Bitcoin Billionaires

by Ben Mezrich

  “Be there in a minute,” Tyler called back. Cameron was already getting up from his chair, hooking one of the bottles of rosé with his fingers. Come to think of it, maybe his brother had dated the brunette back in the city? Tyler couldn’t be sure, but he was willing to bet that Cameron wasn’t going to try to explain cryptocurrency before he poured the pretty girl a drink.

  “Friends of yours?” Azar asked. “I get it, you’re on vacation. But I’d love to pick this up when you’re back in New York.”

  Tyler pointed to the bottle in his brother’s hand.

  “How many Bitcoin would that go for?”

  “Right now? Not sure. Would have to check my phone. This morning, Bitcoin was trading at around seven dollars a coin. At the moment, it’s really volatile, because not enough people know about it yet, and you can’t really buy anything with it. It’s Facebook before anyone was really on Facebook.”

  No doubt Azar was hoping for an emotional connection by throwing in the Facebook reference. And, of course, it had worked. Tyler’s mind did go back to Facebook, to the situation that had led them to Ibiza in the first place. Tyler and his brother had put their trust in the judicial system, only to be beaten. A system that had relied on trust in humans had failed them.

  There was something about a system that relied on math, not trust, that was intensely appealing. Math was built on rules that no one, not even Zuckerberg, could break.

  Although Tyler knew they were just scraping the surface—he didn’t yet know anything about this new currency beyond Azar’s pitch, nothing about what this technology really was, or what it might represent—he had come to a conclusion: either this Bitcoin was complete bullshit, or it was a really big deal. A new currency, seemingly invented out of thin air. Bitcoin was either worth nothing, or it was going to one day be insanely valuable.

  “Say we do want to get involved,” Tyler said as he rose from the daybed, feeling the pulse from the DJ booth through bare feet. “What do we do? Buy up some of this Bitcoin?”

  “You could. Or you could go one step deeper. As I said, at the moment, Bitcoin is volatile. Buying Bitcoin is like gambling. And everyone knows, you don’t get really rich by being a gambler.

  “You get really rich,” he continued, with a Brooklyn car salesman’s grin, “by being the house.”

  7

  AUGUST 30, 2012

  “The analogy is a little off—they aren’t so much the house as they are the bank. Or to keep with the casino metaphor, the cashier’s cage.”

  “Pay attention to the road, Cam. We’re not going to be the house or the bank if we’re wrapped around a telephone pole.”

  Cameron lightened up on the gas pedal as he pulled their SUV into the slow lane. Tyler was right, Cameron had gotten so caught up in the conference call they’d been on since they’d pulled onto the Long Island Expressway forty minutes back, he’d been driving by reflex alone. Which meant driving fast, grand prix style, in synch with the thoughts racing furiously behind his eyes.

  “I don’t think there are any telephone polls on the LIE anymore,” he said, his thumb hovering over the mute button on the car’s speaker console.

  Who the hell needed telephone poles anymore? The smartphone on the seat next to him was Bluetoothed to the car’s onboard computer, which was invisibly linked to the closest cell tower. Once he pressed the button, undoing the mute function, which he’d made liberal use of whenever he and his brother needed time to digest whatever the disembodied voices on the other end of the line threw at them, every word he uttered would be turned into digital information, 1s and 0s bound together in electronic packets that would piggyback through those cell towers into larger data streams beamed straight up into space, bouncing from satellites to another cell tower miles away, ricocheting again to another smartphone sitting in an office on West Twenty-Third Street in downtown Manhattan, the destination of their morning drive.

  Sure, it would probably have been more prudent to wait until they had reached the address, just a block from where they were still constructing their own offices, the headquarters of Winklevoss Capital, before starting the meeting, but Cameron had been on fire since they’d reconnected with Azar after they’d returned from Ibiza.

  Azar had followed up with Cameron on Twitter. Cameron couldn’t remember if he had given the guy his email at the Blue Marlin; day drinking on a beach filled with models was distracting, and it didn’t help when you had a villa with a private pool. Thankfully, Azar had been resourceful. His first direct message on Twitter had made Cameron laugh out loud:

  Not sure if I was discussing virtual currency with you or your brother in Ibiza at blue marlin. Let’s meet up in NY …

  But it had quickly led to more formal conversations and finally an in-person meeting. Although Cameron and Tyler both owned loft apartments in the city, they’d been spending most of the summer at their parents’ house in the Hamptons. Although the area had a reputation for being a bit of a party destination itself—not on par with Ibiza, but speckled with exclusive restaurants and summer outposts of notable Manhattan nightclubs—the twins had spent most of their time relaxing on the beach and devouring anything they could find on the subject of Bitcoin. At the time, not a single book on Bitcoin had been published; but by diving deep enough into the internet, the twins were able to find blog posts, Reddit posts, and articles written by early adopters, known as “Bitcoiners,”—as well as Satoshi Nakamoto’s original Bitcoin white paper. They’d also reached out by email to former professors at Harvard and Oxford, where they’d earned MBA degrees, to get more academic opinions on this new virtual currency.

  None of the professors they’d contacted—some of them among the most elite economics professors in the world—had ever heard of Bitcoin. When the twins had explained what they had learned so far, some responded in a knee-jerk way, labeling Bitcoin as some sort of scam or Ponzi scheme. But when Cameron pressed them on those notions, the professors couldn’t exactly say what the scam was, or why it was a Ponzi scheme.

  Settling their SUV just below the speed limit, Cameron hit the button to unmute the conversation.

  “The party is just getting started,” blurted a voice, words coming so fast they threatened to run right into each other. “The market cap of the entire Bitcoin economy is only about a hundred and forty million. That’s million, with an m. Gold is seven trillion. And gold is pretty much useless. Walk into a store and try to buy a pack of gum with gold.”

  Sometimes it was hard to distinguish voices on a conference call, and doubly hard in a car going sixty miles per hour, with the blare of a siren from an emergency vehicle racing past on the other side of the median separating the lanes going in the opposite direction. But Cameron had no trouble identifying the voice of Charlie Shrem, the youngest member of the team they were on their way to meet. Not just because Charlie had a habit of talking fast, but also because his energy level was completely on par with his age. The kid was barely twenty-two, and from what Cameron had gathered from the emails they’d traded, still lived in his mother’s basement, in an Orthodox Jewish–Syrian neighborhood deep in Brooklyn. But he was obviously some sort of prodigy. The company he had cofounded, the business that Azar was trying to assemble a group to invest in, was already making waves in the Bitcoin community.

  But before they could decide on whether or not they wanted to invest in a Bitcoin company, Cameron and his brother were going to have to better understand what Bitcoin was in the first place. What made it good, viable money? What made it better than gold? What was money anyway?

  “Okay, but gold has some intrinsic value,” Tyler said. “It’s used in jewelry, and in transistors.”

  “But what about cash?” Charlie responded. “It hasn’t been backed by gold since the 1970s, and the government can print as much of it as it wants. Talk about a Ponzi scheme. No intrinsic value there.”

  “Cash has intrinsic value,” Cameron responded. “If you were freezing on top of a mountain and all you had was cash, you coul
d burn it to keep warm.”

  “Ah, the Cliffhanger maneuver,” Azar’s voice came through the car’s speakers. “Love that movie.”

  “The intrinsic value of gold is overrated,” emerged another voice over the line.

  Cameron glanced at Tyler. The new voice belonged to Erik Voorhees, Charlie’s head of marketing. Voorhees was a few years older than Charlie, soft spoken but obviously incredibly sharp, and well versed in Bitcoin. Born in Colorado, Voorhees was a staunch libertarian who had traveled all over the world before migrating to New Hampshire as part of the Free State Project, a political movement whose goal was to create a community based on libertarian ideals. Voorhees, who had recently joined Charlie in New York to help run his fledgling company, was an acolyte of the Austrian School of economics; a philosopher and an activist, he had gravitated toward Bitcoin in part because it was a form of money that did not rely on any state actors and was truly borderless.

  “I suppose gold wouldn’t do you any good if you were shipwrecked on an island,” Cameron said in response to Voorhees. “You’d take food or water over a bar of gold, or a mountain of cash, any day of the week.”

  “In that situation,” Voorhees said, “Bitcoin would have very similar intrinsic value to gold or cash. But the difference is, if you were trapped on that island with your cash and your gold and your Bitcoin, if you had your smartphone with you, you could still use your Bitcoin. Because Bitcoin has technological intrinsic value. Bitcoin has the potential to change the game entirely.”

  Thirty minutes earlier, right before Cameron and Tyler had gotten onto the expressway, they’d stopped at a gas station attached to a 7-Eleven. Five miles later, Tyler had realized he’d left his wallet on top of the gas pump, and they’d had to turn around. Like the delayed deposit on their villa in Ibiza, it was another stark reminder of the inherent flaws of physical money and again begged the question: What was money, anyway?

  Was it pieces of green paper, emblazoned with the pictures of dead presidents and luminaries, sitting in a leather wallet on top of a gas pump off the Long Island Expressway?

  Was it some shiny rock pulled out of the earth, molded into bars or coins, then buried again in some vault somewhere?

  Or could it be something else, something that kept pace with a rapidly changing world?

  Something new, a form of technology as practical and current as the technology behind the smartphone on the seat next to Cameron, spouting out voices that already had been to space and back?

  * * *

  “Welcome to the ‘Bakery,’ gentlemen. If these walls could talk—well, they’d sound pretty fucked-up. There’s been a lot of secondhand smoke in this room. This is where most of our best thinking takes place. Lighting up neurons today, for a better tomorrow.”

  Charlie Shrem certainly fit the mental image Cameron and Tyler had been building of the boy wonder CEO; miniature in stature, slightly bearded, curly hair plastered back against his small head by a coating of gel so thick it shimmered. But homunculus that he was—he was small enough to be the twins’ coxswain—his presence dominated the offices of his eight-month-old startup. He’d been playing the circus master since he’d met them outside the front door on Twenty-Third Street, arms wide at his sides, a grin plastered ear-to-ear. Then he’d grabbed each of them in an awkward, hipster hug. Cameron couldn’t help but feel the nervous energy bleeding out of the kid—Charlie was actually trembling—or smell the hint of marijuana seeping from his plaid short-sleeve shirt and distressed khaki pants.

  The energy level had only risen from there; Charlie was practically bouncing out of his Converse Chuck Taylors by the time he’d led them through the main office, a mess of desks and computers and spaghetti twists of wires leading everywhere at once. Charlie had paused beneath a flat screen attached to an exposed brick wall, showing the current price of Bitcoin—seven dollars and forty-three cents—and made some comment about how he’d gotten in so early, something about the ass crack of Bitcoin’s dawn. Then he’d led them straight to the room he called the Bakery, for reasons that were obvious even before he’d made the joke about the talking walls.

  Small, cramped, with windows overlooking Twenty-Third Street, the paraphernalia of what appeared to be Charlie’s favorite hobby was visible in every corner, and on every shelf. Cameron counted at least three bongs, as well as ceramic ashtrays littered between computer equipment and open file folders. He also saw a device that he didn’t recognize; eventually, Charlie would explain that it was called the Magic Box, a prototype of what would later be known as a vaporizer. It was—basically a wooden box with a glass tube coming out of it, within which you could burn marijuana and turn it into vapor—an invention that he was certain would catch on within a year or two, or maybe three. Cameron followed his brother and Charlie into the room, where they were joined by Voorhees—skinny, average height, with thinning reddish hair and angular features—and their old friend from Ibiza, Azar. Seeing a pair of canisters that looked like miniature oil drums, Cameron peered closer, only then noticing that the drums were covered in letters from the Cyrillic alphabet. They formed words that he couldn’t read, but he knew enough from taking Linguistics 180 back at Harvard to tell that it was Russian.

  “Oh yeah, these are really cool,” Charlie said, grabbing one of the cans and offering it to Cameron. “Vodka in miniature oil barrels. Look at what it says on the other side.”

  “ ‘NEFT, we support the Bitcoin economy,’ ” Cameron read out loud.

  “You can scan the bar code on the back, and buy it with bitcoin. It’s freaking brilliant.”

  To Cameron, this introduction to Charlie and his company was part funny, part WTF. The kid was something else; he was clearly smart and scrappy but a total whirling dervish. One thing was for sure, this wasn’t some startup in the Valley looking to court seed funding from the cabal of pleated khaki pants on Sand Hill Road—this was different.

  “Bitcoin, the digital currency, with a lowercase b,” Voorhees said, pointing to the miniature barrel. “As Charlie implied, you send bitcoin with a lowercase b from your digital wallet to the address embedded in the QR code printed on the side of the can. It’s that simple, but that’s only a tiny part of the story.”

  Cameron knew from his research that the first documented time bitcoin had ever been used to purchase a product happened on May 22, 2010. On that historic day, a Florida programmer named Laszlo Hanyecz was hungry for pizza and had decided he would use some of the bitcoin he’d accrued to quash his hunger; there was only one problem: no merchants accepted bitcoin as payment at that time. Undeterred, Hanyecz had posted a message titled “Pizza for bitcoins?” on Bitcointalk forum, the main congregating point online for Bitcoiners at the time:

  I’ll pay 10,000 bitcoins for a couple of pizzas. like maybe 2 large ones so I have some left over for the next day. I like having left over pizza to nibble on later. You can make the pizza yourself and bring it to my house or order it for me from a delivery place, but what I’m aiming for is getting food delivered in exchange for bitcoins where I don’t have to order or prepare it myself, kind of like ordering a “breakfast platter” at a hotel or something, they just bring you something to eat and you’re happy!

  An eighteen-year-old named Jeremy Sturdivant, who went by the online handle “jercos,” decided to take Hanyecz up on his offer. They’d finalized the details over Internet Relay Chat (IRC), and then Hanyecz had proceeded to pay jercos 10,000 bitcoin, worth roughly thirty dollars at the time, for two Papa John pizzas. Hanyecz confirmed the transaction on the Bitcointalk forum:

  I just want to report that I successfully traded 10,000 bitcoins for pizza. Thanks jercos!

  That day would be forever known and commemorated as Bitcoin Pizza Day. Since then, numerous Twitter accounts, such as @bitcoin_pizza, had been set up by Bitcoiners to track the current USD value of the two pizzas that Hanyecz had purchased. As of this writing, those two pizzas were worth approximately $36.6 million.

  “But Bitcoin with a capital
B is where the real action happens,” Charlie said.

  Talking seemed to be the only thing that kept the kid’s energy at bay. In one of their earlier conversations, Azar had told the twins a bit about Charlie’s background as a socially awkward kid from the Syrian Jewish community in Brooklyn, which was Azar’s home, as well. The two of them had grown up within blocks of one another, and Charlie had always had a flair for computers. Now the kid who’d never been picked for dodgeball was suddenly the center of attention, and he was taking full advantage of the moment. He was not an entirely unfamiliar type of character to the Winklevoss brothers.

  “ ‘Bitcoin’ with a capital B refers to the protocol, in other words, the entire Bitcoin Network,” Voorhees said, his more measured tone a stark contrast to Charlie’s verbal sprint. “While ‘bitcoin’ with a lowercase b refers to the digital asset that travels along the Bitcoin Network.”

  “Same word, two different meanings, case dependent,” Charlie inserted.

  “Protocols are the digital plumbing of the internet,” Voorhees continued. “They are the pipes that your emails travel through, the tunnels that carry your voice to a listener halfway around the world. The Bitcoin protocol allows bitcoin to move from point A to point B, and allows you to buy this miniature oil can of NEFT Vodka.”

  “The analogy seems dangerous,” Cameron said. “If ‘Bitcoin’ with a capital B is plumbing, what makes ‘bitcoin’ lowercase b anything more than digital sewage?”