Two-Bit Idiot: Bitcoin Foundation corruption ultimatum

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Photo credit: http://www.flickr.com/photos/100239928@N08/

Photo credit: http://www.flickr.com/photos/100239928@N08/

As Mt.Gox was falling apart, the “Two-Bit Idiot” blog on Tumblr was one of the rare sources of well-sourced, reliable information. Written by self-professed “entrepreneur and former VC” Ryan Selkis (who also writes under the name Ryan Galt), the blog was the first to leak the damning internal memos that all but proved Mt.Gox was dead nearly a week before any official announcement.

On Friday, Selkis took on another heavyweight in the cryptocurrency world, the Bitcoin Foundation In a post titled
“Coup or Death for the Bitcoin Foundation?” Selkis claims to have massively condemning material, and will publishing it on Monday unless Chairman Peter Vessenes and Executive Director Jon Matonis step down, effective immediately.

Behind the scenes this week, I solicited the input of dozens of leaders throughout the industry who represent many of the corporate sponsors and lifetime individual members of the Foundation. The individual response has been nearly unanimous: these gentlemen must go, immediately. However, the corporate response has been understandably tepid. Truly good and professional executives have been caught between a rock and a hard place: Vessenes and Matonis are obstinate individuals who will be hard to force from their positions, and a public battle will cause additional media backlash for Bitcoin, which will hurt these executives’ businesses.

I have no similar fiduciary obligations to maintain the peace.

What will happen if Selkis’s ultimatum is ignored? He’ll publish a full article on Monday, outlining the “glaring incompetence and negligence” of the two men in detail. Just to show he’s not bluffing, Selkis even gave readers a taste of what’s to come.

1) The Foundation never once warned Bitcoin investors about keeping deposits in Mt. Gox, despite clear red flags dating back to at least April 2013. Nor did the Foundation craft or advocate for best practices such as technical transparency, deposit audits, or appropriate consumer protection disclosures. This was a colossal failure of leadership.

2) There is evidence that Bitcoin Foundation board members may have had direct access to Mark Karpeles which allowed them to personally deposit and withdraw funds from Mt. Gox, despite persistent delays for other customers.

3) There is a troubling and inappropriate overlap between Peter Vessenes’ staff at his private company, CoinLab, and the Bitcoin Foundation’s staff, which goes far beyond shared office space.

4) The current leadership has shown a stunning disregard for proper communications with its members. The importance of immediate resignations (rather than gradual) is highlighted by the Board’s secret plans to move the Foundation’s headquarters to London without input from members and sponsors.

5) Peter Vessenes has had a nine month conflict of interest regarding Mt. Gox given that his company CoinLab was involved in an active multi-million dollar lawsuit against Mark Karpeles and Mt. Gox, following a failed partnership. Both men remained on the board of directors, and the Foundation failed to draft adequate by-laws that would allow them to address situations such as this where directors had material conflicts, which would compromise their ability to act in the best interests of its members.

Selkis make it absolutely clear that his proposed change is non-negotiable.

I assure you, I am ready to go nuclear. Because this is important.

Make no mistake: Peter and Jon will either step down from their leadership positions, or the corporate sponsors of the Foundation will quickly assemble and publicly distance themselves from the Foundation, writing off the organization as an illegitimate zombie entity.

Will Vessenes and Matonis cave to the blogger and step down? Will Selkis air the Bitcoin Foundation’s dirty laundry? All should be revealed on Monday. More on the situation as it develops.

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