Bitcoin Billionaires

by Ben Mezrich

  “A cryptic invite to a cryptic doorway. Makes sense, considering the theme.”

  It hadn’t been hard to track down the originator of the email invite. By googling the name of the assistant who’d sent the invite, they’d found that it had come from Naval Ravikant, a serial angel investor and entrepreneur. Ravikant, a brilliant thinker with degrees in economics and computer science from Dartmouth, who had invested in numerous tech successes over the years.

  The twins had met Ravikant a few months earlier at a tech dinner in New York hosted by Joe Lonsdale, a prodigy in his own right. Having interned at PayPal while still a student at Stanford, he’d gone on to work at Peter Thiel’s hedge fund, Clarium Capital, and later had cofounded Palantir Technologies with Thiel and Alex Karp. Both Lonsdale and Thiel were chess geniuses known to battle it out with each other for hours on end. Thiel himself was, of course, a Valley legend, having founded PayPal, and was considered the “don” of the “PayPal Mafia”—a group of PayPal alums who’d gone on to start a slew of world-changing companies. The group included Elon Musk (Tesla, SpaceX), Reid Hoffman (LinkedIn), David Sacks (Yammer), Ken Howery (Founders Fund), Max Levchin (Yelp), and others. Thiel also happened to have been the first investor in Facebook; he turned a $500,000 check into a billion-dollar investment, a mind-blowing 13,000x return.

  At the dinner, Naval had told the twins about the company he had cofounded in 2010, called AngelList, a meeting place for investors and entrepreneurs—something Business Insider had once called “Match.com for investors.” Later, the twins had overheard Naval explaining Bitcoin (and explaining it well) to another guest at the dinner—Garry Kasparov, the Russian chess grandmaster and political activist.

  That dinner was the first time the twins had ever heard anyone from the Silicon Valley “establishment” talk seriously about Bitcoin. After the conversation had ended, the twins and Naval had exchanged contact information. Other than that, they had no idea why Naval had reached out to them, or what they were doing in San Francisco the night before their keynote. They just felt it was wise to be there.

  Tyler tried the knob and found that the door was unlocked. It opened into a surprisingly large space, like a loft apartment, except it wasn’t really an apartment where someone actually lived, more of an artfully decorated “man cave.” Tyler saw a regulation-size pool table, a round poker table, a pair of foosball tables, multiple flat-screen televisions, leather couches, a fully stocked bar, and steps leading up to a raised kitchen and pantry.

  “We’re not the first to show up,” Cameron said.

  Tyler had wanted to arrive thirty minutes late, but Cameron had argued that the only information they had was the hour and place, so they might as well follow the directions to the letter. And Cameron was apparently right, because there were already twenty people in the room, filling the couches and mingling around the bar. A few were gathered beneath one of the televisions, which displayed a Bitcoin price chart: Mt. Gox had suffered a recent brownout that had depressed the price, but Bitcoin had partially recovered and was sitting at around $120 a coin.

  As Tyler stepped farther into the room, he realized that he recognized many of the other guests. With that recognition came a realization and a confirmation of his earlier feeling: this was a significant gathering.

  Before he could tell his brother what he was thinking, Naval caught sight of them from one of the couches and walked over, bringing with him the cohost of the evening: Bill Lee. A handsome Taiwanese-American entrepreneur and investor, Lee had sold his first company for $265 million during the dot-com frenzy in the late 1990s. After that, he had exited to the Dominican Republic, where he’d bought a hotel and surfed for two years. Upon his return, Lee had promptly backed his best friend Elon Musk’s new startups: Tesla and SpaceX. A few years later, he would marry Al Gore’s youngest daughter. Lee was probably one of the most influential yet under-the-radar people in the Valley—virtually unknown to the outside world. Inside the Valley, he cut his own image—imbued with a style that strayed far from the khaki pants of the VCs on Sand Hill Road, or the hacker hoodies of the Facebook set. At the moment, he was wearing a distressed leather jacket over a white T-shirt, and a beaded necklace around his tan neck.

  “Welcome to the party,” Lee said, shaking hands with both twins. “Please help yourself to the bar and whatever you like in the kitchen. We’ll get started in a few minutes.”

  As Lee stepped away to welcome more guests who had filed in behind the twins, they overheard someone saying, “He doesn’t actually live here. He lives upstairs. He’s got a penthouse that takes up most of the top of the building.”

  “I’m glad you guys made it,” Naval said to the twins. “Now that you’ve been crowned the world’s first ‘bitcoin moguls,’ I didn’t think it would be right if you weren’t here.”

  “So what’s going on tonight?” Cameron asked.

  “Bitcoiners Anonymous,” Naval quipped, “a support group for the engineers and entrepreneurs suffering from a crypto addiction.”

  “So, you’re the enablers?” Tyler asked.

  “Precisely. We’re the only people in Silicon Valley right now who care about crypto. I take it you guys haven’t been spending much time in the Valley lately.”

  It was very true.

  “The people in this room are mostly Silicon Valley outsiders anyway. They build the protocols and tools that power the internet, its plumbing. You could even call them the roadies of the internet.”

  Naval was right. While some of the faces here were known in deeper technology circles, and Tyler and Cameron recognized some of them, most were not the Silicon Valley “brands” that people across America knew, the billion-dollar unicorns who dominated the West Coast tech scene. They were, instead, the technical heavyweights, who spent their time working on the guts of the internet, focused on the deeper transport and network layers, not the surface, where sexy companies like Facebook and Google lived. They were the engineering equivalent of the back office, not the shiny front office types. They were often called “neckbeards”—they weren’t exactly client-facing.

  But when people talked about someone being the smartest person in the room—well, this was a room full of them. They were intensely interested in cryptography, protocols, and peer-to-peer networking, and coding in lower-level languages like C and C++. They were close to the bare metal, the 1s and 0s, bits and bytes, not the more user-friendly, abstracted layers.

  Tyler certainly recognized brilliant billionaires among them, such as Max Levchin, who had cofounded PayPal with Thiel. Levchin was credited with decimating fraud on the network in the early days, and was a leading member of the PayPal Mafia. Tyler also saw true protocol royalty in the form of Bram Cohen, who had built BitTorrent and essentially invented decentralized, peer-to-peer file sharing. Cohen was perhaps the greatest living protocol developer alive after Satoshi. Maybe, Tyler mused, he was Satoshi?

  And then there were fellow early Bitcoiners like Paul Bohm, an information security expert who had written one of the earliest blogs explaining Bitcoin mining; Mike Belshe, one of the first engineers to work the SPDY protocol used by Google in its Chrome browser; Matt Pauker and Balaji Srinivasan, who had cofounded a Bitcoin mining company called 21e6 (the scientific notation for the number twenty-one million, the total number of bitcoin that would ever be created); Srinivasan was also on the way to becoming the CTO of a company called Coinbase, a cryptocurrency exchange on a rapid rise in the industry. There was Ryan Singer, who ran a Bitcoin exchange named Tradehill. And perhaps most notably there was Jed McCaleb, the founder of Mt. Gox itself. He had launched the original site as a Magic: The Gathering trading portal, had repurposed it as a Bitcoin exchange, and then sold the business to Mark Karpeles in 2011, keeping a minority stake before embarking on other crypto-related ventures.

  Right in front of the twins was a security expert named Dan Kaminsky. He famously discovered a flaw in the Domain Name Security protocol that, until he helped fix, put every internet user at
risk of being hacked. Cameron and Tyler had read a profile of him in The New Yorker, which chronicled his unsuccessful attempt at hacking Bitcoin itself. Kaminsky was arguably the greatest security expert in internet history, and the twins had been fascinated to read the story of how he’d locked himself in his parents’ basement and spent weeks trying to penetrate the Bitcoin protocol, to no avail.

  Kaminsky was the first person Tyler started talking to after he broke off from Naval. He noticed that Kaminsky was wearing three different brands of activity trackers on his wrists: a Fitbit, a Nike FuelBand, and a Jawbone UP. Tyler corralled the security expert by the pool table, where McCaleb and Levchin were geeking out on god knows what.

  “Why all three?” Tyler asked. “Doesn’t one do the job?”

  Kaminsky shrugged.

  “The second one is to tell if the first one is broken. The third is to tell if the other two are lying.”

  It was exactly how Tyler should have expected a security engineer to think—in terms of systems and their fault tolerance and integrity. Over the next ten minutes, he interrogated Kaminsky about his hacking efforts; at first, the security expert had expected to be able to penetrate such a complex piece of code easily—the fact that it was so complex, so long, meant there should have been many weak spots to exploit. But over the days spent in his parents’ basement filled with computers, he kept coming up empty. Every time he thought he had found a bug or an exploit, he was met by a message in the code proclaiming “Attack removed.” It was as if Satoshi had already thought of every attack vector and vulnerability ahead of time, which to Kaminsky, seemed impossible. Satoshi was always ahead, even if only by a few lines of code. That was why Kaminsky had trouble believing Satoshi could be one person. He felt sure the originator must have been a team of people to put together something so perfect, so secure. Either that, or he was a genius on a whole different level.

  Tyler looked around the man cave.

  “Would it be fair to guess that Satoshi could be right here in this room?”

  Kaminsky didn’t disagree.

  Could it be Levchin, standing at the pool table nearby? The PayPal Mafia’s goal from the beginning was to create a universal currency for the internet, but they’d fallen short, eventually selling to eBay. PayPal was by all accounts a huge financial win for Levchin and his colleagues, and a huge win for the user-friendly nature of payments on the internet, but even so, it was a payment network that ran on the existing banking rails. It hadn’t made money into a protocol—the way Voice Over Internet Protocol (VOIP) had done with voice. PayPal still ran over the copper wires of the legacy banking system. They had changed the way people made payments. But they had not changed the world.

  Bitcoin had essentially picked up where the PayPal Mafia had left off. Whereas PayPal was a new saddle on the same horse, Bitcoin was an automobile. It was the Holy Grail of virtual currency. Some PayPal alumns like Thiel were so disillusioned by their own early attempt at reaching that Holy Grail that it was like they couldn’t bring themselves to get as excited about Bitcoin as Levchin; eventually, they all would see what he saw.

  As Bill Lee rejoined them, taking the pool cue from Levchin and chalking the tip, the general conversation shifted to which country might adopt Bitcoin as its national currency first. It was a heady question—the idea that a government might embrace virtual currency to that degree, rather than seeing it as an enemy—and the speculation settled on Iceland, because after its recent financial collapse, the Icelandic people had become very suspicious of bankers, had even thrown many of them in jail. And Iceland was also cold, which made it a good place for Bitcoin mining. One of the biggest challenges for miners was keeping their computers from overheating as they did all that number crunching in search of the golden ticket.

  Lee joked about moving his operations to Reykjavik, to get ahead of the curve. As the first money into Tesla and SpaceX, Lee was already so far ahead of the curve he was almost invisible. And his interests in space had only made him more convinced that Bitcoin was the future of money.

  “Space is full of asteroids,” he said as he lined up the cue for a shot on one of the pockets. “And asteroids are full of metals, precious metals—diamonds, titanium, especially gold. In fact, there’s already a database that speculates how many billions of dollars in gold the closest asteroids contain. The technology is getting better every day, just ask Elon. Pretty soon, we’ll be mining those asteroids. Gold in our universe isn’t rare at all, it’s actually plentiful, like sand on a beach. And we all know what that means.”

  “Precious metals won’t be very precious anymore,” Cameron said. “But Bitcoin will only increase in value.”

  Everyone in that room saw that clear as day. It might take another twenty years to play out, but it was inevitable. The people in that room, all experts and engineers, also clearly saw Cameron and Tyler as fellow early adopters. They were welcoming: it was the exact opposite of how they’d been treated by everyone else in Silicon Valley—a place where they couldn’t even buy a drink for an entrepreneur at Oasis, because of who they were, because of their indelible connection to Mark Zuckerberg.

  The group in this room was not the Valley establishment. They were the rebels, bona fide cypherpunks. Most of them were not “commercial” enough to even work at a company like Facebook. They didn’t know how to play the game. But the game was about to change.

  Tyler moved through the crowd, meeting and speaking with everyone he could. The conversations were all optimistic—everyone believed that adoption of Bitcoin was a when, not an if—that Bitcoin could truly become a world currency, and that blockchain technology would soon be ubiquitous.

  At the same time, these engineers, technologists, and forward thinkers agreed that it was a critical time for crypto. Now that the world was watching, Bitcoin would need to hit “escape velocity” soon. Bitcoin was gold 2.0, and gold was money 1.0—but gold had a ten-thousand-year first-mover advantage. Bitcoin had superior qualities, but if adoption wasn’t accelerated, the powers that be would try to kill it. Just as there were those plotting Bitcoin’s success, like this motley crew with big ideas in a man cave on the evening before Bitcoin’s biggest public conference yet, there were those who would see it as a threat. Wall Street, Visa, American Express, Western Union, governments, even PayPal itself. The list went on and on. These organizations and businesses, which had the most to lose, had the most to gain if Bitcoin failed.

  Tyler believed that the key to Bitcoin beating back those future enemies was to grow fast, fast enough so that by the time the banks and governments woke up, it would be too late for them to try and kill it—they would have no choice but to work with it. For that to happen, the decentralized genie had to get out of the bottle before it got capped. Once this happened, every government would instead fight to become a crypto capital.

  As the evening ended, and Naval walked with Tyler and his brother toward the door, he told them that just by being part of Bitcoin at such an early stage, the twins were helping tremendously with the cause; for Bitcoin to grow quickly, it now needed to reach the mainstream. It needed the right people to be out there saying the right things. The world was listening.

  It was exactly what he and Cameron had been trying to explain to Charlie the past few months. The world was listening, and the voices they needed to hear weren’t those of anarcho-libertarians in Panama. With Voorhees gone—he’d kept true to his word and resigned shortly after the meeting, actually moving to Panama full-time—and with their help, Tyler still wanted to believe that Charlie Shrem could also be one of those voices. But in truth, it was hard to imagine Charlie Shrem in this room of engineers and futurists, spinning through the man cave like a circus sideshow.

  “I’m just glad you let us be a part of this,” Tyler said to Naval as they reached the door.

  It was more than just patter; Naval adding them to the invite list hadn’t been as simple an act as typing their names on a spreadsheet.

  In fact, their addition
had raised conflict with at least one Silicon Valley bigwig that they knew of: Chamath Palihapitiya. He had been Facebook’s vice president for user growth until 2011 and remained an ally of Mark Zuckerberg’s. In the twins’ mind, he was an outspoken, often boastful, overdressed suit in the Valley, quick to parrot groupthink buzzwords and clichés like “disrupt,” “data driven,” “tipping point,” and—a personal favorite—“meaningful solutions to meaningful problems.” At Facebook, Palihapitiya’s claim to fame had been growing the social network’s user base—which during Facebook’s boom was like taking credit for making sure the sun came up in the morning.

  From what the twins had heard, upon finding out that Naval intended to invite them, Palihapitiya, an invite himself, had tried to convince Naval to rescind the twins’ invitation. When Naval had told him he wouldn’t, Palihapitiya had refused to attend.

  In Tyler’s mind, that was Palihapitiya’s loss, and deep down, he was glad Palihapitiya had opted out of the Genesis Block. He was glad that, in fact, nobody from Facebook, the biggest unicorn of the past decade and supposedly one of the most forward-looking Silicon Valley companies, was there.

  “It means a lot,” Tyler added, “to be a part of something as important as this.”

  “I always root for the underdogs,” Naval said, with a grin.

  22

  BITCOIN 2013

  Purple curtains framed the main stage of the San Jose McEnery Convention Center. The crowd assembled represented everything Bitcoin: developers in shorts, hoodies, and sneakers, sporting laminated lanyards and name tags, fresh from a day spent setting up their respective portable booths, which were now spread across the gargantuan convention center like interlocked cells of a honeycomb. Bitcoin miners, constantly checking their phones to monitor the basements and garages and insulated lairs where their hardware waged constant battle to unlock those elusive block rewards, the perpetual race that Satoshi had set in motion years earlier. The libertarians, with their T-shirts painted with colorful, antigovernment slogans. The cryptographers, with their long hair and overgrown beards. And then the financial press, with tape recorders, lights, and cameras, all aimed toward the stage, ready to capture the moment, in case it really was the moment, that fulcrum moment in the history of Bitcoin that everyone in that industrial hangar of a room believed was inevitable, was coming, and soon.