How to Save (Or Destroy) the Bitcoin Foundation

12 January 2016 Charles Hoskinson 8 mins read

How to Save (Or Destroy) the Bitcoin Foundation - Input Output HongKong

How to Save (Or Destroy) the Bitcoin Foundation

I've been thinking about the Bitcoin Foundation over the last few months. After I left as the first chairman of the education committee back in late 2013, I dismissed the Foundation as a mostly inept attempt by some business interests in the community to gain an edge over their competitors. The actions of

Peter Vessenes and Mark Karpeles
alongside the board's indifference to the Foundation's membership as well as the mainstream Bitcoin community made it seem likely that the Foundation would simply go bankrupt and collapse under its own weight like a great battleship built for a war that would never happen and then left to rust in neglect (see I can be poetic too). Sure enough, they are functionally bankrupt having burnt through about 7 million dollars worth of Bitcoin (they even spent a million dollars on that spiffy Amsterdam conference!).

So why the sudden interest after my self-imposed exile? After traveling extensively throughout the world, I've notice that there is still an impression internationally that the Foundation is relevant and in some way represents Bitcoin- especially among the international press. It's not accurate and probably similar in spirit to the headlines stating Bitcoin's CEO has been arrested.

We also have a larger, but somewhat related problem that the blocksize debate has made blatantly clear- governance. It seems nearly impossible to get the community to agree on anything outside of trying to increase adoption and the underlying value of the bitcoin token.

Hence, I think we have an opportunity to solve two problems at once. The Foundation can be productively reborn preventing another media boondoggle and at the same time we have an excellent opportunity to explore new types of governance, algorithmic regulation and social consensus.

So assuming it's somehow a good idea to rebuild the Foundation (I fully agree that there are solid arguments to simply let it burn), let's explore what it would take to do so. As a side-note, I would be equally happy with seeing the Foundation shutdown if it didn't harm the Bitcoin brand and community.

First, the Foundation has lost any form of legitimacy. It's broke because prior leaders looted it. It's undemocratic by forcing out elected board members and replacing them with appointed ones. It's utterly unable to listen to outside opinions and conduct basic affairs such as managing board meetings, elections or produce a viable road-map.

Thus these issues need to be corrected before any future progress can be made. So let's start with an independent audit of the Foundation's books, relationships and accomplishments. Hire an auditor paid from an outside pool of capital (hell I'll throw some money into that fund) and give him a mandate to do the following:

  1. Build a timeline of all major events since the Foundations inception
  2. Provide detailed financial records on the Foundation's expenses and income
  3. Annotate all business relationships the Foundation has had since its inception and their association (if any) to current and past board members and executive directors
  4. Provide an HR database of all personnel that the foundation has retained and their compensation. Also build a social graph showing the relationship between the Foundation employees and the board members past and present including if they worked for or with the board members in previous or current ventures
  5. List the major efforts the Foundation has embarked upon and rate their success based upon the Auditor's best judgement and whatever objective metrics can be established
  6. Give each executive director- past and present- an opportunity to write an explanation for the findings of the auditor.
Once drafted, then release the report to the general public- unless criminal conduct is discovered, then first release the evidence to the relevant agencies and let them choose when to release it.

Here's what an audit accomplishes:

  1. It divorces the Foundation from its past by bringing everything out into the light and exposing any corruption from past or present leadership. If anyone is responsible for criminal acts, then they will be exposed and I'd hope prosecuted
  2. It acts as a basis for the Foundation to re-engage the Bitcoin community. The Foundation can say ok this is what we did wrong so tell us how we can be better in the future?
  3. Those who are asking for the Foundation to be shutdown can now have a fair debate. The audit will provide an independent assessment of where the Foundation has been and what it has accomplished given its resources
At the end of this process, my hope would be for the Foundation to work with the Bitcoin community towards either shutting itself down or some form of reconstruction. The point is that its now done with reason, evidence and consensus instead of a shouting match. In my experience, people get angry when they feel like they've been deceived or aren't being heard. There is a very strong perception in the Bitcoin community that the Foundation has been historically dishonest and deaf. An audit strikes at the heart of the anger.

Second, let's say the Foundation somehow survives an audit and the community -or a wealthy patron(s)- seeks to continue the Foundation's existence, then the next step is to solidify the organization behind a new mission and values. This action is a wonderful opportunity to work with several ventures such as

Boardroom focusing on
DAOs and other
algorithmically enforced structures of

But it's natural to ask to what end? I don't think Charles Hoskinson should decide that. More to the point, no one person should. Instead let's make proposals and draft a candidate constitution. Then have the Bitcoin community vote on proposals. In my view, the core value proposition for continuing the Foundation is to experiment with technology that allows for decentralized governance. If the Foundation should continue under an unelected or pseudo-elected board, then just shut it down. We created Bitcoin to get away from these things.

This process could be amazingly beneficial. It- like Bitcoin was and still is- serves as an experiment driven by a well intended community instead of the mandate of an overlord seeking power or control (also drop Satoshi from the board, it's insulting). We would also gain tangible data on how to discuss controversial ideas within a productive framework with the aim of eventually reaching a community consensus (can you think of any debate Bitcoiners are having right now?). Finally, the community can also explore how to regulate a custodial entity using cryptography instead of trusted founders (wow, think of all those smart contracts and prove of solvency proposals that people have been preaching about- someone call Peter Todd!).

And now comes the objection: But Charles there isn't enough money to do this stuff! And I say: Aren't Mirror, Coinprism and other Bitcoin companies incredibly well funded, and don't they need a good showcase for their tech? Wouldn't the good press and community goodwill serve as excellent advertisement for their platforms?

Money is never the issue. It's vision and the ability to forge partnerships around it. If the current board can't accomplish this task, then fire them or shut the whole thing down. I'm extremely tired of hearing that we can't accomplish something. The entire point of Bitcoin has been doing the stuff that people have been saying we can't do on a consistent basis.

The argument above showcases my primary issue with the Foundation. It just doesn't lead. It lacks any notion of a vision or a purpose. Let's not blame them for it. Let's just install one that benefits the entire community.

Third, let's discuss management and global representation. Traveling around the world, I've had the privilege to meet some exceptional people from Switzerland to Japan. I'm headed to Argentina next month and will have a chance to spend some time with one of the most passionate Bitcoin communities that you can find. It utterly disturbing to see the passive level of commitment that the current (and former) members of the Foundation's leadership have outside of Bruce and a few others.

There are legions of Bitcoiners who would work with the Foundation full or part time with both enthusiasm and zeal if only given a chance. If the Foundation is going to continue existing, then it should reach out to the existing Bitcoin communities. More specifically, the Bitcoin meetup groups. They are run by passionate volunteers who love this space, the technology and its rich philosophical roots.

The Bitcoin meetup groups are also largely responsible for Bitcoin's growth from a novel technology to a global movement. I'd love to see the Foundation serve as a hub connecting them together and recruiting from within their ranks on a global basis. When people are given a great vision and a purpose, they aren't motivated by money to do work. The open source movement has proven this truth time and again.

Alright, so in conclusion, audit the Foundation, turn over any evidence of criminal conduct to the relevant authorities, draft a constitution via community participation, govern using tech from well funded Bitcoin startups, and link all the Bitcoin meetup groups together to act as the execution engine, talent farm and source of great ideas (See

Social Physics

It's really not that hard to accomplish something great. It just takes vision, persistence, honesty and leadership. If the Foundation has it, then it should survive. If it doesn't, then don't worry it will eventually collapse.

Some History, Some Musings and My Take on the DAO

12 January 2016 Charles Hoskinson 8 mins read

Some History, Some Musings and My Take on the DAO - Input Output HongKong

Some History, Some Musings and My Take on the DAO

I recall the mid-summer Virginia afternoon back in 2013 being filled with copious conversations ranging from how to achieve value stability for a cryptocurrency to this strange idea Stan Larimer had called a DAC - a decentralized autonomous company. His drafts contained terms like Steely Eyed Geeks and a nice list of rules definitely inspired by Arthur C Clarke and Isaac Asimov, but with the boyish enthusiasm only Stan could muster. The article (Bitcoin and the Three Laws of Robotics) eventually found its way to Bitcoin Magazine and the Let's Talk Bitcoin's blog as well as Vitalik's September series (

). I'd like to believe that we were all after the same goal in those more innocent and lower stakes days. All cryptocurrencies, and protocols for that matter, suffer from a fundamental meta problem of governance. Eventually changes will need to be made to accommodate some unforeseen complication, the burning march of ever changing technology and social pressures, or even a black swan event. Furthermore, how do you pay the selfless (sometimes not so much) people who are maintaining the protocol? How do you balance the different interests of various stakeholders from regulators to service providers such as exchanges and miners.

The foundational premise of Bitcoin can be encapsulated succinctly as people suck so just trust a protocol. This line of thought has lead to numerous problems from a lack of recourse for theft (see MtGox and the dozen other exchanges) to dark market operators such as silk road using Bitcoin as their payment network. Furthermore, the rewards to miners are not connected to any external reality- just hard locked and unresponsive to the needs of the network. The protocol marches on like a silent, yet diligent sentinel uncaring in judgement, but utterly fair.

We were interested in DACs because the sentinel needs some method of getting an update and if one appointed a centralized body or even a federated one, then one has completely defeated the ultimate purpose of these systems. With more time given for clarity, when one abstracts the idea, one can notice that most businesses are a collection of systems that decompose into protocols. Thus, it stands to reason they too can be transformed into sentinels and if only we had a DAC, then they too could be fair, yet dynamic. Hence, DAOs were born.

Back in 2013, we didn't have Ethereum. Sergio Lerner had created a wonderful turing complete system intended for gaming called Qixcoin, but it wasn't well known or funded. Thus, DAOs didn't have the requisite technology nor a clear commercial path forward. Yet with the dawn of the crowdsale and Ethereum as a platform, this reality has changed.

Now up to this point, it is reasonable to assess what progress has been made. The existence of the crowdsale our space has been using for the last few years has created a funding mechanism for all kinds of interesting projects ranging from Maidsafe to Swarm. Whether these produce utility or are attractive places to store value is yet mostly unproven; however, it's truly amazing to see the amount of passion and enthusiasm. Of course, never forget that people suck so yes a lot of fraud seems to be seeping in (

See Hoskinson Doctrine

Ethereum has created a way of deploying distributed protocols with a host network that has known and probably strong security guarantees about the execution of the code. Whether this system can be made secure under some reasonable formal model and associated proofs and also made efficient is another story. Yet we should at least concede that it's a pretty fun sandbox to run experiments.

The DAO is one such experiment, which brings us to the ultimate point of this article. and their affiliates apparently wanted to create a large pool of capital that could be used to fund interesting projects (sound like any type of structure you could think of?), but make the pool a sentinel without a master. Just some helpful curators and the Ethereum network's guarantees behind it.

Ideally, a Surowiecki utopian wisdom would envelope the DAO making it the smartest way to allocate capital or something along those lines. To be honest, I mostly ignored the original proposal thinking that people wouldn't invest much time or money into it.

Common sense seems to yield a litany of concerns from the fidelity of the code controlling this concept to the creator's utter unwillingness to stand behind the DAO from a legal sense. If something goes wrong, then no one is responsible? Do we have sufficient faith in our ability to do things perfectly right the first time that we are willing to invest in a blameless system? Imagine if planes worked this way. Would you fly?

Furthermore, there was a reckless desire to maximize the size of the fundraiser without any concern to factors everyone should be wary of in some capacity. Why wasn't the DAO milestoned with the majority of the funds stored in a large multi-signature feeder contract that gradually released money into the main fund given progress and investment success? Who was responsible for maintaining, upgrading and auditing the code long term? What metrics should the DAO be held accountable for over the long term? Apparently, having a

dream team
means that we should abandon basic due diligence and the ability to imagine bad events happening. Does anyone recall a certain other company called Theranos?

So now we are faced with the predictable nightmare scenario only yielded from grand hubristic endeavors such as the unsinkable titanic. The DAO has been looted by a hacker who potentially has enough pithy gall to claim that the theft actually conforms to the

DAO's terms and conditions
. Lawyers, please bookmark everything you find on Tual and his friends. This class action lawsuit is writing itself.

So why should Ethereum care? The point of the system is to be a sandbox for ideas to succeed or fail. It's a lab for experiments. That's why Ethereum is worth so much money as a system. Following this line of thought, Ethereum SHOULDN'T CARE.

You don't change the lab when someone performs a poorly formed experiment. You blame the chemist and move on. We can make a fair argument for better safety equipment (

which has already been proposed
), but you don't change the nature of a facility to accommodate someone who screwed up.

Yet Vitalik and others close to the Ethereum Foundation are advocating to do just that. They want to fork the protocol in order to prevent the theft.

Bruce Fenton
and others have already done a good job explaining why this proposal is an extremely bad idea. It's pointless to add another argument to the pile. Rather I'd like to take this opportunity to explain what has really failed in the Ethereum ecosystem. It has a governance problem.

Several of the Founders have scattered across the seven seas and created new commercial ventures ranging from Consensys to Ethcore. Each has its own blend of fiduciary obligations depending upon their investors and stakeholders, yet these are not directly aligned to the needs of the Ethereum ecosystem. The closest thing Ethereum should have to a neutral body ought to be the Foundation.

You know those bodies that don't pick winners and losers and try to just protect the protocol itself? Except for the time when its leaders join multiple ventures, plaster their name everywhere and seem to have a very comfortable relationship with companies like Deloitte and Microsoft for "Projects".

Yes helping the DAO investors get their money back is a noble knee jerk reaction. But what about Gatecoin and the theft that occurred there? What about the ether purchasers who experienced an event that prevented them from redeeming their ether they fairly purchased? What about all the ether lost to defective smart contracts? DAO gets precedence, yet the others don't? Is this because its failure would invite regulatory scrutiny to the Foundation members as they have too close a relationship to it?

Returning to the core thesis of bitcoin and its children - people suck; trust the protocol - applied to the bailout of the DAO, we have people who are trusted to be neutral who cannot be due to whatever obligations that have encumbered upon themselves. As we should expect given human nature. They now want to change the protocol to prevent in part personal harm to themselves given the damage the DAO has done.

The argument of wanting to help cannot be sensibly made given their lack of interest in the other thefts and bad events in the system. I honestly can't fault them for this behavior, but I have to point out how dangerous this act is for sentinel that is the Ethereum protocol.

Stan Larimer had the foresight to imagine events like this occurring, which is why he wrote his article. The ethereum community needs to embrace this tragedy and accept it as a failure we can learn from. We need a DAO, but not one to store money to make some investors rich. We need one to help us make these kinds of hard decisions in a responsible way.

Ethereum is the first platform in human history that can transcend this predictable cycle of betrayal of integrity for person preservation and emerge into something far better. It won't be nice. It won't be kind. But It will be fair. That ultimately is why I signed up for this wild space. To build something beyond our nature, yet always accepting- sometimes painfully so- it won't always work out for me.