Bitcoin Billionaires

by Ben Mezrich

  “I think Bitcoin is worth a deeper dive, but BitInstant is a bigger question. This kid, Charlie, is going to be a handful.”

  “It’s not just him building BitInstant,” Tyler said. “There’s his head of marketing. And his seed investor.”

  “A libertarian philosopher and an anarchist.”

  “I don’t think Roger Ver is an anarchist. I think he calls himself an individualist.”

  “I read my fair share of Ayn Rand in college. But someone needs to actually be in charge, grab hold of the reins and make sure this thing doesn’t start to veer sideways. Someone needs to handle compliance, hire people, run the day-to-day. To manage the risks, and deal with the legal side of things. Right now, all of that falls on this Charlie kid, and that’s who you’d really be investing in. Not the business plan, or the philosophy: a kid, running the show.”

  Tyler knew his father was right, that they wouldn’t be investing in just the idea but in the person, the entrepreneur. That was what it meant to be a venture capitalist.

  “He’s smart. He’s ambitious. He’s got something to prove,” Cameron said.

  They were good starting points. But Charlie also seemed to be swayed by Voorhees’s philosophies and taken with Ver’s apparent ideology. Something he’d said had been worrisome: We don’t really care what people do with their bitcoin. It had almost been a throwaway comment, but it had stuck with them. From a business perspective it made sense; BitInstant was an addendum to an exchange, it was just a way to help people get bitcoin for cash. But from a philosophical perspective, it was a fairly dangerous statement. Libertarians or individualists believed people should be free to do whatever they wanted with their money. But in reality, people had never been free to do whatever they wanted with their money. There were laws, regulations, criminal statutes.

  Bitcoin was young, and at the moment, unregulated. But for a limited time only; eventually governments were going to care very much what people did with their bitcoin.

  With BitInstant, they really would be betting on Charlie. It would be a risk. But wasn’t that exactly what they were in the business of doing? Taking risks? Wasn’t that exactly what they were looking for? The chance to take a risk on something with immense potential? To be part of a revolution, once again, only this time with no Mark Zuckerberg?

  Even their mathematical father had to agree: a second act with the enormous potential of Bitcoin seemed like it was worth the risk. It wasn’t often you got a second chance to catch lightning in a bottle.

  * * *

  An hour later Tyler was sitting next to his brother in their SUV as Cameron scrolled toward a contact on his cell phone. Tyler had the window rolled down next to him so he could feel the breeze against his cheeks. Their father was still at the end of the trail, leaning over Tod’s Point, watching the boats row past. He and their mother came down to the Point often, and not just to reminisce about the twins and their rowing.

  The Point had also been a favorite place of Tyler and Cameron’s older sister, Amanda, who in many ways had embodied the best qualities of both Tyler and his twin brother. She was a brilliant student, star athlete, charismatic actress, with almost limitless energy; her talent while they were growing up easily overshadowed theirs. But most importantly, she was grace personified. A rising star when she went off to Williams College, suddenly she started suffering from debilitating bouts of depression. The family was deeply concerned about her well-being and tried to figure out what was going on. It was a hellish two-year journey into the world of mental health. They were suddenly in a land that science didn’t understand, where synching up a diagnosis with the right treatment was like hitting a piñata blindfolded while walking around the Grand Canyon. It was also a deeply private struggle they faced—almost no one outside the family knew what was going on—and most wouldn’t understand. This was not a broken arm, not something you could point to and easily process. This was the unknown, filled with stigma. At times, on her road to recovery, she sought relief from her pain through drugs—which ultimately took her life in New York in June 2002. She was twenty-three. She was never going to have her chance to catch lightning in a bottle.

  Because her tragic end had taken place in a public setting—on a rainy night, around midnight on June 14, she collapsed on a street that was being used to film an upcoming Robert De Niro movie—the New York Post immediately ran several fabricated stories thrusting the tragedy into the tabloid sphere. It was a cruel airing of a private struggle that mischaracterized their fight, and more important who their daughter was—a star who burned brightly on Earth but was now flying high in the sky.

  In one of those stars I shall be living. In one of them I shall be laughing. And so it will be as if all the stars were laughing, when you look at the sky at night.

  Prince, Antoine de Saint-Exupéry, The Little Prince

  The words of her favorite book were inscribed on her tombstone. Tyler and Cameron had been young, twenty years old, rising college juniors who spent most of their time rowing and thinking up business ideas in their dorm room. It had been a devastating time for them, and for their parents. Amanda was the only person in the entire world—including their parents—who had never mixed them up, always telling Cameron and Tyler apart perfectly. When they made the Olympics, they named their racing shell in her honor. As they raced at the Olympic Games in Beijing, beating medalists on their way to making the grand final in their first international regatta, a feat almost unheard of, Amanda’s spirit was with them. And it had been only two years after Amanda’s passing that the twins would be thrust into the torturous and circuitous series of events that had led them to where they were today.

  “You ready to do this?” Cameron asked as his finger hovered over the contact on his phone.

  Tyler nodded. To the outside world, it looked like things had always come easily to them. But Tyler knew that wasn’t true. The thing their father, and his history, and their own family hardships, had taught them was that it wasn’t about whether things came easily or hard, it was how you faced them. If you went down, you got back up.

  And if you had a chance to do something great, you took it.

  Cameron hit the number.

  “So?” David Azar’s Brooklynese reverberated through the car. “Are we gonna do this thing?”

  “Draw up the contract,” Tyler said. What Azar didn’t know was that the eight-hundred-thousand-dollar investment they were about to make in BitInstant was nothing compared to what Tyler and Cameron had planned.

  “Fantastic! And guys, I’ve got a perfect name for our investment group. You ready? Maguire Investments. Get it? Jerry Maguire? Show me the money!”

  Cameron pressed the mute button and looked at Tyler.

  “We can still change our minds,” he said.

  Tyler laughed.

  In his mind, they’d already pulled the trigger.

  10

  BUYER’S MARKET

  Charlie put his cell phone down on his desk and leaned back in his chair. The air in his office felt thick and humid; the air-conditioning had conked out again, and Charlie had promised Voorhees and Ira Miller, his head software engineer, a redhead who could code like nobody’s business, that he’d get the building manager over to fix it, but hell, the air-conditioning could wait. At the moment, Charlie’s mind was spinning, his face was flushed, and it had nothing to do with the late summer heat.

  He’d just gotten off the phone with Cameron for the third time that afternoon, the eighth time that day, the fifteenth time in the past week, and he could tell from the conversation that the twin wasn’t even near done making this particular type of call yet. Which was entirely insane. If someone had told Charlie a month ago that soon he’d be sitting in his office, buying bitcoin on behalf of the Winklevoss twins—and the amount they were asking him to buy—he would have laughed them right out of the room.

  Because it was crazy—crazy awesome. Not only had Charlie begun purchasing bitcoin for the twins, but he and Voorhees also had act
ually shown them how to set up a bitcoin wallet, acting as their guides and educating them on how the Bitcoin economy worked. Through that, the twins had also learned how BitInstant worked, and how Charlie was about to change the goddamn world.

  At the moment, Bitcoin was still far from mainstream. Although maybe Charlie wouldn’t have admitted it at their pitch meeting in the Bakery, for the most part the only ones who owned it in quantity were drug dealers, drug buyers, early adopting geeks who had heard about it from online message boards, and libertarians like Ver and Voorhees. For Bitcoin to work, and for BitInstant to become Apple, mainstream Americans had to get into the cryptocurrency game. And for that to happen, Bitcoin needed ambassadors.

  Who would make better ambassadors than the identical twins, who always looked like they’d stepped off the cover of a Polo catalog?

  But the twins hadn’t been content just to make an investment in BitInstant—totaling $800,000 for a 22 percent ownership of the company. While they were closing the deal, they’d then asked Charlie to help them acquire some bitcoin itself. So Charlie had taken them through the first steps, that first virgin buy.

  From the beginning, the twins were hyperfocused on security. Charlie thought they were a little paranoid; most people just downloaded a digital wallet and then didn’t think twice about it. But it was their money, and they’d earned the right to be careful.

  At their bidding, he’d gotten them two “clean” laptops from Best Buy; one “hot” and one “cold,” and a dozen USB drives. He’d then helped them set up their digital wallet, which would require downloading the Bitcoin software client to the hot laptop, which was connected to the internet, and then transferring it via USB to the cold laptop, which was never to touch the internet. Once the software was on the cold computer, they’d created a digital wallet and generated their private key. Then a copy of the private key had been transferred to each USB drive, which the twins could then store securely.

  Cameron had done his initial diligence on BitInstant by trying to purchase $100 of bitcoin through the service. After Charlie had printed him the first BitInstant deposit slip, for a hundred dollars, Cameron had taken the slip and headed off to the nearest Walgreens. At that moment, BitInstant had a deal with both MoneyGram and SoftPay, which meant between the two they had a network of ten thousand stores that could take their business. By simply generating a deposit slip through the BitInstant website, walking into any Walgreens, Duane Reade, CVS, or 7-Eleven, and handing the cashier cash, you could buy bitcoin. In fact, it had become a joke around the crypto community that if you bought your first bitcoin with a “red phone,” you were a real OG. The “red phone” referred to the ubiquitous phones that were present at MoneyGram locations.

  When Cameron got to that Walgreens, he’d picked that phone up and told the operator the code on his BitInstant deposit slip. The operator had confirmed the transaction, and then Cameron had gone to the cashier and given them a crisp one-hundred-dollar bill. He’d then taken the receipt, headed outside, called Charlie, and Charlie had told him that a hundred dollars’ worth of bitcoin had just been transferred over to one of the Bitcoin addresses in Cameron and Tyler’s digital wallet.

  Those first bitcoin had come right out of BitInstant’s reserve. An easy and quick transaction: BitInstant’s proof of concept. But Cameron and his brother hadn’t been done; not by a long shot.

  That very afternoon, they’d told Charlie they wanted him to buy more, and that they were about to wire over a hundred thousand dollars from Winklevoss Capital’s bank account.

  A hundred thousand dollars. It was a staggering sum of money; the clients Charlie worked with daily, buying and selling bitcoin, were usually spending a few hundred dollars, maximum. Sure, there were a few big players out there, but nothing near a hundred grand.

  But to Charlie’s utter shock, that wire was only the beginning.

  The wires kept coming in. The twins wanted bitcoin, so much, in fact, that eventually it became obvious they would need to go straight to the source, sidestepping Charlie and BitInstant and buying directly from the exchange itself.

  For the amount they were talking about, that meant going directly to Mt. Gox.

  Charlie could still remember the looks on Cameron’s and Tyler’s faces as he’d told them what, exactly, they’d be dealing with: 80 percent of bitcoin trading actually occurred through the big kahuna in the cryptocurrency exchange world—Mt. Gox. The ridiculous name had an even more ridiculous origin. Its owner, Mark Karpeles, a twenty-eight-year-old French émigré to Shibuya, Tokyo, who called himself the King of Bitcoin and who had spent much of his twenties posting cat videos to YouTube, had purchased the company from an entrepreneur who had originally built the website as a trading hub for cards from the game Magic: The Gathering. Hence the name Mt. Gox, an acronym that stood for “Magic: The Gathering Online eXchange.” It was a clunky, janky, totally unregulated exchange. Although millions of dollars in bitcoin were traded on the exchange daily, there was no regulatory oversight at all. Worse yet, on average it could take more than six days to get your money in and out.

  Nonetheless, with the size of the investment position the twins were looking to take in bitcoin, Mt. Gox was the only choice they had. Charlie had already put $750,000 of Cameron and Tyler’s money into bitcoin for them, and the twins’ hunger for the virtual currency had not subsided. If anything, it had grown.

  So they would have to go directly to the Japanese-based exchange, open their own account, and become customers. Which meant new headaches; to wire that kind of money to Mt. Gox, there were hoops they’d have to jump through. First, they had to scan their passports and mail physical legal documents to Japan—actually, to a P.O. box in Shibuya. Once their information made it over the ocean, they would still have to wait weeks for it to be processed, because the onboarding queue at Mt. Gox was so backed up. Luckily, because BitInstant was one of Mt. Gox’s biggest customers, Charlie had a personal relationship with the French entrepreneur and was able to speed things up for the twins.

  Karpeles was obese, difficult, and utterly strange; the man would disappear for days at a time, yet he was also a control freak and micromanager, who wouldn’t let anyone else help out with even the most mundane parts of his business. He was still obsessed with cats and had a penchant for manga comics. Charlie pictured him in his office late at night, the neon of Tokyo flashing through the cracks in the drawn window shades behind him, a purring cat on his lap, a croissant in his pudgy hand; but Charlie had never actually met the man, he had only communicated with him over Internet Relay Chat (IRC).

  Once their accounts had been set up, the twins could wire their money directly to Mt. Gox and start buying bitcoin on their own. And as far as Charlie could now tell, they were doing so, at a furious pace. Wiring half a million dollars a week, maybe more. Placing buy orders that were so large they could move the price of bitcoin, a price that was now hovering anywhere between $10 and $20 a bitcoin, if they weren’t spread out over time. There was no doubt they were the biggest buyers of bitcoin in the world—the twins were fucking whales.

  Charlie stared at the phone on his desk. His face was still flushed, and now there was sweat running in hot rivulets down his back. More than anything, he wanted to head over to the Bakery and power up his makeshift vaporizer. He could use something to calm his mind. Minutes ago, Cameron had finally told him the twins’ endgame. Their investment in Charlie and BitInstant, even their initial purchase through Mt. Gox, was really just dipping a toe (two toes, come to think of it) in the water. But they were about to put their feet in.

  11

  THE REVERSE HEIST

  “Please remove any laptop computers, large electronic devices, metals, liquids, shoes, jackets.…”

  The drone of the bored TSA agent standing on the other side of the conveyer barely registered as Cameron unslung his black backpack from his shoulder. The TSA orders were, of course, redundant. Cameron had been flying since before he could walk. The poorly choreographed post
-9/11 dance of airport security was second nature to him. His laptop was already on its way down toward the maw of the X-ray scanner. His high-tops were in the next bin, stacked on top of his leather wallet and keys. All that was left was the backpack.

  The thing felt like it weighed a hundred pounds, as Cameron directed it toward the third bin he’d retrieved from the tower by the start of the belt, but, in reality, it was quite light; when it got to the X-ray machine, all that the TSA agents were going to see were a couple of magazines, a comb, and a paperback book. If they looked really hard, maybe they would see a dozen 8½-by-11—waterproof, fire-resistant, and tamper-proof plastic envelopes, resting between copies of that week’s Economist and the most recent Vanity Fair. If the TSA agents got curious and decided to open the envelopes, they would see that each envelope contained a single sheet of paper. On each sheet, they would see what would appear to be a morass of random, garbled letters and numbers, printed by a computer.

  And yet, even the slightest possibility of those TSA agents holding those plastic envelopes sent nervous chills down Cameron’s spine. Even worse, just the thought of those X-ray scanners was enough to send him into a mini-panic. Could those machines actually capture legible images of the twelve pieces of paper in those twelve plastic envelopes? Did they store what they scanned? If so, where? On a local hard drive? In the cloud? Who had access to those scans?

  As Cameron carefully placed his backpack and moved toward the short line of people waiting to go through the body scanner that led deeper into the Delta terminal at LaGuardia, he realized that he was actually shaking. He had nothing to be scared of; he wasn’t smuggling guns, or drugs, or cash, just pieces of paper sealed in plastic envelopes.

  He watched as a young woman entered the scanner, raising her arms above her head like she was about to leap off a diving board. Two more people were in line behind the woman: a guy who couldn’t have been older than nineteen, in torn jeans and a black Megadeth T-shirt, and a middle-aged businessman whose suit pants were a little too short, making them look like clamdiggers above his argyle socks. Soon it would be Cameron’s turn, and then he’d be on the other side, able to retrieve the backpack. Maybe then he’d be able to catch his breath again.