Encore: Crypto Wars | The Untouchables | 2

0:00This series originally aired in 2021.

0:11October 2011, Silicon Valley, California. In the Oasis Bar in Menlo Park, the post-lunch crowd is settling in for the afternoon. On a table near the back, a nervous young man in a hoodie gnaws his fingernails. His tech startup is broke, and he's running out of people to tap for funding. He glances at the beer pitcher and three empty glasses on the table, and then back at the room. It's full of young men who are also wearing the tech worker uniform of hoodies, jeans, and sneakers. He hopes none of them work for Facebook. The doors open. His guests are here, and everyone here recognizes them. Tyler and Cameron Winklevoss, Two towering, broad-shouldered, identical twins that look like the offspring of Zeus.

1:01They're the Olympic rowers who claimed Mark Zuckerberg stole the idea for Facebook from them, sued, and got a$65 million payoff. The startup founder forces a smile as the twins approach. Everyone's looking to see who's consorting with the Winklevoss twins. Hey guys, want a beer? Sure. The startup founder pours out the beers. Then, as Cameron reaches for his glass, the entrepreneur cuts to the chase. Listen, guys, I'm sorry, but I cannot accept your money. Tyler frowns. What? We just flew in from New York to do a deal with you. We're about to give you one million dollars. The entrepreneur shrinks into his chair.

1:46I know, I know, but I just can't. This is happening a lot. The twins want to reinvent themselves as tech investors, but every time they near a deal with a promising Bay Area startup, it goes awry. Cameron leans forward. At least tell us why. You owe us that much. The entrepreneur levels with the twins. Look, if it was my choice, I'd take your money, but my board won't let me. Why? Because you're like untouchables, okay? No one here wants to piss off Zuckerberg. He hates you guys. The twins thought they could put Facebook behind them. They thought wrong. I'm sorry, truly. The entrepreneur abruptly heads for the exit, leaving the twins to seethe.

2:42The Winklevoss brothers are only 30, but they feel trapped. Their lives reduced to a footnote in the Mark Zuckerberg story. They cannot accept that. With Silicon Valley giving them the cold shoulder, it's clear they must find their future outside the Bay Area. And that's going to lead them to something else that the tech elite recoils from. Bitcoin.

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4:44From Wondery, I'm David Brown, and this is Business Wars.

5:13On the last episode, the mysterious Satoshi Nakamoto created a revolutionary digital currency. A criminal mastermind used Bitcoin to open an online drugs marketplace called Silk Road. But hackers raided the world's dominant Bitcoin exchange, Mt. Gox. Now, Bitcoin's biggest fan is trying to safeguard Bitcoin's future by reducing its dependence on Mt. Gox. This is Episode 2, The Untouchables.

5:47November 2011, Brooklyn. In his bedroom, Charlie Schramm checks his watch. It's almost 10 p.m. He can't believe Roger Ver, the Bitcoin Jesus, wants to talk to him. He's just a short 22-year-old living in his parents' basement. Schramm checks himself in the mirror. He's got short, black, curly hair, thick eyebrows, and a five o 'clock shadow. He removes his glasses, puts them back on, and then tosses them aside. No glasses. Definitely no glasses. Shrem races to his computer to answer Veer's sky call. Okay, Shrem, play it cool. Veer appears on the screen. Hey, Roger. Charlie, thanks for making time.

6:36Like I said, I want to know more about your company, BitInstant. I like the little I've heard. Sure, sure. I started it back in June with my co-founder. Oh, you should have said something. I didn't mean to exclude anybody. No, no, no, no. It's okay. Gareth's like a silent partner. He's autistic, Asperger's. And he lives in Wales. He likes the tech part. Business side, not so much. And I've barely spoken to him. We just chat online. Uh-huh. So, what's the vision for BitInstant? Right now, everyone trades at Mt. Gox, yeah? But it's a hassle. They're slow. Sight's always falling over and it's hard to use.

7:10Too hard for people who are new to Bitcoin or just curious about it. Totally, totally. BitInstant deals with Mt. Gox so you don't have to. See, we front the money to Mt. Gox, take a fee, and let people buy and get Bitcoins on the same day. We also work with Trust Cash to make it easier to pay. Trust Cash? What is Trust Cash? Trust Cash lets you go into thousands of stores like, you know, Walgreens and pay cash for Trust Card credit. And then you can use that credit to buy Bitcoin on BitInstant. No waiting around for wire transfers. Our goal is to get Bitcoin in everyone's hands. I want BitInstant to be the apple of Bitcoin, but right now money's tight.

7:50My mom gave me$10 ,000, but we need more to cover the cost of buying Bitcoin from Mt. Gox up front. Veer smiles. Well, I like you and what you're doing. I want to invest. How much for a 15 % stake? Shrem didn't expect Veer to make an offer right away. He hasn't got a price in mind. Shrem figures, better go big or go home. $120 ,000. Done. Shrem is shocked. But Veer's on a mission. He wants to seed as many Bitcoin companies as he can so that Bitcoin's future no longer depends solely on Mt. Gox. And BitInstant fits the bill. But Veer's not the only one seeking investment opportunities. December can be a busy month for all of us.

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9:52cloud reinvested their 2 % cash back to help build the company's retail presence. Capital One, what's in your wallet? Find out more at CapitalOne.com slash Spark Cash Plus Terms Supply.

10:10July 2011, the Pasha nightclub on the island of Ibiza off Spain's Mediterranean coast. On the packed dance floor, the crowd throbs to the pounding beat as purple beams of light spin and swoop over the crowd. The DJ drops the beat. Green light washes over the dance floor. The crowd freezes, hanging, waiting. Then, the beat restarts. Dancers explode into life, pulsating in unison under strobe lights. And right in the middle of the dancing throng are Tyler and Cameron Winklevoss. After months of rejection from every tech startup they've tried to fund, they've come to party away their frustration.

10:54Tyler yells into Cameron's ear. What are we doing here? Having fun, I think. The statuesque twins stand clutching their beer bottles as people dance around them. Tyler drains his beer. I'm going to the bar. You coming? Lead the way. The pair squeeze through the heaving crowd, edging their way towards the bar. But just as they're about to escape the dance floor, someone grabs Tyler's arm. You're the Winklevoss twins, aren't you? Tyler turns to see a man with his shirt unbuttoned and sweat glistening off his shaven head. The twins are used to being recognized. Ever since they were depicted in the 2010 movie The Social Network, they've been famous.

11:37Yes, that's us. Are you still looking for companies to invest in? Because if you are, I've got the opportunity you need. Tyler glances longingly at the bar. Listen, I'm trying to enjoy myself here. Seriously, you don't want to pass this up. Tyler rolls his eyes at Cameron. Fine, you got 30 seconds. Okay, there's this kid who lives near me in Brooklyn. He's got this online business I'm investing in. It's about the future of money. Bitcoin. What's, what did you say? Bitcoin? What's Bitcoin? Digital money. It's going to re-engineer the financial system. I'm talking about a currency that knows no borders, can't be counterfeited, and doesn't need banks.

12:23This kid I know, Charlie Schramm is his name. He's right there on the ground floor. Okay, how's this supposed to work? Hard to explain. Look, here's my card. Call me when you're back in New York and I'll introduce you to Charlie. He can explain it all. The guy's a freaking genius. Seriously, call me.

12:50August 2012, Manhattan. In BitInstant's cramped office overlooking West 23rd Street, the Winklevoss twins watch as Charlie Shrem pours another round of vodka shots. The crucial thing to understand about Bitcoin is that it's the first scarce digital asset, Everything else online is endlessly copyable, but the supply of Bitcoin is finite. That scarcity gives Bitcoin value just as scarcity makes gold valuable. Only 21 million Bitcoins will ever be created. Ever. Shrem raises his vodka shot. The twins shrug and do the same. Lahayim! Since their dance floor encounter, the twins have become intrigued by Bitcoin.

13:35So, they've come to size up BitInstant and its motor mouth founder. Cameron tries to parse what Shrem's actually saying. But if there'll only be 21 million Bitcoins, there won't be enough for everyone, right? Bitcoins are divisible, just as dollars are divisible in descents. Every Bitcoin is made up of 100 million Satoshis. Tyler takes over the questioning. What stops me spending the same Bitcoin over and over? The blockchain. It's the tech behind Bitcoin and it's real cool. It's an online record of every Bitcoin transaction. It's like a list of who gave Bitcoins to who and when. So, wait, is the blockchain just like a ledger?

14:14What's so special about that? It's more than just a ledger. Think of it like a long chain of Lego blocks. Every block in the chain contains a bunch of transaction data. And every 10 minutes, a new block with the latest transaction data gets added on. Okay, right. But how does that stop me spending my Bitcoin twice? Nice. The computers on the Bitcoin network check every transaction using the data stored in the blockchain. If someone tries spinning a Bitcoin they don't own, the network spots it. Okay, what if I change the data in the blockchain to say I still own my Bitcoin? You can't. You can't because if you mess with the data in one block, that block will no longer connect with the blockchain.

14:53So remember I compared each block to being like a Lego? Yeah. Lego blocks lock together because they have the same shaped holes and studs. Mm-hmm. Well, unlike Lego, the connections on every block in the blockchain are unique. You can't just stick a block anywhere on the chain, okay? The connections on each block are shaped by the transaction data inside the block. And those connections only interlock with the exact block that came before it in the chain and the exact block that came straight after it. Tyler leans forward. So, if I go and change the transaction data in the block... Yeah, you change the connections on the block.

15:33And it can no longer connect to the blockchain. Wow, that is clever. Sort of makes it impossible to change the data in the blockchain. Shrem grins. You got it. The blockchain stops double-spending of bitcoins and people undoing transactions, and all without people or a central organization overseeing things. Shrem reaches for the vodka bottle. The twins are warming to him. But there's an elephant in the room. Silk Road, the online marketplace where people can buy drugs with Bitcoins. Cameron leans back in his seat. But what's Bitcoin's real use? People aren't using it to buy pizza and vodka. I bought this vodka with Bitcoin.

16:18But I know what you're really asking me about is Silk Road, right? Yeah. We visited it during our research and got all the drugs. And people selling guns and fake passports. There are even hit men for hire. We don't want to invest in a business that enables criminals. Shrem tries not to think about the major BitInstant customer who's buying Bitcoin to sell onto Silk Road customers. Shrem figures it's better if the twins don't know about that customer. Silk Road's an early adopter for sure, but I want Bitcoin to go mainstream. That's why BitInstant registered with the U.S. Treasury as a money transmitter, even though we're not required to.

17:00But we're just 10 people handling$2 million of trades a month. We need more people, and that means we need investment. Another shot? Reassured by the news that BitInstant is already engaging with federal regulators, the twins raise their glasses. After months of being rebuffed by Silicon Valley, They've found what they've been looking for. Right on their Manhattan doorstep. The twins pay$800 ,000 for a 22 % stake in BitInstant. But they're not stopping there. Bitcoin reminds them of Facebook's beginnings. They saw how the more people joined Facebook, the more other people got sucked into its gravitational pull.

17:48They believe Bitcoin could do the same. The more people use Bitcoin, the more popular it will get, and the more its value will rise. So, as well as investing in BitInstant, they start buying Bitcoins.

18:06Fall 2012, the Flatiron District, Manhattan. In the empty office of Winklevoss Capital, Tyler looks at the computer equipment laid out on the large sheet of tarp covering the floor. He's wearing a smock and thick gloves and holding a sledgehammer. A pair of plastic goggles are strapped onto his forehead. Cameron walks towards the tarp carrying a printer. He's also wearing a smock. Tyler cocks an eyebrow as Cameron dumps the printer onto the tarp. The printer? Seriously? Printers have memory chips, and everything's gotta go. Fine. That it? Yep. The brothers have spent weeks buying tens of thousands of bitcoins in a multi-million dollar bet on the digital currency's future.

18:58Now, they're out to protect their bitcoins from hackers. And in an online world, the best defense is to go offline. They've printed out the private keys needed to access their bitcoins. They're going to dice up these codes and deposit the pieces in safe deposit boxes in banks across America. But before making those deposits, they have to cover their digital tracks. And that means destroying every electronic device they've used to buy bitcoins. Tyler pulls his goggles over his eyes and swings the sledgehammer over his head. He brings it down on the printer, shattering the plastic casing. Tyler heaves the sledgehammer into the air and back down over and over Keyboards smash, screens explode, hard drives splinter As he slams the hammer down He imagines the unblinking face of their multi-billion dollar nemesis, Mark Zuckerberg The Winklevoss brothers are back And this time, they're out to win But on the West Coast, the Silicon Valley elite is ready to pick its own Bitcoin champion.

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22:17Fall 2013, San Francisco. Fred Ersam exits the Caltrain Depot at 4th and King and heads to the Creamery, a squat wooden eatery selling coffee and sandwiches. A few months ago, Ersom quit Goldman Sachs and headed west, convinced that the future of finance lay in Bitcoin, not the buttoned-down Wall Street set. He enters the creamery and looks for the guy he's here to meet, Brian Armstrong. A bald, pale man waves at him. Brian? Yeah, you must be Fred. The two men connected on Reddit after Armstrong posted about needing a co-founder for his Bitcoin startup Coinbase. Ersem liked the sound of Armstrong's plan to make Coinbase the simplest place to buy, sell, store and send Bitcoin.

23:09Armstrong liked the sound of Ersem, the former Wall Street trader turned Bitcoin believer. Armstrong briefs Ersem on Coinbase's progress so far. The big break came this summer when I got accepted by Y Combinator. Y Combinator is the Silicon Valley startup school where companies like Dropbox and Airbnb began. Y Combinator helped me attract$600 ,000 of seed funding. Wait a minute, I thought Y Combinator insists on co-founders. It doesn't take single founder operations. Yes, yes, but my co-founder didn't work out. We disagreed about how to manage customers' private keys. It was a fundamental disagreement, and co-foundings like getting married.

23:52Y Combinator understood. I see. So what was the disagreement? Well, I wanted Coinbase to hold the private keys for customers' Bitcoins. It's ridiculous that people who lose their private keys can never recover their Bitcoins. And my co-founder disagreed. He felt holding private keys ran counter to the Bitcoin ethos of empowering people to control their own finances. Huh. I'm with you. Normal people don't want to deal with private keys and encrypted software wallets. That's what's wrong with Bitcoin right now. It's full of people on political crusades to tear down the financial system. I don't want to tear the system down.

24:28I want to bring it into the 21st century. Armstrong smiles. He's found his man. Ersam and Armstrong rent an apartment near the Creamery and turn it into an office. They pull 16-hour days to get Coinbase up and running. In October 2012, Coinbase launches, offering a simple website where Bitcoin can be bought and sold with a single click. Simplicity proves to be a compelling proposition. Within weeks, Coinbase is struggling to stop its site buckling from the growing number of users. Come January 2013, it's got 40 ,000 users who are buying and selling a million dollars of Bitcoin a month. And Coinbase earns a 1 % cut on every transaction.

25:20Then in March, an island 7 ,000 miles away plunges into a financial crisis. There's growing anger in Cyprus. Most ATMs are out of money and the banks are closed. People are trying to pull their money after the government announced a proposal to tax everyone's accounts up to 10%. The money would be taken from citizens to help bail out the country's troubled financial system. The grim news from Cyprus is a gift for Bitcoin. For Bitcoin advocates, Cyprus's bank rate is proof of why it's better to stash your wealth in Bitcoins that no government can touch. Interest in Bitcoin soars For the first time, the value of all Bitcoins tops the billion-dollar mark Coinbase's rush of users becomes a stampede By April, it has more than 100 ,000 users But it's still BitInstant out in front BitInstant now handles 35 % of all Bitcoin purchases Its CEO, Charlie Schramm, is now the toast of the Bitcoin world.

26:33He's swapped his parents' Brooklyn basement for the bright lights of Manhattan. He's even touring the world as an in-demand public speaker, spreading the gospel of cryptocurrency far and wide. But behind the scenes, things are falling apart.