Facing Bankruptcy, Bitcoin Foundation Discloses Controversial Restructuring Proposal

According to a month-old internal document originally drafted by the management team of the Bitcoin Foundation and which has now been openly published, the foundation is considering splitting into two separate organizations.

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Facing Bankruptcy, Bitcoin Foundation Discloses Controversial Restructuring Proposal

According to a month-old internal document originally drafted by the management team of the Bitcoin Foundation and which has now been openly published, the foundation is considering splitting into two separate organizations.

One of these organizations would effectively be the continuation of the current foundation, but reorganized as a promotional body. The other would be a made up of the core development team, split off to focus exclusively on development of the core protocol — which is currently the Bitcoin Foundation's mission.

Although the newly released document indicates that the change might also make sense for tax purposes, the main reason for the proposed restructuring of the foundation seems to be its weak financial status, as exposed recently by newly elected board member Olivier Janssens.

The year 2014 was particularly disastrous for the foundation, as it lost some US$4.7 million worth of assets due to expenses and a falling bitcoin price. Since Patrick Murck was appointing as executive director in October of 2014, he cut monthly losses significantly and has since volunteered to take himself off the payroll. Despite this, the foundation is running out of funds quickly, and at current spending rates could run out of funds within a month. It may be a matter of interpretation, however, whether this represents an “effective bankruptcy,” as Janssens has phrased it. The board of directors in an official statement denied bankruptcy.

If the proposals to restructure the foundation are approved, this would mean a reorganization according to the “Mozilla approach,” as opposed to the current “Linux approach.” For the foundation itself, it would entail it becoming a promotional organization.

Although many of the details of what exactly this would encompass are not included in the document, what is clear is that the foundation would focus foremost on public relations for Bitcoin, while it would also be involved with organizing a number of conferences. Additionally, the foundation could still lead funding efforts for a second organization that would exclusively focus on the development of Bitcoin core. This way, the foundation would require minimal staffing, and could cut down on expenses even further.

Oliver Janssens and Gavin Andresen

In addition to the restructuring of the current foundation, the new organization—referred to in the document as “New Co.”— would be established with the mission to specifically focus on engineering resources. The three core developers currently on the payroll of the foundation— Chief Scientist Gavin Andresen, Core Maintainer Wladimir van der Laan, and developer Cory Fields—would move to the new organization. Additional hires are planned.

Details regarding this proposed organization are lacking. The document states that “NewCo will be structured to specifically meet the needs of the highest value contributors in terms of oversight of their funds, most likely through direct board representation.” Additionally, the organization would lead an effort to establish a “Bitcoin Standards Body,” another separate organization, which would oversee standardization efforts for the Bitcoin protocol. The document suggests that “New Co” would soon be able to raise US$2 million.

The short history of the Bitcoin Foundation has been bumpy. It was founded in September 2012 with the intention to standardize, protect and promote the use of Bitcoin. This has always been controversial in the Bitcoin sphere, however, as some feared that such an organization could become a centralizing force in the decentralized Bitcoin ecosystem.

The image of the foundation was further tainted in 2013 when two of its board members —CoinLab CEO Peter Vessenes and Mt. Gox CEO Mark Karpeles — became involved in a legal struggle. One year later, Charlie Shrem and Karpeles both stepped down from the organization disgracefully.

On top of that, the election of Brock Pierce to the board in 2014 was regarded as controversial because of his alleged prior involvement in a sex scandal, although Pierce was never convicted and denies any wrongdoing. Andresen and the foundation have indicated that the tainted image as well as the corporate governance structure with elected board members are important reasons why funding has now dried up.

Whether or not the Bitcoin Foundation will indeed split into two different entities is currently not clear. While the official statement released by the board of directors indicates that the plans have been approved, both Janssens and the other newly elected board member, Jim Harper, deny this to be the case. Furthermore, based on public remarks on the foundation message board by both Janssens and Andresen, members may get an important say in the matter.


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