Bitcoin Billionaires

by Ben Mezrich

  “This is how you know a partnership is going to work,” Charlie said as he wobbled between Cameron and his brother, the three of them making their way down a cement-walled, fluorescent-lit hallway that led through the interior of the convention center. “I never hire anyone I haven’t drunk or smoked with, and I think that should apply to the people who invest with me as well.”

  Cameron laughed, though it did occur to him that Roger Ver didn’t smoke or drink. He let the thought slide. After the RT interview, he’d spent much of the day watching Charlie in action. The kid was obviously in his element. BitInstant was a big deal; many people in the Bitcoin community who he’d spoken to during the day estimated that 70 percent of the trades on Mt. Gox now came through BitInstant. Although CNBC had put the number at closer to 30 percent, Cameron believed that most people at the conference had bought their first bitcoin through Charlie. He had, after all, made buying bitcoin easy; you could walk into most convenience stores, hand the cashier cash, and receive your bitcoin in thirty minutes.

  The T-shirts with his face on them were just the tip of the iceberg. Although Cameron and Tyler found themselves mobbed after their keynote, and while there were plenty of people who wanted to take a selfie with them or shake their hands, Charlie couldn’t go five feet in the convention center without drawing a crowd. And as Cameron had seen firsthand, the kid couldn’t get enough of the attention. At one point, when two developers approached Charlie to introduce themselves, Charlie reached behind himself into his back pockets, then flung both of his hands forward, dangling two of his business cards from the fingertips of his outstretched arms, as if he were performing a magic trick. It was a move he’d clearly been practicing.

  All afternoon, he’d ping-ponged from one group of admirers to the next. But what really got Charlie going was every camera or microphone in his vicinity. He simply couldn’t turn down an interview, no matter who was asking the questions. At first, Cameron had tried to steer him toward the more professional outlets—the CNBCs, the CNNs—but soon he’d realized there was no point. Charlie would talk to anyone. This was a kid who had been ignored in high school. Now, suddenly, everyone was paying attention to him. Everyone wanted a piece of Charlie and the Bitcoin factory.

  And by the end of the cocktail parties, as they’d segued into a boisterous dinner of steak, fish, and fireballs, so many goddamn fireballs that the tunnel-like hallway they were now walking through smelled like it ran beneath a lake filled with whiskey, Cameron felt it was right to let the kid have his moment. He’d built something cool, and he deserved the accolades. It was up to them to try and keep steering him in the right direction; but that was something that could wait until tomorrow.

  “You sure this leads to the right place?” Charlie said as his hand fumbled in the pocket of his dark jeans. “If this tunnel leads back to my mother’s basement I’m going to kill myself.”

  Cameron laughed. He was sure that Tyler knew where they were going. His brother had studied a map of the convention center the day before. Tyler was always prepared. Cutting through the convention center via the loading dock had been his idea. If they’d gone around the front, the walk from the nearby restaurant would have taken an extra ten minutes, and neither of them thought Charlie would be able to stay on his feet that long.

  Courtney, Charlie’s girlfriend, had been at the restaurant as well and was going to meet them at their destination a little later. Cameron didn’t really know much about her other than that Charlie was clearly smitten with her, and that she was about a foot taller than he was. He hadn’t decided yet if she was good or bad for Charlie. At the end of the day, maybe her being around would keep him in New York more often, but it probably wouldn’t keep him out of the club.

  Voorhees had been at the restaurant they were coming from too, and for a brief moment, Roger Ver. Cameron had spent a lot of time at the convention talking to Voorhees. Awkward at first, but they quickly got past the tension and were able to speak like former colleagues. Although Voorhees held many of the same beliefs as Ver, he was a pleasant guy to be around, and his disagreements, no matter how firm, always had a smooth tone to them. He was arguably Charlie’s best friend, but he didn’t seem to cultivate the same Svengali relationship with the CEO as Ver did.

  At dinner, they’d all played SatoshiDice as a drinking game—using their phones to wager bitcoin, taking shots if the money they wagered returned twice the bitcoin. No doubt, Voorhees was going to make pretty good money when he unloaded his new company, which he’d probably end up doing soon, because online gaming lived in such a murky legal limbo. No matter how much he might disagree with the way the world was run, at heart Voorhees was a realist, not a martyr.

  Maybe that was the big difference between Voorhees and Ver.

  Cameron hadn’t talked to Ver at the conference. Though the guy was never anything but polite to the twins (to their face, at least), Cameron got the sense that he was avoiding them. At one point, Cameron mentioned to Voorhees that he’d read Ver’s recent interview on Coindesk, remarking that it was some pretty radical stuff. Voorhees had only smiled and nodded, as if to say that’s just Roger being Roger. If Tyler had been in the conversation, he might have started arguing with him. But Cameron knew it wouldn’t do any good. Voorhees would have defended Ver, and Ver was a fundamentalist. Hell, he believed taxation was rape, that the military was a bunch of murderers. Nobody was going to change his mind.

  “Here we go,” Tyler said, pointing to a pair of double doors at the end of the hall.

  They could hear electronic music reverberating down the hallway, interspersed with voices and the unmistakable sound of dozens of keyboards clacking. Cameron could already picture the scene behind the doors: a large conference room with groups of people split into twos and threes, hovering around computers lined up next to one another on long tables. Boxes of pizza stacked high in a corner, maybe cases or kegs of beer along a wall, the music coming from an iPhone connected to a boom box. And “mentors” strolling from group to group, computer engineers, advisers, and founders, helping the teams along as they chased their ideas late into the night.

  Cameron was proud of what he was picturing, because, in large part, he and his brother had made it happen. Winklevoss Capital was sponsoring this night of the Hackathon, paying for the room, the pizza, and the beer. The two-day event had begun that morning at 9:00 A.M. Teams of hackers—computer programmers, entrepreneurs, and technologically savvy creatives—who wanted to participate had gathered in this room for a short speech. Then a panel of five Bitcoin investors had discussed the sorts of ideas they were looking to back. After that, the teams had broken off and started “hacking.” They had until Sunday to build anything that qualified as a Bitcoin application. They’d then be judged by the panel and have the chance to win prizes. They might even impress a judge, or someone else, enough with what they built to attract an investment.

  Some of the hackers in the room would be elite programmers, others just tourists and civilians, but the idea that they were all working on Bitcoin businesses, a camaraderie of young, motivated people—it made Cameron think that anything in the space was possible. It was how he pictured Silicon Valley garages two decades ago; but this time, the Valley had missed the boat.

  Charlie stopped in the hallway, still ten feet from the double doors. He opened his fingers, and Cameron saw an expertly rolled joint, as thick and long as something you’d see in a rap video.

  “Really?” Tyler said as Charlie pulled a lighter out of his jacket pocket.

  “It’s medicinal.” Charlie laughed, putting the joint in his mouth. “Okay, maybe not medicinal, but my doctor says it’s healthier than the whiskey.”

  He leaned back against the wall and put the lighter to the tip. The paper at the end of the joint glowed orange, then a little blue.

  “You guys gave a great speech,” he said. “You’re bringing a lot of credibility to the industry. The Harvard thing. What did they call you in the movie? Men of Harvard?”
<
br />   “What did your doctor say about smoking that on top of six whiskeys?” Cameron asked.

  “No, seriously. You’re making us all look good. And look, I know I can be a little crazy, I mean, I can get a bit overexcited. But you’re right, we’ve got to be serious. I know that. And I might make mistakes, but I’m going to do whatever it takes to make sure we win.”

  “Just remember to keep your head on straight. And don’t do anything stupid.”

  Cameron looked at Charlie, holding up the wall.

  “Of course not.” Charlie’s eyes glazed over.

  “Stay tethered. One day, we’re going to wake up, and it won’t just be a thousand people in a convention center talking about Bitcoin, it will be everyone,” Cameron said.

  As Tyler and Cameron started to walk toward the keyboards typing away, Charlie pushed himself off the wall to follow them. His eyelids were halfway over his eyes, but his eyes were flashing, alive, on fire. Cameron could guess what Charlie was thinking.

  Imagine it—the whole world talking about Bitcoin. And Charlie right in the middle of it, all five-foot-five of him, ready for his close-up.

  “Your lips to the sky people’s ears,” Charlie said.

  23

  GOING MAINSTREAM

  “It isn’t A1, but it’s above the fold,” Tyler shouted through the open door of his glass walled office at Winklevoss Capital, his voice carrying across to Cameron’s own identical glass-walled office across the hall. “Business section, front page. Everyone on Wall Street is going to be reading this in about twenty minutes.”

  Six weeks after the high of Bitcoin 2013, they were back in New York. It was well before seven in the morning and the streets of the Flatiron District hadn’t awakened around them yet. The sound of garbage trucks and street-cleaning vehicles seeped in through the windows onto the newly painted five thousand square feet of office space. Tyler’s copy of the New York Times print edition was spread out on his desk. He knew his brother had his own copy open to the same page, the highly vaunted Business Section. They waited until they were both ready to read the article so that they’d be getting the information at exactly the same time. They knew their dad and mom were at their home in the Hamptons doing the same.

  This time, at least, Popper’s headline avoided using the word “Facebook”:

  WINKLEVOSS TWINS PLAN FIRST FUND FOR BITCOIN

  Tyler knew this was an even more significant announcement than the one that had alerted the world to their massive bitcoin stash. As the article explained, Tyler and his brother had just filed a registration statement for the “Winklevoss Bitcoin Trust” with the U.S. Securities and Exchange Commission (SEC) to create a Bitcoin ETF, an exchange-traded fund, that would allow anyone to purchase bitcoin as easily as they could buy a stock.

  “They use the word ‘audacious,’ ” Tyler said.

  “I love it when they use SAT vocabulary words. Reminds me of mom and her flash cards: ‘The Winklevoss twins are Audacious. What makes them Audacious?’ ”

  If the ETF was approved by regulators, it would make it as simple for anyone to buy bitcoin as it was for them to buy a share of Apple or even Facebook. It would bypass the shadowy process that existed at the moment, like having to go to shady exchanges like Mt. Gox, or, let’s face it, BitInstant, which was not any more reliable under Charlie’s stewardship than it had been before San Jose.

  At the moment, buying shares in an ETF was typically the way investors got exposure to commodities and precious metals like gold. The first gold ETF had in fact launched back in 2004, under the ticker symbol GLD. It was an enormous success. By making it easy for people to invest in the metal, it had ushered in unprecedented amounts of liquidity and investor interest, totally transforming the gold market. You no longer needed to go through the trouble of buying a bar of gold, storing it in your safe at home, and worrying if the plumber was going to rob you when you weren’t there. With GLD, all you had to do was call your stockbroker or, better yet, go online to E-Trade, Charles Schwab, or Fidelity, and type these three letters in before pressing the buy button. That’s how simple the Winklevoss twins wanted to make buying bitcoin. Except for the twin’s ETF, the ticker symbol would be four letters instead of three: COIN.

  Tyler knew that if COIN ever got through the regulatory hurdles and was approved, it would be a game changer. They would have succeeded in bringing bitcoin to the masses. As the New York Times also pointed out, it was a direct effort to “remove the stigma hovering over Bitcoin” and put it right into the laps of regulators.

  The ETF filing wasn’t just going to send a signal to the legacy banking community that Bitcoin was on its way into the mainstream; the filing would also etch a permanent line down the middle of the Bitcoin world, between people like the twins, who knew that Bitcoin’s future had to include regulation, and those who believed Bitcoin was meant to exist apart from Wall Street, the SEC, or any other regulator or government. The Winklevoss Bitcoin Trust was a preemptive strike, meant to end the war before it began.

  People were going to notice, both inside and outside of the Bitcoin world. And they were going to react.

  “Holy shit,” Cameron yelled from his office. “Forget the paper, look online. This is insane.”

  Less than an hour after it had been announced, COIN was going viral.

  “We’re trending number two on Yahoo. Guess what’s number three?”

  Tyler hit his keyboard, then laughed out loud.

  Number three on the Yahoo list, right after their ETF, was a new movie, due to hit the theaters that Independence Day weekend: The Lone Ranger, starring Johnny Depp and Armie Hammer, the latter having played the Winklevoss twins in The Social Network, the movie about their battle with Zuckerberg.

  “Says here they spent seventy-five million dollars in marketing and advertising,” Cameron said.

  “It shows. Every cab, bus, and train in Manhattan is covered with the movie poster. Even the fountain soda cups in Subway have Tonto and one of the Winklevii on them,” Tyler said.

  “That’s insane, we spent zero dollars, and our ETF is beating them by a country mile in Trending.”

  How was a financial product—a financial acronym like ETF—something many Americans had never even heard of—melting the internet?

  Tyler had no idea how the SEC was going to react to the COIN proposal. Most likely, they would move cautiously, at a snail’s pace, which is to say, the speed of government. Making a virtual currency available to everyone, like a stock, would make Bitcoin as accessible as gold, which was a multi-trillion-dollar market. It would also mean that every bank and wire house on Wall Street would have to adapt, start a bitcoin trading desk, hire virtual currency analysts and compliance officers, and maybe even start their own virtual currency funds. Change like that was going to take time, it wasn’t going to happen overnight.

  But the twins had taken the first step. And for them, the timing couldn’t have been better.

  The glow of Bitcoin 2013 had faded. Charlie’s promise to buckle down, put his blinders on, and be the corporate leader BitInstant needed, hadn’t stuck. He had snapped back into his old ways, traveling all over the place to promote what could only be described as his personal brand, while BitInstant was plagued by myriad issues, including delays of service and the threat of losing its relationship with Obopay. After speaking to their lawyers, Tyler wasn’t even sure that BitInstant was still compliant with U.S. money transmission laws, and it was growing more and more clear that if Charlie didn’t get ahold of things, the company wasn’t going to last much longer.

  Worse yet, the company wasn’t profitable. In fact, it had eaten through most of the twins’ investment, including a last-minute $500,000 bridge loan they’d given Charlie a few months ago. Giving Charlie $500k, on top of everything else they’d already invested, now seemed to be the definition of “good money chasing after bad.” But Charlie had begged for the money, telling them at the time that it was needed immediately in order to secure the company’s ac
count at Mt. Gox after BitInstant’s bank had let them down. The twins had reluctantly wired him the money. It had seemed like the best of two terrible options—the other being the immediate death of BitInstant.

  The $500k loan was meant to be temporary, for a few weeks at most. However, after a few weeks, when they’d asked Charlie to wire back the money, he had been evasive, telling them that the company didn’t have it at the moment but would have it soon. It had gotten to the point where it was pretty obvious that Charlie was again outright dodging their calls, texts, and emails.

  Cameron had hoped that Charlie was going to be able to grow past the resignations of Erik and Ira, but it now appeared like the reverse had happened. Even when Charlie was in New York, he wasn’t at BitInstant; he was the CEO of his corner table at EVR, entertaining his legions of Bitcoin fanboys.

  Whatever confidence they’d had in Charlie was dwindling by the day. Filing the ETF felt like a rebirth. If Charlie couldn’t change, they would have to move beyond BitInstant for good; and even if he somehow could change, well, there was a good chance it was already too late.

  * * *

  From: “Charlie ‘Charles’ Shrem” <<#><#>@<#><#><#>.com >

  Subject: Our Call

  Date: July 9, 2013 at 4:43:11 PM EDT

  To: Cameron Winklevoss, Tyler Winklevoss