world1 by VITALIK BUTERIN on OCTOBER 18, 2013

Ever since the Bitcoin Foundation was first announced by lead Bitcoin protocol developer Gavin Andresen in September 2012, it has been the subject of constant criticism. An organization that describes itself on the front page of its website as having the mission of “freeing people to transact on their own terms” and “standardizing, protecting

and promoting the use of Bitcoin cryptographic money for the benefit of users worldwide”, has alternately been called a wealthy Silicon Valley business club, a United States-focused organization, or a group of wannabe dictators trying to unilaterally impose their visions on the Bitcoin community. Some have even accused the Foundation of wanting to centralize Bitcoin and transform the project into a more regulator-friendly product without its more controversial properties for their own personal gain. At the same time, however, the Foundation has proven to be an invaluable tool in supporting Bitcoin’s growth. It is paying a full-time salary to Gavin Andresen, forcefully and proactively defending Bitcoin in front of regulators, and paying out grants to projects that would have a hard time funding themselves otherwise. As Bitcoin continues to grow, local communities are seeing the benefits that formal organization, properly done, can bring, and a single question is increasingly coming to the forefront of the public discussion: what is wrong with the Bitcoin Foundation, and how can we fix it?

Conspiracy theories aside, the Bitcoin Foundation certainly has made efforts to address every one of the concerns that have been leveled against it. Claims that the Foundation was not democratic were addresses with an election in September. Concerns over conflicts of interest escalated to a climax when Coinlab, a Bitcoin business whose CEO Peter Vessenes was on the Bitcoin Foundation’s board of directors, sued MtGox (whose CEO Mark Karpeles is also on the board) in May; however, the crisis was resolved when Peter Vessenes stepped down in July. The perception that the Bitcoin Foundation harbored too much of a pro-regulatory ideology was weakened when Jon Matonis, a known proponent of underground and informal economies, became the executive director after Vessenes. And, finally, the issue of internationality was addressed with the Bitcoin Foundation’s new international chapter program.

Especially after the election in September, many people’s perceptions of the Bitcoin Foundation have improved considerably, as they saw some of the recent reforms, and perhaps also the electoral victory of Elizabeth Ploshay over other, more business-oriented, candidates, as a sign that the Foundation’s leadership is genuinely interested in making the organization more fairly organized and inclusive. To others, however, the electoral results and the international chapter program were simply proof that, ultimately, everything remains exactly the same. The two winners of the board election, Elizabeth Ploshay and Micky Malka, are both in the United States, cementing the perception that the Bitcoin Foundation was an irretrievably US-focused organization. And, as Bitcoin Alliance of Canada founder Anthony Di Iorio believes, this result was to be expected. Because the original five directors, with the exception of Mark Karpeles, were all American, the Foundation attracted a predominantly American member base, which was then more likely to elect Americans. “In my opinion,” Di Iorio summarizes, “they were structurally flawed from the start, and in turn this skewed the membership very early on”.

Transparency and Democracy

The other topic dear to Di Iorio’s heart is that of transparency and democracy. The Bitcoin Alliance of Canada is unique among Bitcoin organizations because of how the organization was created democratically, and transparently, right from the start. As Di Iorio describes it:

In April I put out a press release making a general call for anyone that wanted to get involved. Over the next two to three months I communicated with hundreds of people across Canada. After a few more press releases and a last call for involvement, it was time to put together the board of directors. Through input from the community, it was decided that two groups would be commissioned: one group of board applicants, and another group to serve as an independent board election committee. Of the thirteen applicants, seven board members were ultimately elected by the fifteen-member election committee. Having applied myself, I became a member of the board.

Although Di Iorio certainly did take leadership in the Alliance’s formation, he did so publicly and openly and gave everyone months of advance warning before every critical step so that everyone could have ample chance to participate. Compare to that the story of how the Bitcoin Foundation was created: in August, Gavin Andresen let slip that there would be some big news coming up in September. Over the next few weeks, Andresen let the Bitcoin community speculate on what the news was going to be, and at the end of September Andresen abruptly announced the organization, fully formed, to the world in a forum post. The five original directors were all established Bitcoin business leaders, who received their spots automatically, essentially simply because they were in the right place at the right time. And even today, all but two directors were appointed, and all but three part of the same original group.

The International Chapter Scandal

The worst part of the backlash, however, has revolved around the Bitcoin Foundation’s international chapter. Some in the Foundation see its efforts at trying to get organizations in other countries to sign on as national chapters as a genuine attempt at diversification, but the opinion in other parts of the world is different; in fact, what many Bitcoin users see is what is essentially an American organization expanding out into the world much like a megacorporation, or even a neo-colonial empire. What is the difference between genuine international outreach and neocolonialism? The story of Ron Gross, a co-founder of the Israeli Bitcoin meetup group and soon to be Israeli Bitcoin Association, proves instructive. Gross says:

So we started talking about forming the Israeli Bitcoin Foundation, as we called it, and the vision was always to be a chapter of the Global Foundation, even before they came out and publicly announced that there was a chapter program. We needed an organization for Israel, and we wanted to cooperate with the Foundation. We approached the Foundation and started a dialogue, and we were then selected as one of the five countries to work with the alpha program for the chapters; we discussed this locally, and then we started getting the terms from them. So first we got the more general terms in an email, and then we got the official contract that they proposed. Basically, they proposed a sort of a revenue sharing model, where they will collect all of the member fees and the donations and within a certain period, maybe on month, they will transfer a half of that – a half of the member fees and a half of the donations – to us. And we won’t have any option of accepting either of these on our own.

At that point, the Israeli Bitcoin community members discussed internally and agreed that, while the 50% membership revenue split might be reasonable, there was no way they would be willing to deny people the right to donate specifically to the Israeli group directly. They then started to reach out to other national organizations, and what they found was a growing consensus that the Bitcoin Foundation’s conduct, as they perceived it, was unacceptable:

We just had a few meetings in Amsterdam, and they were all in the same situation as us. They received the same kinds of conditions, sort of a dictated proposal from above without an open dialogue, and we reached a conclusion. None of us, none of the people in that room want to just accept these kinds of conditions written in a top-down fashion by the Foundation that is effectively today a US foundation. Nobody appointed them to be the world foundation, and in the latest election even though one or more of the candidates were foreign those candidates weren’t elected. The foundation is de-facto a US entity. So all of us decided that we don’t want this kind of cooperation with them, and we are not sure what we are getting in exchange for all these fees that will be sent outwards.

This is the effect that the impression of top-down control that the Bitcoin Foundation’s approach provides is having on Canadian, European and Israeli community members alike: very many of them see these actions as simply yet another instance of a typical American arrogance and desire for control, and want to have no part in interacting with the Bitcoin Foundation in this way. That does not mean that they see the Foundation as evil and wish to avoid any kind of contract with them whatsoever; “we are of course open to working with the Bitcoin Foundation,” Gross clarifies. “We want to include them, we don’t want to fight anyone else. But we want to treat them as equal members in the global organization, and this is apparently not how they see things.”

The Other Side of the Story

Of course, the Bitcoin Foundation sees things very differently; in the view of the organization’s current Executive Director, Jon Matonis, much of what Di Iorio, Gross and others have come out to say is the result of serious misconceptions about what the Foundation is trying to do. Rather than trying to limit local organizations’ freedom, Matonis says, the objective of the contract was actually to limit the amount of effort that the organizations would need to put in. “Our objective,” Matonis writes, “was to provide a turnkey solution for local chapters that did not want to mess around with membership dues and the infrastructure on collecting them, and did not want to have to have a giant footprint in their country that required them to hire staff.” By delegating many core functions to the Bitcoin Foundation, the contract would sharply reduce the amount of effort needed to maintain a national organization. “They could keep their full-time jobs; all they had to do was register five board members for a legal non-profit in their country, take care of some translation for the website and handle some media events in their country.”

Matonis is very aware that some national organizations would prefer to maintain their independence, and for them he is willing to offer a much more restrictive partnership that would essentially consist only of the two organizations linking to each other on their websites. The Foundation is simply offering the tighter partnership first because it feels that it would be easier for national organizations to follow, and would give them the opportunity to spend more time focusing on activities beneficial to the community within their own country rather than wasting their time on administrative work that can be better handled by the foundation.

What about the concerns over the seemingly top-down imposition of the contracts? “I understand that,” Matonis says, but he argues that much of the animosity was the result of a misunderstanding:

We never received a draft from [the Israelis] or anyone. I would have been happy for someone to take the lead and give me a draft to mark up. A little bit of it is cultural; as you know the American way is to throw out something acting like it’s your final offer to sign, but we negotiate more than anything. I think they didn’t realize that everything in there is negotiable just because they saw it in this legal format. But yeah, give me some pushback. Don’t just say no and start crying, change a paragraph and tell me what you want it to say, but I think they just burned the village instead.

As for the 50% tax on donations, arguably the most contentious part of the agreement, Matonis writes:

That’s the part we have the most flexibility on. What we didn’t want is for them to go solicit industry membership using the Bitcoin Foundation’s name and then keeping the entire industry membership to themselves because that is not really fair. We have the most flexibility on the donation side, especially the anonymous donation side. To be honest, the smallest part of our funding. The largest part is industry memberships followed by the individual memberships, and then the last category is the regular ad-hoc donations.

So every single term in the agreement, which Gross and many other community organizers alongside him saw as being handed down in its final form from above, was actually open to negotiation all along – especially that one term which they were uncomfortable with the most. Can this misconception simply be excused as a regrettable blunder by the Foundation and the local chapters alike? Perhaps yes; but perhaps, others might believe, the responsibility falls primarily on the Foundation for being so opaque. If the Foundation had been as open as the Bitcoin Alliance of Canada in its dealings, putting out a public draft and saying “this is the general form of the agreement we’re thinking of, anyone feel free to share your own thoughts and comments”, and then sending the standard contract through months of open and public negotiations, this whole scandal could have been avoided entirely.

The United States and the World

Aside from these concerns, there still remains one major piece of the puzzle in the drive to make the Foundation a truly fair global organization: setting up a truly equal structure where the US is not inherently at the top. Right now, the Bitcoin Foundation intends to be a worldwide organization, representing the interests of Bitcoin users no matter where they are. At the same time, however, it has many of the characteristics of a US organization: its board of directors is largely American, it focuses on US legal issues, and it is registered in the United States. In order for the Bitcoin foundation organizational structure to be truly fair, these two functions would need to be split up, with a separate US foundation acting as one of the world foundation’s members just like everyone else.

First of all, however, there is the question of exactly what a world foundation would actually do, and whether or not it is even necessary to have one. Ron Gross clearly believes the answer is no:

We tried to think, if we had a sort of global Bitcoin organization, what sort of decisions would this organization do, and we didn’t find any decisions that this organization would do. It’s not authorized to make changes to the Bitcoin protocol, as that is not how the Bitcoin protocol works, and regarding regulation, that is specific by country or by region.

Gross’s partner in organizing the Israeli Bitcoin community, Meni Rosenfeld, has similar thoughts on the matter, arguing that “the general idea is to build the structure gradually and naturally.” Rosenfeld continues: “We can start with each country building their own association, and of course share information, tips and whatever and cooperate if possible, and from there we see what kind of structure makes sense for the organization and go with that, and maybe in the future we will have something more formal if we need it.” Di Iorio too shares the same views, advocating for a set of national organizations united under little more than a common charter,similar to the organizational structure of the global Green Party movement.

Matonis, on the other hand, believes that there certainly are tasks that are most well-suited for a global organization to handle, and maintaining such an organization has clear benefits for Bitcoin users today. Matonis argues:

Basically, some of the local country groups want to be fully independent and they do not want to share in any membership dues, which means that they would not have any of the membership dues going to compensate core developers or any of the grand programs that the Bitcoin Foundation is undertaking. Would Israel have the capacity to hire Gavin or the other developers that we are hiring? I don’t think they want to do that, they want someone else to do that.
And that applies to legal defense as well. If the Silk Road case turns into a key disclosure case, we’re going to be submitting amicus curiae briefs defending the keyholders for Bitcoin, because it has such broad implications. If one of these pops up in Israel or Holland, and we want to make a statement, we can easily throw attorneys or resources at it, even though we’re coming from another country, because it has international implications as well. If the Thailand thing was real, we would love to be there, challenging why they’re banning bitcoin. So we’re always on the lookout for those kinds of cases that have an impact, and it’s not just the US.

“Those kinds of things cost a lot of money and need a lot of coordination with attorneys in multiple countries, and that can best be achieved by us putting together our resources,” Matonis concludes. “I mean, we’re still less than a one-million-dollar organization.” However, as far as making a world foundation that is separate from the US foundation, Matonis, and the Foundation as a whole, are actually quite sympathetic to the idea. Matonis writes:

It’s been voted on, it just hasn’t been announced yet. What I will say is that the contracts that the local affiliates sign will be with an international entity which is non-US, it will be European, and the US will end up being a chapter by the second quarter of 2014. That’s the path.

Gross, however, points out one large problem with the Foundation’s approach: transparency. “They are setting up a new organization registered in the UK,” Gross says, “They haven’t discussed this with anyone in the UK organization, they just ended up doing it in their own.” Here too, even in the Foundation’s process of internationalizing itself, the attitude that Gross sees as a kind of arrogance seeps through. Gross further points out that the new Foundation’s directors will be exactly the same as the current Foundation’s directors, although Matonis points out that this will only be during a transition phase, and later there will be a clausepreventing members of the US Bitcoin Foundation from also serving on the board of the world organization. “You can’t just do this in one day,” Matonis explains, “it takes months to organize it.”

From all of these examples, one common trend seeps through: a strong culture within the Bitcoin Foundation’s ranks of doing things unilaterally, and then telling other organizations what the plan is going to be. As Matonis would have us believe, this is just the Bitcoin Foundation taking leadership; if any other national organization or consortium of national organizations wants to step forward and put together the global organizational infrastructure, they had, and still have, the opportunity to do so. The alternative viewpoint, however, is that the Bitcoin Foundation has a lot to learn from Anthony Di Iorio’s style of leadership in Canada: exercising leadership when necessary, but putting out plenty of advance warnings, requests for comment and explicitly, rather than implicitly, giving anyone a chance to participate.

Ultimately, the members of both the Bitcoin Foundation and the national chapters are doing this for us, the Bitcoin community as a whole, and as a result each and every one of us has the opportunity to speak out and influence how the process of creating a fair system of global Bitcoin organization will take place. If you feel that your wishes arenot being satisfied, feel free to speak out and make an argument as to what you think is lacking. At the same time, however, Bitcoin foundations are not governments; it is perfectly reasonable to have multiple organizations serving the same region, and if you are truly unhappy about the direction your local Bitcoin organizations are taking, you are always free to start your own; Bitcoin developer Amir Taaki’s unSYSTEM is perhaps the best example. Everyone is free to cooperate, or go at it alone, as little or as much as they want. Even if we do not cooperate, however, we all still have the same objective: building a great currency.