First released in 2009, Bitcoins are a decentralized peer-to-peer digital currency. They are not issued by a central bank, like most other currencies, nor are transactions routed through a central processor. Instead, payments are routed through a global network of encrypted communications which makes sure that Bitcoins are not being created out of thin air.
Decentralization has huge benefits for users: enthusiasts say that Bitcoins have the potential to change global finance by eliminating banks from the picture entirely. The currency has the anonymity and portability of cash, as well as the instantaneous and non-location-dependent convenience of credit and debit cards. But, like cash, this means that Bitcoins can be easily stolen: the community has struggled with security, which has led to larger questions of legitimacy.
This is the impetus behind the Bitcoin Foundation: to foster legitimacy, security, and accountability in the Bitcoin economy.
Businesses and individuals in the Bitcoin community can become members of the Foundation and sponsor the development of the platform. Their dues, of course, are paid in Bitcoins. The first major sponsor to sign on has been Mt.Gox, a company which provides an online currency exchange where Bitcoins can be traded for dollars, pounds, yen, and other currencies. Mt.Gox will contribute 10,000 BTC (bitcoins) per year, equivalent to around $120,000 USD at the current exchange rate.
Several other active businesses, such as BitInstant, a service for transferring Bitcoins rapidly, and CoinLab, which works to monetize online games using Bitcoin miners, have also signed on as corporate members of the foundation, joining Mt.Gox, smaller businesses, and many of the software programmers working on the Bitcoin protocol itself. They are hoping that the Foundation will be able to advocate for Bitcoin, which has been the target of congressional investigations for being used for illegal transactions.
While the Bitcoin Foundation does not have any direct control over the network, which continues to operate independently, they have plans to protect, standardize, and promote the Bitcoin protocol. One of the first tasks of the Foundation will be to accumulate a salary for Gavin Andresen, the lead developer of the Bitcoin software.
Other plans for the Foundation include developing a certification process for businesses involved in the Bitcoin trade, which should contribute a great deal of legitimacy to their operations, and organizing the next global Bitcoin conference, which will take place in Silicon Valley in the spring of 2013.
Developers and business people are hoping that, with the help of the Bitcoin community the Foundation will be able to push Bitcoins from the fringe to the mainstream – and begin to deal with the problems caused by hackers and scammers in the Bitcoin community.
“My hope is that the Bitcoin Foundation will be the organization that focuses and unlocks all of your energy and talents towards promoting Bitcoins, protecting them, and increasing their legitimacy through standardization,” executive director Peter Vessenes said in a recent statement.
Jon Matonis, who sits on the Board of Directors for the Bitcoin Foundation, believes that Bitcoin has the potential to revolutionize finance.
“As the mechanism for a decentralized, nonpolitical unit of account, the Bitcoin project uniquely facilitates [protection from political repression],” says Matonis.
Since its inception in 2009, a blossoming community and business ecosystem has developed around Bitcoin. The Bitcoin Foundation represents the first effort to bring centralization to a famously decentralized network.