinion that the honest, decent majority of Bitcoin users deserve far better from any group claiming to represent them. For legal reasons, I should note that these images do not reflect the official position of CryptoCoinsNews.

Additionally, I hope that TBF will enact meaningful reforms, as when Mike Hearn’s leaked “redlisting” proposal led TBF to open their forum, in which case I will update my opinion accordingly.

Devil’s Advocate

We should acknowledge that TBF is operating in a new and difficult field. There’s no Idiot’s Guide to successfully establishing and maintaining a trustworthy centralised community to guide the development of a decentralised financial technology with massive disruption potential. Rich, powerful adversaries are legion. Further, any objective assessment of TBF would include its successes as well as failures. If this fresh controversy spurs the many talented and sincere TBF members to patch the organisation’s flaws, TBF 2.0 may well fulfill the stated goals of standardising, protecting and promoting Bitcoin.

Last modified: May 12, 2014 19:00 UTC

Former swing trader of equities and daytrader of futures, out to make it in this crazy crypto world. I'll be doing some chart-reading aka fortune-telling, plus some interviews with crypto developers and miners. And maybe even some cartoons. If you like the cut of my gib, visit my website (goldrhino.tk) and pick up a Ⓑ keychain or Ⓑ leather mousepad.