Whistleblower Threatens to Expose Corruption at Bitcoin Foundation

If a breathless car chase wasn't cinematic enough to make you care about Bitcoin, how about a whistleblower threatening to publish an expose about corrupt elders and ominously signing off: "You have 72 hours"?

An "entrepreneur and former venture capitalist" who goes by the handle the Two-Bit Idiot declared "war" today in a blog post entitled Coup or Death for the Bitcoin Foundation? The blogger, whose name is Ryan Selkis, previously talked to Fortune's Dan Primack about leaking documents about Mt. Gox. In today's post, he threatened to publish a searing expose on Monday unless two of its board members resign. TBI also claims that the foundation's corporate sponsors "discouraged" him from airing Bitcoin's filthy laundry.

According to TBI, chairman Peter Vessenes and executive director Jon Matonis are not "ethically entitled" to retain their board seats in the Seattle-based non-profit because conflicts of interest and gross negligence. The most damning allegations are related to the disastrous implosion of Mt. Gox. In the early days, Mt. Gox was the largest Bitcoin exchange and a tent pole for the budding economy, hiding questionable practices.

TBI says Vessnes and Matonis got their money out through connections with Mt. Gox CEO Mark Karpeles, while $473 million swirled down the blockchain drain (emphasis mine):

On Monday, I plan to publish a full article which elaborates on these damning facts and much more:

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.

This egregious behavior and negligence may not be the worst of the information to come. I have been unable to reach representatives of the Foundation for comment on a myriad of other accounting issues related to the treatment of member donations.

True believers like to tout the fact that Bitcoin is intentionally decentralized, so an industry group like the foundation is about as close to an authority figure or overseer as you're going to get. The agency's website says:

Bitcoin Foundation standardizes, protects and promotes the use of Bitcoin cryptographic money for the benefit of users worldwide.

TBI claims Vessenes and Matonis are at fault, rather than the foundation itself. But it's worth noting that both Krebeles and Charlie Shrem, the indicted founder of BitInstant, were formerly board members:

And for better or for worse, with all of its blue-chip sponsors and leading role to date in events such as the Senate Bitcoin hearings and NYDFS BitLicense hearings, the Foundation is the mouthpiece for the entire industry.

Peter Vessenes and Jon Matonis are not scapegoats. They are not innocent bystanders. And they are not ethically entitled to remain in their board seats through later this year.

Whistleblower Threatens to Expose Corruption at Bitcoin Foundation

TBI also claims that the foundation's corporate sponsors told him to keep his mouth shut, but doesn't name said sponsors. This list of platinum, gold, and silver foundation members mainly includes Bitcoin startups. Previous donors to the foundation include Wordpress and Fred Wilson from Union Square Ventures. Among investors, the most prominent and full-throated support has come from Andreessen Horowitz, which recently invested $25 million in Coinbase.

From TBI's blog post:

At this week's Texas Bitcoin Conference, I was fortified by near-unanimous agreement (and, at times, applause) that the current leadership must resign or be forced out of their positions on the Foundation. Yet I have also been warned that I am playing a dangerous game, with cunning and ruthless power brokers. I have been discouraged by corporate sponsors of the Foundation not to make a public stink which would be "counter-productive" and "irresponsible" for Bitcoin. Most would prefer to let the Mt. Gox scandal blow over, but I would rather wipe the slate clean definitively, blood or no.

TBI describes himself as a "truth-teller," making "the business case for #Bitcoin on its journey from speculative investment to world-changing utility" and clearly sees himself as the Edward Snowden of cryptocurrency.

What if someone spends Bitcoin to take him out before he can send documents to The Wall Street Journal, The New York Times, and others? TBI's got it covered:

If I get hit by a bus this weekend, my lawyers will release it.

If you have any information to share about the Bitcoin Foundation, please email nitasha@gawker.com.

Update: A previous version of this post said TBI was anonymous. His name is Ryan Selkis, as he acknowledged in this interview with Fortune.

[Image via Getty]