Bitcoin Billionaires

by Ben Mezrich

  Guys,

  I just wanted everyone to know that I heard what you were saying on the call and I take it very seriously. Things ARE changing dramatically to fix problems on all fronts and put us in a position for growth as quickly as possible.

  I’ve made a lot of mistakes, the ones that you guys called me out on as well as others that I’m seeing now and taking steps to fix.

  Here are the immediate steps:

  •I will be in the office every day from 9-6 Monday through Friday unless it’s essential BitInstant business (like bank visits)

  •I won’t leave NY for the next month—I’ll be focused and at the office

  •I won’t talk to any press or reporters in person, over the phone or via email

  •My time will be focused on fixing immediate problems (sourcing technology leadership and other star team members to fill the gaps and get things done)

  •I will provide regular updates about the status of things (good and bad)

  We’re generating an internal audit report to figure out exactly what we need to fix and how. You’ll have that at the end of the week—it will be exhaustive with problems, solutions and a roadmap.

  Thanks,

  Charlie

  Charlie hunched forward over his computer keyboard in BitInstant’s new offices, blocks from its original headquarters. It wasn’t SoHo, but it wasn’t Brooklyn either; the place had enough room for thirty employees, natural light streaming through multiple windows, and the electricity worked—for the moment. Two weeks into their new digs, even Charlie, the ultimate optimist, was wondering how long they’d be able to continue to afford to keep the lights on.

  “You think it will be enough?” Courtney asked, from over his shoulder.

  Her shift at EVR wouldn’t begin for another hour, and it wasn’t uncommon for her to stop by Charlie’s office before work. Over the past three days, Charlie had basically been living at BitInstant. He’d only gone back to the apartment above EVR to shower and to get away for a minute from the electronic hell he was now facing on a day-to-day basis at work.

  It had all come to a head over the Fourth of July weekend, during a frantic conference call with his team of lawyers. All of those things that had kept him busy since Bitcoin 2013—servers getting overloaded with traffic, website issues, bugs in the codebase—paled in comparison to what his lawyers were telling him now: Obopay was officially gone as a partner, and BitInstant could no longer continue operating until it addressed its licensing issues. Though the current money transmission laws had not been designed for the Bitcoin economy, and might not apply, which meant not having licenses might be okay, Charlie’s lawyers had cautioned him otherwise. They believed it was too dangerous for BitInstant to continue doing business now that Obopay was no longer providing them with licensing.

  Charlie felt certain this was not an insurmountable problem. Given time, he could find a new licensing partner. Or perhaps he and BitInstant could go out and get licenses in each state themselves.

  But first, he also had a more personal issue.

  “I think I’m being as honest as I can be. I’m here and ready to work.”

  No more partying, no more late nights, no more travel. Focus. That’s what he was promising the twins, and that’s what he was going to provide. If they only gave him the time, he could fix BitInstant.

  Of course, he’d have to listen to the lawyers and shut the site down for now as he dealt with the licensing issues. It wasn’t something he was going to mention in the email he was writing; he knew how poorly that would go over. Telling them that the site had to be shut down, even temporarily, was going to set them off. He didn’t want that to happen.

  Charlie wasn’t naive enough to believe that this email was anything more than a stopgap. But right now, he desperately needed any time he could get. Even a Band-Aid would do. The twins had been breathing down his neck, so he had to respond with something.

  They were probably already in a less-than-agreeable mood. When the twins had first filed their ETF just days earlier, Charlie had been thrilled by the amount of positive attention it had been getting. But that morning, as he’d looked through the new round of articles, he’d noticed that the tone of the follow-up pieces was decidedly different. The optimism and excitement had suddenly morphed into something else: a digital cacophony of ridicule, contempt, and abuse. The mostly positive reception, evidenced by the original New York Times article, had been overwhelmed by a fresh round of negativity coming from the Silicon Valley establishment.

  Charlie had browsed through the articles, stopping on the ones that seemed most prominent. First, there was Michael Moritz, the famed head of Sequoia Capital, one of the biggest and most famous VC firms in Silicon Valley and an early backer of Google. Speaking sarcastically to CNET, Moritz had said, “You know when the Winklevosses get into the business, it’s serious.”

  Felix Salmon, a financial journalist, writing for Reuters:

  To be clear: this thing is a really, really silly idea, from a pair of brothers whose main ambition, these days, is to be the biggest helminths in the bitcoinverse. The Winklevii, muscling in to the financial-innovation game, are being much more selfish about the whole thing. They’re going to fail; I just hope they don’t cause too much harm to others in doing so.

  Bill Borden, a senior vice president at UBS:

  When I read the headlines my initial reaction was to chuckle … while I find developments in the Bitcoin story to be intriguing, I doubt that the Winklevoss ETF would be how I would play it should I ever decide to buy Bitcoin.

  Reginald Browne, a managing director of Cantor Fitzgerald, widely known as the godfather of ETFs:

  The Bitcoin ETF idea is so far-fetched that SEC approval, if it comes, could take years. I think it’s a riot.

  And for the encore, economist and New York Times columnist Paul Krugman had written an op-ed titled “Bitcoin Is Evil,” after previously calling it the “Antisocial Network.”

  The pundits had all shown themselves to be either against the Winklevoss twins, Bitcoin, or both. In retrospect, the negativity wasn’t surprising. Big ideas were scary, little ones were not. The ETF was a big idea, a challenge to the status quo. Even the Silicon Valley elites like Moritz had a failure of imagination when it came to anything outside of the framework they knew.

  With the ETF, the twins were challenging the legacy banking world right where it lived. No matter how well the twins dressed it up, it was still all about Bitcoin, a barely four-year-old digital currency.

  Charlie knew exactly what the legacy banking world really thought of Bitcoin. BitInstant was hanging by a thread—despite huge demand, loyal customers, fanatical fans—precisely because the legacy banking world wasn’t ready to embrace the digital coin.

  That’s what Charlie needed the twins to understand. He, and they, were fighting the same fight. Sure, maybe he hadn’t been the best soldier. Though he’d tried to put on a good face after the resignations of Voorhees and Ira, the loss of his brain trust had knocked the wind out of him. He knew that his friends had done fine since they’d left. Voorhees was eclipsing all of them; he’d recently sold his side project, SatoshiDice, for a whopping 126,315 bitcoin, which at the time of the sale, was valued at around eleven and a half million dollars.

  But without Voorhees and Ira, BitInstant hadn’t felt like home. Even Ver seemed to have moved his focus to other investments, and Charlie couldn’t really blame him. It had been Charlie’s idea to go with the twins in the first place, and if BitInstant didn’t get through its current problems, it would be on Charlie’s head alone.

  Reading over his email one last time, Charlie knew that ultimately his pleas, no matter how heartfelt, would not be enough; he would need to produce. But he did truly believe that all he really needed was more time. Everyone knew that Bitcoin was volatile. One day, it could dip toward a soul-crushing abyss. The next day, it could soar just as high. Like entrepreneurship itself, the twists and turns of the price were not for the fai
nt of heart. Catch it on the way down, you could lose your shirt. But if you could handle the abyss long enough, if you could hang on through the dark times, maybe you’d get the chance to catch it again, on the way back up.

  Charlie gave Courtney his most confident smile, then hit send.

  ACT THREE

  All human wisdom is contained in these two words: “Wait” and “Hope”!

  —ALEXANDRE DUMAS,

  The Count of Monte Cristo

  24

  A PIRATE’S TALE

  San Francisco.

  October 1, 2013.

  3:15 in the afternoon.

  Diamond Street, quiet, tree-lined, winding through a mostly residential neighborhood, sloping toward a small business district. The Glen Park branch of the San Francisco Public Library, a granite cube with oversize windows. A warm, orange-lit interior. Hardwood floors, paneled ceilings. Up the stairs to the second floor, rear corner, tucked into the science fiction section of the library, a small, brightly lit desk by the window.

  A twenty-nine-year-old kid with shaggy hair lowered himself into the seat behind the desk, placing his backpack by his feet. Good-looking in that California way—though he was originally from Texas—relaxed, though a little bleary eyed, the kid retrieved his Samsung 700Z laptop computer from the backpack, placed it on the desk, and opened the screen.

  Seconds later, he initiated a Tor connection. An anonymous browser that was originally developed by the U.S. Navy to keep its ships’ communications safe, Tor was now a mostly free service used by people all over the world who wanted to keep their internet activity private. Once the kid’s connection was established, piggybacking over the library’s free Wi-Fi, he opened an encrypted portal to a website that could be found only by those who knew where to look, in the area of the internet known as the dark web, deep beneath the outer layers of the “onion.” Only browsers like Tor, an acronym for the “Onion Router,” could carefully peel it away and find sites like this.

  Entering his password, the kid’s sneakers bounced against the hardwood floor beneath the desk. He was tired. He’d spent many late nights working on the website, which was no surprise, considering it was massively successful, with hundreds of thousands of visitors per year. In fact, the kid was, despite his humble appearance, an unlikely mogul; the volume of exchanges that had passed through his website was valued not in the millions, but over a billion. His personal net worth was already close to thirty million. But although the site ran well, in the digital, well-oiled-machine kind of way, nothing about managing a monster like that was easy. It required constant maintenance and oversight, and even though the kid didn’t have an office of his own, his laptop was like a traveling C-suite. Instead of some corporate cube in a tower in the Financial District, or the atmosphere-controlled cabin of a private jet, he had a corner of the public library, or a coffee shop, or a tiny bedroom in his shared apartment just a few blocks away.

  He’d left the apartment just twenty-eight minutes before, at 2:47 P.M., planning to spend the afternoon at Bello, perhaps his favorite of the coffee shops with free Wi-Fi that dotted Glen Park like an overwhelming case of chicken pox. But he’d found Bello too crowded with customers for his liking. So instead, as he sometimes did, he’d strolled another ten yards to the library, choosing the solitude of the science fiction section over the elbow-to-elbow mosh pit of the coffee shop.

  Now he was ready to work. And almost as soon as he entered his password into the site, that work found him, in the guise of a chat notification from one of his many employees, who operated under the handle “Cirrus.” The kid had never met Cirrus in person, but he’d emailed with the employee many times a month, sometimes even daily, and paid him $1,000 a week to manage many of the site’s forums and answer user requests.

  As soon as the kid got the chat window open, Cirrus was there, business in hand.

  “Hi, are you there?”

  The kid rubbed his eyes, glanced around himself at the empty second floor of the library, then typed:

  “Hey.”

  “How are you doing?” Cirrus asked.

  “I’m okay. You?”

  As usual, the chitchat ended there, because how friendly could two people be who had never met face-to-face, and who, out of necessity, would never have a relationship beyond blinking cursors facing each other over a heavily encrypted, anonymous online connection.

  “Good, can you check one of the flagged messages for me?” Cirrus wrote back.

  It was the sort of uninspiring, admin work that came up almost daily, usually something that could be handled and put to bed in minutes. All he needed to do was use his password to log into the back end of his site, and most likely hit a few keys to fix the tiny, technical issue. Nothing particularly urgent, but when you ran a website that had moved over a billion dollars in product over the few years of its existence, bringing in millions in profit, it was never a good idea to let any problem, no matter how small, fester.

  “Sure,” the kid wrote back. “Let me log in.”

  As he navigated to the correct page, entered his unique password, and began searching for the flagged message, he was so engrossed with the task at hand that he didn’t notice the two people coming up the stairs from the first floor of the library until they were practically right behind him, and their shadows flashed across his laptop’s screen. The kid glanced back and saw a man and woman, well dressed, obviously affluent, the sort of modern-day yuppies you saw all over San Francisco, especially in neighborhoods like Glen Park. The man was tall and thin, and probably worked at one of the tens of thousands of internet startups that had sprung up all over the city, the farthest outward ring of the hurricane whose epicenter was down in Silicon Valley. The woman was obviously his lover, because as soon as they’d reached the second floor, they’d started bickering in the way that only two people who had seen each other naked could argue: viciously and too loud.

  When they reached a spot behind the kid, the woman’s voice hit an entirely new octave of fury, and now their lover’s quarrel was impossible to ignore. Annoyed, the kid actually rose from his chair to see if he needed to get involved—and that was when it happened.

  The man leaped forward and grabbed the kid’s laptop with both hands, then slid it across the desk to the woman, who had lunged to the other side. The woman yanked the laptop off the desk—careful to keep it open—and then handed it to a third man, who had suddenly appeared from behind one of the nearby bookshelves.

  As the kid watched, his face frozen in shock, the third man jammed a USB memory stick into the laptop. He then retrieved a BlackBerry from his coat pocket and began snapping photos of the open laptop screen. From three feet away, the kid could easily see the screen—the open chat window showing his conversation with Cirrus in one corner, the backdoor page of his website in the center, where he’d been navigating to the flagged message.

  But before the kid could say or do anything, the lovers were on either side of him, and the man was yanking the kid’s arms behind his back. Something ice cold and terrifyingly hard touched the skin of his wrists, and then there was an unforgiving metallic click—and suddenly he was handcuffed, arms tight behind his back, his shoulders burning at the pressure. Then the man was leading him through the library down the stairs while the woman was reading him his rights. Just like on the TV shows.

  The realization that he was under arrest hit him, followed by a nail in the pit of his stomach as he also realized that his laptop computer—still open, its glow illuminating the face of the third man, who was most likely not some local cop, not even a resident of Glen Park or San Francisco or even California but a trained FBI agent, probably an expert in computer forensics—contained enough information, now completely unencrypted, to have him locked up.

  For the rest of his life.

  25

  THE DAY AFTER

  “Money laundering.” Cameron was reading off his computer as Tyler hovered behind him. “Computer hacking, conspiracy to traffic narcotics, an
d procuring murder.”

  Tyler leaned over his shoulder to stare at the screen.

  “Procuring murder?”

  “Apparently he tried to hire two hit men who turned out to be undercover FBI agents. Assassins for hire …”

  “That’s so dark.”

  Cameron leaned back from the computer, then looked out over the bustling office that was now Winklevoss Capital. So many people, and almost all of them under the age of thirty, recent grads from Harvard, Yale, Columbia, NYU, Berkeley, Stanford, and so on. All of them eager to be there, gravitating toward the twins as they worked to turn Bitcoin into something respectable. And up until today, fighting that fight had meant Silk Road was hanging around their neck every day like a drug-addled albatross. And now suddenly, just like that, it was gone: cooked, just like Ross Ulbricht, the twenty-nine-year-old who had been IDed as the mogul behind the biggest illegal drug bazaar in history.

  “Dread Pirate Roberts is going to jail.”

  Dread Pirate Roberts was the online name Ulbricht had given himself, after the Cary Elwes character in the movie The Princess Bride. In the movie, he’s a mythic character who, it turned out, is actually multiple pirates, the name being handed down from generation to generation.

  Ulbricht would later claim that he hadn’t created Silk Road, that, like Westley the farm boy in the movie, he’d inherited the title from someone else. In fact, one of the potential names that the blogosphere theorized as the possible true creator of Silk Road was Mark Karpeles, the Mt. Gox CEO. But the FBI disagreed, and it seemed as if they had gathered enough evidence to convict Ulbricht. With all the charges against him, he was looking at facing the rest of his life behind bars. The FBI was claiming that by running a website over which a billion dollars of drugs was bought and sold, Ulbricht had become one of the biggest drug kingpins in history. Although Ulbricht could argue that by running a website, he was merely a software provider, which didn’t make him responsible for what was sold on that site—Amazon, eBay, and plenty of other sites had seen illegal items sold on them many times over—it would be, in the end, a hard argument to win in front of a jury. For one thing, it was unlikely that any jury did not include at least one person who cared for or knew someone whose life was ravaged by an opioid addiction. Pills like oxycodone seamlessly changed hands in bulk over Silk Road every day. Dread Pirate Roberts knew exactly what his marketplace was selling and had continually argued in his own writings that he was proud of the niche Silk Road filled. In fact, he wasn’t just the site’s operator, if the feds were to be believed, but he had also tried to hire hit men over the site—he was one of its customers.