Jail time. Lawsuits (some tawdry). Bitter name-calling among leaders. Resignations.

No, those are not tidbits from a tell-all about a collapsed Wall Street bank.They are in fact unfavorable milestones in the short history of the Bitcoin Foundation, which was formed in 2012 to promote the digital currency for the benefit of consumers and merchants worldwide yet quickly devolved into a spectacle.

Now, under new leadership, the group aims to repair its reputation and return to its mission.

Early on, the Bitcoin Foundation was the go-to source for technical information about how the digital currency protocol worked. It became so active that one of its founders, Charlie Shrem, was erroneously called the "CEO of Bitcoin" multiple times by the press. Shrem was actually in charge of BitInstant, a New York-based Bitcoin exchange. As a decentralized system, Bitcoin is leaderless by design.

Today, BitInstant is defunct and Shrem, at age 25, is serving a two-year prison sentence after pleading guilty to aiding and abetting the operations of an unlicensed money transmitter. This was after U.S. law enforcement found transactions routed through BitInstant were used to purchase narcotics on the online black marketplace Silk Road. The regulatory environment surrounding Bitcoin was relatively unclear during the time BitInstant was operating, and Shrem defended himself at the Texas Bitcoin conference in March 2014 saying he didn't knowingly handle money used for illegal transactions.

Shrem's fate is an extreme example of the shift from positive to negative press the Bitcoin Foundation encountered in a short period of time, and these problems overshadowed the work the foundation did in educating legislators and allying with other Bitcoin advocates worldwide. The organization played a role in legitimizing the digital currency to politicians, businesses and consumers who might have otherwise been dismissive of it.

But as Donald Rumsfeld famously said, "you go to war with the army you have," and the army the Bitcoin Foundation had, though enthusiastic and well intentioned, had some baggage and plenty of quirks.

At stake is Bitcoin's reputation, not only with the public but also in the community that's grown around it. If this body cannot recover from its setbacks, it could undermine faith among developers and enthusiasts who have traditionally worked on the protocol on a volunteer basis. And to the public, the foundation's continued controversy makes people wary of using digital currency, even if it is a more efficient and cost-effective way to do business in certain scenarios.

Meanwhile there's a new battle brewing between the Bitcoin evangelists and those who are cryptocurrency-agnostic or altogether cryptocurrency skeptics. Several companies, such as Eris Industries, are experimenting with cryptocurrency-less versions of the blockchain, the distributed ledger technology used to record completed bitcoin transactions. Trying to strip the bitcoin currency from this technology to build private, centralized and highly-regulated, or "permissioned," blockchains may be more attractive to legacy financial institutions.

Banks and other established players are already risk-averse, especially when it comes to new technology tainting their reputation. The drama surrounding Bitcoin, including the foundation's controversies, is likely one of the central reasons for this new push to harness the blockchain without bitcoin.

The Bitcoin Foundation put a name and face to the technology, said Nejc Kodric, cofounder and chief executive of BitStamp, the second-largest Bitcoin exchange by volume. "The conferences [hosted by the foundation] were the biggest and the best." The group was good at bringing people together, he said, which is challenging considering the decentralized nature of the protocol and its community.

 The Bitcoin community, with a strong anti-establishment sentiment, was labeled by the media as extreme and untrustworthy. Bitcoin, the currency, got a bad rap for its association with illegal activities. And the Bitcoin Foundation's founders were increasingly at the heart of those reports.

But it couldn't have gone any other way, said Patrick Murck, the executive director of the Bitcoin Foundation from late October 2014 to the beginning of April 2015.

"I don't want to be fatalistic about it," Murck said in an interview. The foundation was created in a "less mature ecosystem...so you try to do the best with what you have."

"Things that start bad don't end well," he added.

The "colorful characters" on the foundation's executive team and board caused much of the strife, said Mike Hearn, a former Google software developer who now works as a consultant on Bitcoin projects, during a Bitcoin meetup in London in April.

One such character is Roger Ver, a Bitcoin Foundation founder and an ex-convict. In 2002, he pleaded guilty to selling explosives without a license on eBay and subsequently spent 10 months in a federal prison. Many, including Ver, say the conviction was an overreach in retaliation for Ver's public criticism of the Bureau of Alcohol, Tobacco and Firearms; no other reseller nor the manufacturer of the firecracker—used to scare deer and other animals away from crops—was prosecuted.

Ver has been an outspoken critic of the government for some time, giving up his U.S. citizenship in 2014. The government denied him a visa to come back to the country to speak at a conference in Miami earlier this year.

But Ver, known as "Bitcoin Jesus," has made valuable contributions to the community. An early buyer of bitcoins, Ver invested in a number of cryptocurrency-related businesses, including companies like BitPay, Coinsetter and Ripple Labs, which have endured the early culling of Bitcoin startups. He also gave the foundation the seed money—$100,000 in bitcoin—to start the organization in 2012.

Almost from the start, there was squabbling among the founders. Only seven months after the foundation started, Peter Vessenes, its first executive director, sued another founder, Mark Karpeles, for a breach of agreement between Karpeles' exchange, Mt. Gox, and Vessenes' incubator CoinLab. This happened after Mt. Gox's accounts at Dwolla were frozen as the Department of Homeland Security looked into its practices.

Vessenes now says he would have been "dramatically more selective with the initial group" he put together to start the foundation.

"The Bitcoin Foundation was, at best, a beautiful idea: a large tent that could bring together crypto-anarchists, technologists, bankers, investors and entrepreneurs," Vessenes said in an email. "In practice, that didn't work very well."

Karpeles' Mt. Gox continued to struggle after the lawsuit. The exchange, which accounted for 70% of all Bitcoin trading in its heyday, went through a series of operational suspensions. At the beginning of February 2014, Mt. Gox suspended trading. Shortly afterwards, the exchange announced that 850,000 bitcoins ($450 million at the time) had disappeared. The company initially blamed a quirk in the Bitcoin protocol, known as transaction malleability, which allowed someone to steal coins, but that claim was quickly debunked. The company soon recovered about 200,000 bitcoins and attributed the remaining loss to theft. But many in the community have accused the company of fraud and mismanagement. On Monday, Feb. 24, Karpeles resigned from the Bitcoin foundation and by Friday, Feb. 28, Mt. Gox filed for bankruptcy.

Recently, two former federal agents who were investigating the online black marketplace Silk Road were accused of stealing hundreds of thousands of bitcoins during the case. This finding provides some vindication for Karpeles, since most of those bitcoins were being traded through Mt. Gox.

Karpeles also gave $100,000 in bitcoin under the label of a platinum membership to the foundation at its creation.

"Bitcoin in general is a fast-growing and wild space filled with all kinds of people that are not just colorful characters but bad actors," said Bruce Fenton, the executive director of the foundation since April. Bitcoin itself has had its ups and downs and the foundation has reflected that, he said. But like in many other emerging industries, "radicals," Fenton said, are the first ones to experiment with new technology and business models.

Because of these and other debacles, several organizations have formed to provide a more esteemed group the Bitcoin community can turn to for support. One of the more prominent groups is Coin Center, a D.C.-based think tank dedicated to advocacy and research. At launch in September 2014, Coin Center's annual budget was set at $1 million, which it raised from Andreessen Horowitz, Union Square Ventures, Coinbase, Xapo and a number of other well-known investors.

It was a far cry from the foundation's scrappy origins.

"When the foundation was created it was created really fast … and there weren't people in the space with established track records," said Murck, one of the founding members of the foundation. "It wasn't [like the environment] Coin Center has today that has an Andreessen Horowitz that are supportive and giving money."

Even without that, in its early days, the foundation claimed some successes. Murck spent a substantial amount of time in Washington educating regulators about cryptocurrency. Hearn even credits Murck with influencing regulators to craft some of the more open-minded compliance regimes for virtual currency in the U.S.

The foundation also gave core developer Gavin Andresen a stable platform and compensation for his work on the Bitcoin protocol. Andresen was making around $150,000 annually, although Murck said this was far from Andresen's market value as a proficient computer science graduate out of Stanford.

Wladimir van der Laan and Cory Fields were two other core devs paid by the foundation. Core dev Jeff Garzik was hired by BitPay to work full time on the protocol. And two others, Gregory Maxwell and Pieter Wuille, were paid by Blockstream, a company focused on providing sidechain technology, which works independently of but connects back to the Bitcoin blockchain.

The foundation also hosted a number of Bitcoin conferences, which were well-attended and provided a networking space for entrepreneurs and enthusiasts alike. It hosted the first big Bitcoin conference in San Jose, Calif., which Ver credits as "a turning point for Bitcoin in general." The connections made throughout that show helped legacy businesses connect with the new breed of cryptocurrency developers who started some of the first Bitcoin businesses, he said. David Marcus, formerly of PayPal, which has been slowly accepting the digital currency in its emerging channels, was "quietly poking around and looking at things" in San Jose, Ver said in an interview with PaymentsSource.

Plus the foundation has started hosting DevCore events—in Boston, San Francisco and London so far—which are targeted at developers who want to expand their technical expertise in Bitcoin. During the London meetup, several people commended these events.

And while the foundation was trying to cope with the controversy within its ranks, it also struggled with Bitcoin's volatility in general. The organization's financial decisions stemmed from a starry-eyed expectation that the value of the Bitcoin currency — which eclipsed $1,000 by the fall of 2013 — would continue its rise.

It was hard not to get swept up in Bitcoin's growing popularity, plus the foundation made a "philosophical" decision to hold a majority of its assets—between 90% and 95%—in the virtual currency, said Jon Matonis, who was the foundation's executive director before Murck.

Over an 18-to-24-month period, the foundation raised about $650,000, Matonis said. And during that time, the organization benefited spectacularly from the price appreciation of bitcoin, he said. The rest of the group's assets were held in U.S. dollars and used to pay its bills.

This decision was advantageous while the bitcoin's price rose, but it worked to the detriment of the foundation as the price began its steady decline in early 2014.

The management team at the foundation, including Matonis, Murck and others each took home an annual salary of $100,000 to $150,000. While that might sound high, everyone on the team was making less than market value and they were not getting any equity, Murck said.

Toward the end of 2014, the foundation announced it would shift its focus to core development at the beginning of 2015. Its public policy, education and outreach efforts would be scrapped. The foundation said a survey had found that about 54% of individual members joined specifically to support this cause and 51% said core development was the foundation's most important work.

Matonis resigned from his executive director position. He wanted the organization's role to be more like that of the Electronic Frontier Foundation, a U.S. donor-supported civil liberties nonprofit. The EFF provides legal defense and organizes political action. The foundation's reluctance to steer the organization down this path was a primary reason for his resignation.

"The major successes for the foundation were when the foundation was responding to requests for comment" from regulators, Matonis said.

For example, the foundation responded to the California Department of Financial Institutions' cease-and-desist letter against it, educating the agency that the foundation did not operate as an exchange or money transmitter but instead served only as an educational and promotional organization. The group also filed a friend-of-the-court brief in a criminal case in Florida against an individual charged with being an unauthorized money transmitter and money laundering for the alleged buying and selling of bitcoins. During the Florida case against a LocalBitcoins.com seller, the foundation was aided on the brief filing by Brian Bieber, an attorney at GrayRobinson P.A., on a pro bono basis. LocalBitcoins.com is a marketplace-like business that allows users to post advertisements for the over-the-counter buying of bitcoins for local currency.

According to Matonis, the foundation had nearly 100 attorneys around the world willing to defend individuals in Bitcoin cases. This network of attorneys and the foundation's handful of country-specific affiliate Bitcoin groups were strong assets.

Of the ten affiliate organizations mentioned on the foundation's website, four no longer have working websites. Of the remainder, most haven't published any updates since last year.

Germany's Bundesverband Bitcoin is one of the exceptions. Especially in its capital and cultural center, Berlin, the country has a particularly active contingent of Bitcoin users.

There were no fees to join the Bitcoin foundation as an affiliate, said Radoslav Albrecht, board member of Bundesverband Bitcoin and co-founder and CEO of BitBond, a person-to-person bitcoin lending platform. But the foundation supported the German affiliate "financially to cover parts of our ramp-up expenses," he said.

Details of the affiliate agreement are confidential so Albrecht could elaborate on the financial aid only insofar as he said funds were given to Bundesverband Bitcoin for specific purposes, such as setting up as a legal entity in Germany. "We tried to keep costs low at the start and still do that so the total reimbursement wasn't a very big amount," he said.

Bundesverband Bitcoin never sought consultation or a legal contact through the foundation.

Bitcoin Bangladesh joined the foundation as an affiliate and immediately sought legal referrals, Matonis said. The Bangladesh faction isn't around anymore.

Overall, Matonis said, the foundation provided consultation or referral to attorneys five to 10 times. "Prosecution of Bitcoin companies is only increasing," he said, and attorneys are more than willing to pick up cases pro bono because of the technical expertise they glean and the attention they receive.

Murck, who succeeded Matonis as executive director, released a strategic proposal in March this year outlining how the organization should go about fixing its poor reputation, lack of membership and "very bad balance sheet."

Shortly after the proposal's release in early April, Olivier Janssens, who was elected to the foundation's board a month prior, released a letter to the public stating that the organization was "effectively broke." Janssens said that in November 2014, the foundation nearly ran out of funds altogether and decided to select a new executive director. This coincided with Matonis' resignation and Murck's appointment.

Murck took the position on an interim basis. Under his guidance, the foundation shifted its role back to advocacy, deeming its work in core development to be financially nonviable. Murck sent money back to a significant number of supporters who were furious about the change of plan.

According to Matonis, the foundation has about 250 lifetime individual members. This doesn't include annual memberships. According to a document sent to PaymentsSource by Murck, in December 2014, the foundation had more than 1,600 members, both individual and industry. (Fenton said he didn't know the current number.)

"The governance structure for the existing foundation was ill-suited for a research-and-development mission but possibly functional for a promotional organization," Murck said. "I didn't feel that I was the right person to lead a promotional organization and stepped aside so the board could do a proper executive search for that role."

To continue work on the Bitcoin protocol, Andresen, Fields and van der Laan have joined theMIT Media Lab's Digital Currency Initiative. Murck also left to spend time helping the core-dev team get re-situated in an environment better suited to support their efforts.

Jim Harper, a senior fellow at the libertarian think tank, Cato Institute, was elected to the board at the same time Janssens was. He said 2015 would be a rebuilding year for the foundation.

Prior to joining the board, Harper held a staff position as the global policy counsel at the foundation. At $150,000, his salary was a point of contention within the Bitcoin community, especially among those who thought the nonprofit organization's job should not be wrapped up in lobbying. Harper left the foundation when it pivoted towards supporting core development in late 2014, after only a few months in the position, according to The Wall Street Journal.

Janssens and Harper won in a controversial election. The foundation decided to test blockchain voting, but in less than a day numerous complaints had come in about the difficulty of using the voting system designed by Swarm, a blockchain company that's changed its business model several times. The foundation then scrapped Swarm's system, negating all votes that had come in through it, and switched back to Helios, the more traditional online voting system the foundation had used in the past.

Despite the foundation's earlier achievements in advocacy, its next chapter is unclear. Even those who should be in the know, like Bundesverband Bitcoin's Albrecht, are still under the impression the foundation will focus on its earlier goal of "technological development of the Bitcoin protocol."

The foundation has outspoken critics willing to go to great lengths to see its demise. One of them is Cody Wilson, co-founder of Defense Distributed, which designed and then proliferated the blueprints for a 3-D printed, all-plastic gun that he lauded as a way to make gun laws irrelevant. Wilson is also the cofounder of DarkWallet, a project to develop what he has described as "money laundering software" for Bitcoin. In January he nominated himself for an open board position at the foundation, running on a platform that he would dismantle the organization from the inside. Fenton won the board seat instead.

And the foundation's new executive team and board have some reputational blemishes as well.

For instance, Brock Pierce's election to the foundation board in April 2014 sparked a series of resignations and public renouncements of membership. Pierce has invested in a number of companies in the Bitcoin market through Crypto Currency Partners, where he is a managing partner, and through his own personal angel investment.

More than 15 years ago, Pierce, now 34, co-founded Digital Entertainment Network with Chad Shackley and Marc John Collins-Rector. All three were named in civil lawsuits alleging sexual abuse of underage boys, according to a report by Ars Technica. Pierce, who was 17 at the time of the alleged conduct, had been living with the two other men in a mansion in Los Angeles.

After Collins-Rector settled one lawsuit alleging the molestation of a New Jersey teenager, another set of plaintiffs filed lawsuits in California and Collins-Rector, Shackley and Pierce moved to Spain. The three men never responded to the case so the plaintiff was awarded a default judgment of $4.5 million. The three were arrested in Spain in 2002 on an international warrant against Rector-Collins after he was formally accused in New Jersey on five counts of transporting a minor across state lines for the purpose of engaging in sexual acts. The three spent several months in jail there. Collins-Rector was extradited to the U.S., and federal prosecutors brought new criminal charges against him. While Pierce and Shackley were named in the original lawsuit, neither was charged. In 2006, Collins-Rector pleaded guilty to both cases, according to the Los Angeles Times.

The resignation statements of members who left in reaction to Pierce's election as chairman were posted on a forum on the Bitcoin Foundation website. Janssens was one of nine high-profile resignations, and he linked to several lawsuits against Pierce in his statement.

Pierce responded to the outrage in a video interview with the Bitcoin Media Project, saying the news was 15 years old, "and anyone can sue anyone for anything they want." He denied the allegations, but said, "I'm limited in terms of what I'm able to say." Pierce did not provide comment to PaymentsSource before deadline.

The current executive director, Fenton, has been at the heart of fiery Twitter arguments, including after he hosted Satoshi Roundtable, a closed-door gathering of Bitcoin elite on a Caribbean island that CoinDesk described as a "Bilderberg-style retreat."

PaymentsSource asked Fenton whether his role as an adviser to BTCs, a penny stock for Bitcoin exposure, conflicted with his new position at the foundation, an organization whose mission is to promote mainstream adoption by consumers and merchants. Consumer and merchant adoption has taken a hit because of the digital currency's price volatility.

"Penny stocks are sort of risky; it's not something people should buy unless they know what [they're] doing," Fenton said. "There's even more risk potentially because it's bitcoin … which is a completely untried and untrue technology … with almost no profitable companies." Neither Fenton nor BTCs has been accused of any wrongdoing.

As it relates to the Bitcoin Foundation, Fenton said he remains confident.

"The foundation has a lot of potential to help Bitcoin," he said. "I'm optimistic that the foundation has a lot of ability to serve some of the needs the industry has in a way only a nonprofit can."

Even after nearly three years of operation, whether the Bitcoin Foundation did more good than harm to the fledgling industry is still hotly debated. But Fenton believes in Bitcoin and its ability to change the world, which is evident in his taking the once paid position on a volunteer basis. Whether that's enough to overcome the Bitcoin community’s waning enthusiasm remains to be seen.

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