Bitcoin Billionaires

by Ben Mezrich

  And that market, Tyler had already explained, had just recently eclipsed the billion-dollar mark, on March 28, 2013; in fact it was Cameron who had placed a market buy order on Mt. Gox that had moved the bitcoin price up the few pennies necessary to climb above $92 and push the overall value of the Bitcoin market into the ten figures—the Trois Commas Club. That, of course, pointed out what was one of the bigger problems with Bitcoin in its infancy: there wasn’t much liquidity, so even a smaller order could impact the market, making it prone to large price swings.

  And the seismic drop of the past twenty-four hours was a perfect example of another problem that plagued the Bitcoin market; unlike with Cyprus, this particular crash didn’t have anything to do with real-world news. It was entirely the result of a short-term problem at the Mt. Gox exchange; too much traffic and trading had overwhelmed the Mt. Gox’s servers, and the exchange had shut down to deal with the issue, sending the entire market into a tailspin. That represented what Tyler was beginning to believe was the biggest obstacle facing Bitcoin’s growth and its greater adoption. If Bitcoin was going to become mainstream, the exchange through which the majority of bitcoin was traded couldn’t remain a former Magic: The Gathering exchange located in Japan, run by a Frenchman and his cats. The world of private equity and hedge funds was never going to take Bitcoin seriously until the Bitcoin economy grew up and moved away from the quirky landmarks of its origins.

  Burkle’s analysts were writing in their notepads, but Tyler could tell from the look on Burkle’s face that he wasn’t going to be sold on the cryptocurrency in the few hours they had him as a captive audience. Tyler doubted it was just Silk Road that was the problem; after all, Burkle didn’t seem the type to be scared off by some dark scandalous alleyways in the overall Bitcoin cityscape. Though the jet they were flying on had been nicknamed Ron Air by Bill Clinton, the gossip columnists had another name for the flying tour bus that had been loaned to the former president for numerous junkets around the world: Air Fuck One. Tyler had no idea if any of the stories he’d read of the plane being filled with bevies of supermodels and celebrities, whisking them around from party destination to party destination, were true, and he didn’t really care. So far, Burkle had been a consummate host and only regaled them with incredible stories from his professional life in private equity. He was a business genius and had built his empire by seeing value before anyone else. Even if he wasn’t ready to buy bitcoin at that exact moment in time, bitcoin was now on his radar.

  In addition to their Bitcoin tour, the other main focus of their grueling schedules these days had been a bit more challenging: trying to steer Charlie Shrem and BitInstant in the right direction, despite the challenge of Charlie’s youth. Toward that goal, Tyler and his brother had landed a ton of meetings for the young CEO. They’d put him in front of venture investment firms in New York and potential banking partners, and indeed, together they’d achieved some meaningful victories. Specifically, their meeting with Obopay had yielded an important partnership: Obopay, a licensed money transmitter, had agreed to essentially rent their licenses to BitInstant so it could transmit money in accordance with state money transmission laws, which, for the first time, made Charlie’s company legally compliant, something Charlie and his team had pretty much ignored up until that point. They’d also managed to get Charlie a meeting with a major U.S. bank that had agreed to begin the bank account opening process, another key development, because other banks were scared off by BitInstant and its uncertain legal status with financial regulators and tax officials.

  Charlie had even taken the reins himself during the presentation at the major U.S. bank: standing in front of a similar whiteboard hanging on the wall of a glass-and-chrome boardroom, sweating his way through a blazer that looked like it had been mothballed the day after Charlie’s high school graduation, Charlie had emphasized to the room full of bankers how serious he and BitInstant took compliance and legal licensing, how BitInstant had state-of-the-art internal controls. He’d continued in that vein, explaining how BitInstant performed its “KYC”—a banker acronym for “Know Your Customer”—as part of its compliance program, aiming to understand the identities of its customers and make sure they weren’t criminals or money launderers. At one point, he’d even shouted: “The name of the game is three words—compliance, compliance, compliance!”

  Overall he’d sounded like the boy wonder he was supposed to be, saying all the right things. And at that moment, Charlie had seemed to understand the direction BitInstant needed to go; he’d won over the bankers, just as he’d won over Obopay. He was still young, needed some polish and rounding out, but the raw material was there.

  Tyler was beginning to feel more confident that their investment in BitInstant was the perfect entrance into the Bitcoin economy. Although Charlie’s growing friendship with Roger Ver made Tyler and his brother nervous, and seemed a potential warning sign, as long as Charlie could continue to develop himself, mature, and keep himself from being drawn into one of those dark alleyways lurking on the Bitcoin map, he really was on the verge of doing something really special.

  “Ron,” Tyler said as he sat next to Cameron, then pulled his cell phone out of his pocket. He saw that the 757 had Wi-Fi—of course it did, it had a dining room. “I appreciate you hearing us out, and I know it’s a lot to take in all at once. But in the interim, what’s your email address?”

  Burkle blinked once, then gave it to him.

  “I’m going to send you five bitcoin. All I want you to do is hold on to them as a token of our gratitude, for your time. One day they will be worth more than the cost of fuel for this flight.”

  Burkle smiled.

  “Do you have any idea how much fuel this bird burns?”

  Tyler could tell by Burkle’s expression that of all the arguments Tyler had made that afternoon, this simple act, sending the man five bitcoin by email to pay for what was obviously an insanely expensive flight, and the confidence it implied, had made the biggest impression.

  As the airplane leveled off and one of the crew members invited the group toward the dining room for a gourmet lunch, Tyler tapped the screen on his phone and initiated the transfer.

  Tyler hoped, prayed, and believed—those five bitcoin would one day be more than enough to pay for the fuel used during this cross-country flight.

  * * *

  “Page one. Right on front. And they even spelled ‘Winklevoss’ right. I just might have to cancel my subscription to the Journal and focus all my attention on the Times from now on.”

  Tyler’s head spun as he leaned over his father’s shoulder to stare at the newspaper that was spread out on the maple wood table in the kitchen of their parents’ Greenwich estate. He could hardly believe it. On the front page, halfway down the tower of newsprint, the bold headline in that familiar font streaking across Tyler’s retinae, igniting his rods and cones:

  NEVER MIND FACEBOOK; WINKLEVOSS TWINS RULE IN DIGITAL MONEY

  Just twelve hours after they’d disembarked from Burkle’s private plane at Newark Liberty International Airport—it was too big to fly into Teterboro, where most private planes heading to New York landed—they’d come home to find their father opening the New York Times to an article announcing their place in Bitcoin history.

  Actually, he hadn’t even had to open the Times. The article was right there, on the damn front page.

  “Page A1. You know what that means. People are actually going to read this.”

  Tyler’s mother, Carol, came in behind him from the direction of the Sub-Zero refrigerator, carrying a tray of croissants and scones that none of them were going to touch for quite some time. Tyler was excited, and he could tell from the expressions on his parents’ faces that they were too. Cameron’s face was all smiles and near disbelief, his body half out of his chair on the other side of the table as he looked at the paper and his finger pointed to the second paragraph of the article.

  “Your quote is great,” Cameron said, and then read it out lou
d. “ ‘We have elected to put our money and faith in a mathematical framework that is free of politics and human error.’ ”

  “Now you finally sound like Men of Harvard,” Tyler’s father joked. “You got a great quote in too, Cameron. ‘People say it’s a Ponzi scheme, it’s a bubble. People really don’t want to take it seriously. At some point that narrative will shift to “virtual currencies are here to stay.” We’re in the early days.’ ”

  “Nice,” Tyler agreed. “The haters can take that and stuff it where it belongs.”

  Calling Bitcoin a Ponzi scheme, or equating it to the Dutch tulip bubble of the seventeenth century, were favorite criticisms of the virtual currency. They would never deny there were a lot of growing pains ahead: the Bitcoin market was volatile, still trying to recover from the crash caused by Mt. Gox going offline for twelve hours when it couldn’t handle the overwhelming volume of transactions. But Cameron was making the point that Bitcoin wasn’t just another fad like tulips, or Beanie Babies, or Tamagotchi pets. And a Ponzi scheme—Bitcoin was the opposite. Either everyone prospered, or everyone fell—together.

  In a funny way, since Cyprus, Bitcoin was becoming too popular for its own good. And the fact that 80 percent of Bitcoin transactions still happened on the former Magic: The Gathering exchange was an embarrassment, almost as problematic as the fact that most people thought the primary use for bitcoin was to buy drugs or worse on Silk Road.

  The twins had been written about many times before, when the movie had come out, and even before that, when the stories about their lawsuit with Facebook had reached a certain fever pitch. They’d also been covered in the tabloids a fair amount, even though they’d never courted the attention and had actively tried to avoid it. Regardless, gossip rags like the New York Post’s Page Six had a certain fascination with them.

  But they’d never been written about on the front page of the New York Times before—the most revered and cerebral newspaper in the free world. And they’d never been treated so fairly.

  The Times, the WSJ, the Post, the blogosphere, they’d all taken too many shots to count at Tyler and his brother over the years, mindlessly promoting and regurgitating the false one-note narrative of them being Waspy, blue blood, aristocratic rowers who had whined and sued their way into being bought off by Mark Zuckerberg. The media had spent years relentlessly pigeonholing and caricaturing them in search of juicy clickbait. And now, overnight, that narrative had been turned on its head.

  “You know what?” Tyler said, skimming the article again. “There’s only one mention of rowing. Just at the top, where they introduce us: Cameron and Tyler, Olympic rowers.”

  Tyler felt his mother’s arm around his shoulders. She had always been supportive of whatever he and Cameron did, just like their father. And even though it was their father they would often go to for business advice, they got their fierce determination, their refusal to stay down, from their mother. She could be as tough as any cop’s daughter had to be.

  It was that determination and strength that had led to this front-page story. The piece wasn’t an accident; Tyler and his brother had worked hard to convince Nathaniel Popper, one of the most brilliant business voices at the New York Times, to write what would be his first Bitcoin story. They’d pitched him on the idea that they were the first legitimate investors to amass a large stake of bitcoin, when no venture funds in Silicon Valley would touch it with a ten-foot ethernet cable.

  Popper was the Times’s currency guy, usually focusing on gold; he was the perfect journalist to write about gold 2.0. His article had blown up the minute it had hit the web. It had gotten so much attention, the editors had put it on the front page of the print edition the following morning—not just the front page of the business section, where most of Popper’s stories usually lived. The article wasn’t about just Bitcoin; it also announced the twins as the biggest known owners of the currency in the world, with them holding over 1 percent of all bitcoin in the entire market. Sure, Tyler fully admitted that there might be people out there with larger stakes; Satoshi—whoever he was—reportedly had close to a million bitcoin, but who really knew. Satoshi’s bitcoin might as well have not even existed. The twins’ stake, on the other hand, was not a philosophical paradox—it was in the palms of their hands, as much as any virtual currency could be. And now, with this article, they were the public face of Bitcoin.

  “ ‘Winklevoss Twins Rule in Digital Money,’ ” Tyler said. “I like the sound of that—”

  He was interrupted by his cell phone, going off in his pocket. He didn’t recognize the number, so he let it go to voice mail. Then he listened to the voice mail while Cameron and his parents watched.

  “Is that Zuckerberg?” Cameron joked. Their mother nearly hit him with a scone.

  “It’s an invitation to speak at a conference in May.”

  “What kind of conference?” Cameron asked.

  “Something called ‘Bitcoin 2013.’ It’s being put on by the Bitcoin Foundation,” Tyler responded.

  Cameron whistled. This was the first time anyone had wanted to hear them speak about anything other than Facebook, and the losing fight against the boy king of the internet.

  Tyler knew that the Bitcoin Foundation was a nonprofit corporation, established in 2012, to promote and protect the Bitcoin economy. At the time, it was the most prominent organization of its kind. Its board was a who’s who of virtual currency. Its “chief scientist” was Gavin Andresen, who Satoshi himself had anointed as the lead developer of Bitcoin Core, the software client of the Bitcoin Network. Andresen had probably been closer to the mysterious Satoshi than anyone else in the world, until Satoshi had disappeared from the internet for good.

  Bitcoin 2013 was only the second conference that the foundation had hosted, and it was going to bring together the smartest minds in the space, true luminaries, all the people behind the nascent but growing Bitcoin revolution.

  “Biggest conference in the industry,” Tyler continued. “And they want us to give the keynote speech.”

  Just the two of them, on a stage, in front of the world.

  “Beats rowing off into the sunset,” he said. And then he smiled.

  16

  THE KING OF BITCOIN

  “And just then, as the photographer was shooting away and the lights were flashing, I was up on the chair, making it rain!”

  Without warning, Charlie leaped into a reenactment of the story he was in the midst of telling, right up onto the circular, maroon-colored leather banquette, nearly upending the liquor bottles on the gunmetal gray table in front of him, the pretty girls on either side of him diving out of the way just in time. Then Charlie had his hands up over his head and he was tossing two enormous wads of twenties into the air. Everyone in his corner of the two-story, postindustrial lounge cheered as the bills billowed down, a tropical storm of green paper caught in the dancing disco lights.

  Charlie watched the bills floating around him, magnified a hundred times by the enormous mirrors that ran up all four walls, all the way to the balcony. The mirrors were surrounded by lights, the balcony circumnavigated by Edison bulbs, and almost everything seemed cloaked in glass, giving the whole place a steampunk feel; but the lasers and the DJ and the huge, glowing bar that took up most of the downstairs, the second bar upstairs, the catwalk-like stage running along one side, the gold sign outside, the lit-up menus that glowed like magical parchments at every table, all of it felt like a contemporary reinterpretation of the 1980s, when clubs reigned supreme. A Bright Lights, Big City/Wall Street, lines-of-coke version of the 1980s, artwork hanging along one interior wall, black sketch-work on huge canvasses that would have been at home in Patrick Bateman’s blood-splattered apartment.

  Five thousand square feet of Midtown debauchery, right on Thirty-Ninth Street, and Charlie was there putting on the Charlie Show, like he’d been doing almost every night since the place opened. Because he wasn’t just standing up on a couch in his corner of the club; he was standing up on a couch in
his corner of his club, or at least, that was how everyone saw things. The fact that he was merely a small partner in EVR—pronounced “EVER,” the city’s hottest “gastro-lounge,” a club Charlie’s college friends had opened and the only one that accepted Bitcoin from customers—didn’t matter to anyone. When Charlie was there—and he was there a lot—he always made it rain.

  “The only good thing about cash is that you don’t have to worry about cleaning it up after you toss it in the air. Nobody’s ever been arrested for littering twenties.”

  Charlie grinned, lowering himself back down onto the couch, the two girls moving closer to make room for the rest of their party. Charlie’s partner in EVR, Alex, was next to a woman on Charlie’s right, but Charlie couldn’t remember her name because he was already four Jamesons in. Another college friend, Mike, had his arm around the woman to Charlie’s left, Angela something, who wrote for some magazine, which probably should have made Charlie more careful about what he said but actually had the opposite effect. For the first time in Charlie’s life, people listened to him, and he had discovered that was a high on a par with whatever he could get from the consumables and smokables lining the shelves of the Bakery back at his office.

  Damn, it was fun being king. And at the moment, that’s how Charlie saw himself, one of the Kings of Bitcoin, a true crypto rock star. And it wasn’t just him; the photo shoot he’d just described, of him throwing money up in the air to make it rain, had been for a full-page, color profile in Bloomberg Business Week, announcing Charlie as one of the newly minted Bitcoin millionaires—early adopters smart enough to get on the train before everyone else. And the Business Week piece was just one of dozens of articles introducing Charlie to a world where BitInstant was being touted as one of the most successful crypto-related startups.

  The progress BitInstant had made in such a short time was incredible. The company had gone from processing a million dollars a month to doing almost that much in a single day. Charlie had calculated that at the moment, BitInstant was processing 35 percent of all bitcoin purchases. The demand for the service had been so intense, that the few times he’d had to temporarily shut the site down for server upgrades and maintenance, the downtime had caused an uproar among his customers. He’d received concerned emails from Tyler and Cameron, but Charlie had brushed it off; BitInstant had made him a celebrity in the Bitcoin world, and a microcelebrity in the outside world. This was Charlie’s Moment, and he knew it.