Encore: Crypto Wars | Generate Coins | 1

0:00Could 2023 be the year of the cryptocurrency rebrand? Cryptocurrency firms are desperate for a refresh after the series of catastrophes that define 2022. The implosion of firms like Sam Bankman-Fried's FTX led to a crypto winter and increased regulatory scrutiny. Whether the industry can develop new tools and shed its baggage remains to be seen, but it's not the first time cryptocurrency has gone through upheaval. Wondery is launching a brand new miniseries on the fall of FTX on May 22nd. So to get you ready for that, we're presenting an encore of our Ambie award-winning season, Crypto Wars.

0:50It's late 2011 in a coffee shop in Austin, Texas. Ross Ulbricht scowls at the computer code on his laptop. He's building a website called Silk Road. He wants it to be like eBay, a trusted online marketplace where anyone can buy and sell goods, only for drugs. But right now, his code won't talk to the payment system the site will depend on. The tall 20-something runs his hands through his wavy auburn hair as he works to get them to play nice. Ulbricht checks who's calling. It's the owner of the remote cabin he rents out near Bastrop. Hey, what's up? I just stopped by the cabin. Ulbricht gulps. Did you go inside?

1:40Mm-hmm. So yeah, I've seen the mushrooms you're growing. Ulbricht's heart starts racing. He's turned the guy's cabin into an hallucinogenic mushroom farm. But he needs those shrooms. they're going to be the first product sold on Silk Road. Without them, his plan to get rich and powerful is over. So, um, what are you going to do? I'm going for lunch. For an hour. Right after, I'm calling the cops. Bullbrick bolts for the door. He's got 60 minutes, and the cabin's 40 minutes away. Bullbrick floors it. Come on, come on. He checks the dashboard clock. Time's running out. He swerves onto a tree-lined track.

2:34His car kicks up a cloud of red dirt as it hurtles toward the shabby cabin at the end and skids to a stop. Ulbricht bursts into the gloomy cabin. Thin rays of light pierce the cardboard over the windows. The funk of a thousand mushrooms hangs in the air. Ulbricht races to fill trash bags with the plastic trays that contain his miniature forests of ghostly blue-white fungi. He tosses the bags into his car's back seat and speeds away. In the distance, police sirens wail.

3:13Thirty minutes later, Ulbricht pulls over to catch his breath. He glances over his shoulder at the bulging bags and grins. He saved his crop. But the key to the kingdom is his website, Silk Road. It will soon do for drugs what eBay did for garage sales. It'll let people buy and sell illegal highs using a new digital currency that's near impossible to trace. It's called Bitcoin. Silk Road is about to make Ulbricht a rich and wanted man. But it will also fuel demand for Bitcoin, igniting a monetary revolution that'll meant new billionaires unleash a thousand scams and rattle the very foundations of the global financial system.

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5:39From Wondery, I'm David Brown, and this is Business Wars.

6:09Thirteen years ago, Bitcoin was an idea straight out of science fiction. Now, it and other digital currencies are worth almost$2 trillion. That's more than the annual economic output of South Korea. Some call these currencies the future of money. Others call it the biggest bubble in human history. But there's no question that digital money is challenging the world economic order and powering the rise of new financial powerhouses like Coinbase, Gemini, and Robinhood. In our new series, we tell the story of the digital gold rush and the corporate battle to tame the wild frontiers of cyber finance.

6:50But not every contender will make it out of these lawless badlands alive. This is Episode 1, Generate Coins.

7:09January 2009, a suburban house in Santa Barbara, California. Computer programmer Hal Finney sits at the desk in the corner of his living room and powers up his PC. He sips his morning coffee as the four screens tethered to his PC come to life. Finney is about to become the midwife to a new form of money. He opens the email sent last night by Satoshi Nakamoto. He clicks on the link in the email and sips his coffee as he waits for a file to download. Finney first encountered Nakamoto last year. Nakamoto had just posted a vision for a digital currency called Bitcoin on an obscure forum for programmers interested in cryptography.

7:56Most of them dismissed Nakamoto immediately. They figured Bitcoin would fail, just like every attempt to create digital cash that came before. Besides, Nakamoto was a newcomer and not part of their clique. But Finney was impressed by Nakamoto's blueprint for a virtual currency that no government could control and no company could own. He urged Nakamoto to write the code that would make Bitcoin real. Now, Nakamoto's delivered the goods. Finney emails Nakamoto. Installing it now. You around? As Finney sends the email, he realizes he has no idea where in the world Nakamoto is. He knows nothing about the man or woman.

8:45Heck, Nakamoto might be several people. Not that it matters. The Internet's full of folks pretending to be something they're not. An email from Nakamoto lands in Finney's inbox. I'm online. Tell me if you encounter any problems. Thanks for your help. Finney starts Nakamoto's program. It immediately generates a long code made up of random letters and numbers. This is Finney's public address. Any bitcoins he owns will be linked to this address. It's like a bank account number, and he'll need it to send or receive bitcoins. The program produces another complicated code. This is Finney's private key.

9:28It will control access to his public address, like the PIN number for his debit card. He'll use it to approve transactions while keeping it secret from others. The mathematical calculations linking the public address and private key are so fiendishly complex that it's impossible for a hacker to use someone's public address to figure out their private key. That makes Bitcoin addresses super secure. But unlike a computer password, which can be recovered or changed endlessly, if someone loses their private key, they can never regain access to their Bitcoins. Finney swigs his coffee and checks out what else Nakamoto's program does.

10:12There are just two options. The first is send coins. But Finney has no Bitcoins to send. So he clicks on the other option, generate coins. Not much happens on his screens, but under the hood, his computer leaps into action. It searches the internet for other computers running the Bitcoin program. It soon finds the only other computer on the Bitcoin network, the one owned by Nakamoto. Connection made, Finney's PC starts competing with Nakamoto's machine to solve complex math puzzles. It's a race, and the computer that finishes first will earn its owner a bunch of brand new Bitcoins. And then, the race for the next deposit of Bitcoins will immediately begin again.

11:01This process is called mining. But these prizes are just the carrot Nakamoto is using to get people to turn their computers into the workhorses of the Bitcoin network. For Bitcoin to work as money, there must be a way to check that someone paying in Bitcoin actually has Bitcoins to spend. When you pay with a credit card, the computers owned by a company like Visa or MasterCard verifies the transaction. But Bitcoin has no intermediaries, no owner, and no computers of its own. Instead, the Bitcoin network relies on people volunteering their own computers to do the checks. Nakamoto's plan is cunning.

11:42The chance to earn new Bitcoins will motivate people to add their computers to the Bitcoin network. As Finney's computer battles for Bitcoins, he grabs his car keys and heads out for the day. When he gets home that evening, he checks how many Bitcoins his computers earned him. 50 Bitcoins! Ha! Maybe one day I'll be able to buy a beer with him. A few days later, Nakamoto releases the Bitcoin program online. The age of Bitcoin has begun. But right now, Bitcoins are worthless.

12:26July 2010, late evening in the small town of Patterson, New York. Misun Makayla climbs the stairs with her sleeping newborn son in her arms and wanders into her husband's den. She sees him hunched over his keyboard amid the clutter of tech, programming textbooks, and video game controllers. Jed, I'm heading for bed. You staying up? Jed spins his office chair around to face her. He's a round-faced man with short, unruly black hair. Yep. But I won't be able to sleep. Something wrong? Yeah. There's this thing called Bitcoin. It's really cool. It's like this libertarian nerd thing, but it's also really hard to buy.

13:16All the websites selling it barely work. Huh. What do you do with it? Uh, it's like virtual money. Pretend money? Like, why are you trying to buy pretend money? It's not pretend. Well, I guess it is, but it isn't. I just want some, okay? It's just this cool thing. It's like Star Trek money or something. Mmm, okay. Just don't stay up all night, all right? The next morning, Mi Soon wakes and sees that Jed's side of the bed is untouched. She heads to Jed's den. He's still at the computer, wearing the same t-shirt he had on last night. Did you stay up all night? Jed turns around. He looks wired. I did, but I solved the problem.

14:07I built a website, an online exchange, where people can buy bitcoins with dollars and then turn bitcoins back into dollars. Hmm, great. Is this a hobby or is this a business now? Well, maybe a small side business. I don't know. I'm going to charge half a percent per transaction, so it might make some money. Who knows? But it needs a name and a web address. Problem is, every name I think of is already taken. Don't you own spare web addresses? Well, there's Mt. Gox. Misun remembers Mt. Gox. Jed started it a few years ago as a place where players of the collectible card game Magic the Gathering could trade cards.

14:50It lasted just a few months. You should use Mt. Gox. It's kind of a weird name, but it's memorable. A few days later, Mt. Gox opens for business offering to connect those selling Bitcoin with those who want to buy. On its first day, 20 Bitcoins are traded at 5 cents each. But word spreads fast in the tight-knit Bitcoin community. By the end of the month,$1 ,000 worth of Bitcoin are being traded on Mt. Gox every day. And with Bitcoin easier to get, the ranks of Bitcoin owners swell. But the digital cash they own is barely more useful than a wallet full of Monopoly money. Bitcoiners are left to trade among themselves, swapping Bitcoins with one another for delivery pizzas and SpongeBob SquarePants stickers.

15:44If Bitcoin's going to make the jump from playtime to big time, there needs to be a compelling reason for people to pay in Bitcoins instead of dollars. And that's a problem one criminally-minded Texan is about to solve.

16:05Late 2011, near Bastrop, Texas. Ross Ulbricht leads his girlfriend Julia towards the off-the-grid log cabin he's renting. He steadies her as she stumbles on the rough ground. Take it slow, the ground's bumpy. Where are we? You're better off not knowing. Okay, wait there. Julia hears keys and the sound of a heavy metal door opening. When Ulbricht said he wanted to share a secret with her, she was intrigued. Now she's blindfolded in somewhere remote. She's no longer sure if she feels excited or scared. Ulbricht takes her arm to lead her. Okay, let's go in. Be careful, some steps there. Ew, this place smells dank.

16:57Did something die in here? Julia hears Ulbricht shut the door behind her. All right, you can take the blindfold off. Julia lifts her blindfold up and over her forehead, pushing the tresses of dark curly hair off her face. She looks around. The cabin is run down. Tattered sheets of cardboard cover the windows. The shelves are lined with plastic trays full of sprouting mushrooms. Julia leans in for a closer look and then turns to Ulbricht. Are these magic mushrooms? Yeah. She looks around. There's a lot of mushrooms. These are clearly for more than just personal use. Um, what are you going to do with all these?

17:47Ulbricht grins. He's been planning the Silk Road website for months in total secrecy, but he feels he can trust Julia. I'm going to sell them online. Are you crazy? We're in Texas. That's like a first-degree felony. You put all this on Craigslist, you'll get life. I'm not using Craigslist. I'm building my own website called Silk Road. It'll be on the dark web. I'll sell these shrooms on it just to get things going, but it's going to be like Amazon and eBay. Other people will be able to sell drugs on it, and I'll get a cut every time. Um, I'm pretty sure the police can track bank transfers and PayPal payments.

18:23That's why I'm using this digital cash thing called Bitcoin. It exists outside the financial system and it's designed to leave no trace. The data about who was involved in the transactions is completely encrypted and you don't need banks until you turn Bitcoins back into dollars. Which is when they'll catch you. Catch me doing what? They won't know where the Bitcoins came from. They're untraceable. They can't tie them to Silk Road or me. Julia stares at Ulbrich. She thought she was dating a used bookseller. Now, she's going out with a wannabe drug baron. It feels dangerous and exciting. But now, she's also burdened with Ulbricht's dark secret.

19:12In January 2011, Ulbricht opened Silk Road for business. In forums dedicated to Bitcoin and to drugs, Ulbricht posts under fake names to alert people to its existence and to provide guidance on how to get drugs delivered to your door via Silk Road. A few customers buy some of his shrooms. Then, when the cops don't show, they come back for more and tell their friends. Soon, drug dealers are selling their wares on Silk Road and offering everything from homegrown cannabis to black tar heroin and helping Ulbricht earn tens of thousands of dollars every month. As Silk Road booms, so does demand for Bitcoin and the services of Mt.

20:01Gox. And for one teetotaling tech tycoon, Silk Road is a revelation that will inspire him to dedicate his entire life to spreading the Bitcoin gospel.

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21:58February 2011, San Jose, California. Outside a suburban house, a man stands at the open front door. Hello, Roger? Are you in there? There's no reply. The man doesn't know what to do. His friend, Roger Veer, called him asking for him to come right away. But something doesn't feel right. Even finding out that Veer was in the U.S. was a surprise. Veer made his fortune in Silicon Valley selling computer memory. But these days, he lives in Tokyo. And that's mainly because Veer and the U.S. government have a history. Several years ago, Veer got busted for selling fireworks online and landed in prison.

22:44He figures the conviction had less to do with his crime and more to do with his libertarian politics. Veer believes in replacing government with a new society built around free markets and individual liberty. Roger? Veer's friend looks into the house from every angle. He sees no sign of Roger. Roger, I'm coming inside now. Don't jujitsu me or something. Inside, it's a mess. Empty boxes of Chinese and Japanese food everywhere. Sheets of paper spread across the floor. He finds Veer sitting at the kitchen table. Veer's an athletic 32-year-old with a buzz cut. But he looks ill. His eyes are bloodshot, and he's staring into space.

23:38Roger? Veer raises a hand to wave hello and knocks a glass of water off the table. It hits the floor and smashes. Veer doesn't notice. Hey, are you okay? They can't stop it unless they shut down the internet. What are you talking about? Bitcoin, it'll change the world. People won't need permission from banks or governments to spend their money. The statists will fall. Silk Road's the start. Silk Road? Yeah, it's a website where you can buy drugs with Bitcoin. I thought you were a teetotaler. No, no, I'm not on drugs. But I don't feel good. I should have slept more. But I heard about Bitcoin and then I read and I read and I read and it's like a rabbit hole and it goes deeper and deeper.

24:43Veer's friend snaps his fingers to regain Veer's attention. Hey, when did you last sleep? Not sure. Days ago, maybe a week. No wonder you're in this condition. You're beyond sleep deprived. Come on, I'm taking you to the hospital. Veer emerges from the hospital refreshed, but forever changed. Bitcoin is now his calling. Veer sees Bitcoin as a tool to disempower the state. Governments can use their control of money to raise the funds they need for the militaries and police forces that do their bidding. But no government can create or control Bitcoin. Veer believes if the world adopts Bitcoin, governments will be left helpless and the libertarian society he dreams of will arise.

25:38Veer springs into action. He moves much of his fortune into bitcoins. His business starts accepting bitcoins, and he gives away bitcoins to people he meets. His actions cause his fellow believers to nickname him the Bitcoin Jesus. He also pays for ads on Free Talk Live, a radio show promoting libertarian politics that runs on more than 100 stations across the USA. In every age, a technology is created that upends the foundations of society. The wheel, the printing press, the internet. Now, in a world sliding into financial chaos, a new technology is changing the way monetary systems work around the world.

26:20It is called Bitcoin. But as Veer spreads the word, faith in Bitcoin is about to get shaken to its core.

26:34June 2011, 3 a.m., an apartment in Tokyo. Mark Karpelis fumbles for the iPhone on his bedside table. Karpelis is the new owner of the Mt. Gox Exchange. He took charge of it in January, after its founder, Jed McCaleb, got cold feet about the company's unclear legal status. Now, Mt. Gox is booming. Two months ago, it had 3 ,000 users. Now, it's got$60 ,000. Carpellis grabs his phone. The caller is a pal in Peru who's been helping out with Mt. Gox. William, it's 3 a.m. The exchange is crawling to a halt. The price of Bitcoin has collapsed. What do you mean, collapsed? It's gone from$17 to a cent in less than an hour.

27:27Carpellis springs out of bed and rushes to his home office. He knows in his gut that this price crash can't be accidental. For months, hackers have been trying to break into Mt. Gox and run off with the hundreds of thousands of bitcoins it holds on its customers' behalf. Carpellas gets to his PC, logs into the back end of Mt. Gox, and severs the connection to the server. Instantly, all trades on Mt. Gox stop. The raid is over, but the damage is done. The hack has shaken faith in Bitcoin's stability and shattered trust in Mt. Gox's security measures. The incident leads Veer to conclude that Bitcoin's future can no longer depend on Mt.

28:16Gox. To survive, Bitcoin needs not one, but many companies behind it. That way, the failure of one will not jeopardize Bitcoin itself. So he starts seeking out Bitcoin startups to fund. But he's not the only one wanting to invest in Bitcoin. And soon, he'll be butting heads with two investors who see Bitcoin not as a tool for revolution, but as a rocket ship to riches. On the next episode, two Olympians descend on Bitcoin, A kid from Brooklyn escapes his parents' basement. And an ambitious coder commits heresy.

29:06From Wondery, this is episode one of Crypto Wars for Business Wars. A quick note about recreations you've been hearing. In most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on historical research. If you'd like to learn more about the origins of Bitcoin, we recommend the book Digital Gold by Nathaniel Popper. I'm your host, David Brown. Tristan Donovan wrote this story. Voice acting by Michelle Phillippe. Karen Lowe is our senior producer and editor. Edited and produced by Emily Frost. Sound design by Kyle Randall. Our producer is Dave Schilling.