Today's obligatory shudder in the edifice that is Bitcoin is a report that several members of the Bitcoin Foundation have resigned over the recent election of Brock Pierce, an investor who has been accused of child molestation, to the foundation's board.
The Bitcoin Foundation is nonprofit body that struggles to present itself as the public face of the virtual currency and maintain its technical standards. Pierce is a former Disney child star who for years has been entangled in allegations of sexual abuse.
Pierce's troubled history surfaced again last month in connection with a lawsuit filed by former child actor Michael Egan against "X-Men" director Bryan Singer and other entertainment figures. Pierce and two other men had been named by Egan in an earlier lawsuit alleging rape and assault; that case ended with a jury award of $4.5 million to Egan and two co-plaintiffs, though the defendants later settled out of court.
Pierce has denied the allegations. In an email to Joseph Menn of Reuters, he asserted, "The allegations against me are not true, and I have never had intimate or sexual contact with any of the people who made those allegations."
Nevertheless, several Bitcoin members referred to Pierce's election to the foundation board in explaining their resignations. One member, Patrick Alexander, named Pierce along with former foundation board members Mark Karpeles and Charlie Shrem as figures bringing disrepute on the foundation. "This is not the direction this foundation needs to take," Alexander wrote in a post on the foundsation's website. "The foundation members need to emulate very high moral values and ethics in business and in personal dealings, especially as it involves money.... The acts of a few, have overshadowed us all unfortunately."
Karpeles was head of the Tokyo-based bitcoin exchange Mt. Gox when it collapsed this year amid reports of millions of dollars in missing assets. Shrem, chief executive of bitcoin processing firm BitInstant, was arrested in January and charged with money laundering in connection with the activities of the Silk Road drugs black market. Both have resigned their board memberships at the Bitcoin Foundation.
The turmoil at the Bitcoin Foundation over the election of Pierce underscores an enduring problem with bitcoins: The concept of the virtual currency, which is designed to provide users a way to transfer value without resorting to the banking system (and possibly while remaining out of the reach of government taxation and regulatory agencies) is theoretically sound. But the infrastructure of bitcoin exchanges and the people involved with running them are not so sound. The latter condition, as it happens, undermines the former.
Bringing these two aspects of bitcoin into sync won't be easy, since one of the virtues of the virtual currency often cited by its fans is the absence of centralized authority. The foundation has no official standing as a governance or standards body.
Indeed, the most interesting part of the Reuters report on the turmoil at the foundation, which opened its annual conference in Amsterdam this Friday, may be a quote from bitcoin investor Phil Sanderson about that lack of credible public management.