Digital Gold (16 page)

“It seems to me like this is a lot of money, and this is very risky,” Wences told him as politely as he could. “You know you could lose it all?”

“How many times has your family lost everything keeping their money in the peso?” the man asked Wences.

“Three, maybe four, times,” Wences said.

“Yes. For me it's been more times than that,” the man said.

The man admitted that he had the option of putting his money in dollars but that this would require him to take a distorted exchange rate and then hide the bills in his closet. And who knew when the dollar might suffer the same problems as the peso?

“There is no way you can convince me to keep my money in the peso,” he said.

B
ITCOIN HAD CAUGHT
Wences at a decisive moment in his life—what an American might call a midlife crisis. He already had many successes under his belt, as was evident from his estate in the rolling hills above Palo Alto, with two homes, a swimming pool, tennis courts, and views down to the bay. In addition to the tens of millions of dollars Wences had earned from selling past startups, he had been surprised to discover that he also had a knack for picking winning investments in his friends' companies.

But he had recently been hitting up against failure for the first time. Lemon, his current startup, had grown out of the decline of his previous startup, Bling Nation, and many of Wences's friends wondered whether Lemon was the result of the kind of passion necessary to succeed in Silicon Valley or was just Wences's attempt to prove that the failure of Bling Nation had been an anomaly. There
were already signs that Lemon was not getting the kind of pickup that Wences had imagined. And, as with all startups, it required more time from its chief executive than any one person had in a day. This was Wences's twelfth startup, depending on how you counted, and his wife once again felt like a single mother for their three children. Wences and Belle had already agreed that Lemon would be his last startup.

These difficulties played into larger insecurities that Wences had managed to sweep under the carpet until now. For all the money his past startups had made him, none had quite achieved their grand original goals. Back in Argentina, he had hoped that his first company, Patagon, would provide a way to extend financial services to the hundreds of millions of South Americans without a basic bank. In the end, though, he couldn't get a banking license, and the online financial firm he created was used mainly by South America's wealthy elite.

For Wences, Bitcoin seemed to address many of the problems that he'd long wanted to solve, providing a financial account that could be opened anywhere, by anyone, without requiring permission from any authority. He also saw an infant technology that he believed he could help grow to dimensions greater than anything he had previously achieved.

Wences's wife, Belle, was used to watching Wences dive headfirst into new technological discoveries. His easily incited passion and his ability to convey it were part of what made him such a great startup salesman. He could impart his excitement with a rare skill. But usually the initial ardor passed before long. That was showing no signs of happening with Bitcoin. As 2012 went on, Belle realized that this might be different from his previous endeavors. Belle herself resented how much time Bitcoin was taking out of Wences's already full schedule. But even she was becoming
entranced by the almost mythical nature of this currency and its mysterious founder. She soon started swapping her own theories with Wences on the identity of Satoshi.

I
N EARLY
J
ANUARY
, Wences traveled with a group of some of the West Coast's most wealthy and powerful men to an isolated lodge in the Canadian Rockies with its own wine cellar, sauna, and private staff. Their host was Pete Briger, whom Wences had met a few years earlier through an organization for young chief executives. Even among the rich and powerful, Briger stood out. After attending Princeton and working at Goldman Sachs for fifteen years, he had risen to the top of the Fortress Investment Group, a firm overseeing an array of enormous private equity and hedge funds.

Briger was a big gruff man, who was known for his bold bets on distressed debt—the troubled bonds and loans that everyone else was too afraid to touch, and that gave Briger and his firm arm-twisting leverage over large companies and occasionally small countries. He sometimes called himself a “financial garbage collector” and he looked the part. In 2009 Briger had been named cochairman of Fortress, which then controlled investments worth around $30 billion, including the resort company that owned the lodge where the men were staying.

Wences was not an alpha male like most of the other guests. He liked to stay in touch with his humble origins in Patagonia, and his driveway was filled with Subarus instead of Teslas or sport cars. Rather than taking luxury vacations, Wences used his time off to go with his wife to Burning Man, and he had recently done a vision quest—involving days without any creature comforts—in the wilderness of the Andes with one of his best friends from his
younger years in Argentina. But Wences had a good-natured self-confidence and a willingness to listen that had always allowed him to get along easily with hard-driving power players.

The morning after they arrived at the Valemont lodge, Wences, Briger, and the rest of the men climbed into a red-and-white Bell 212 helicopter sitting just outside the lodge and lifted off toward the high white peaks, for a day of heli-skiing. In the afternoon, the group returned to the lodge and sat around in the expansive common room, an enormous fire crackling away. This was not a crowd to chat about kids and the upcoming Super Bowl. The men had dedicated their lives to making money and Pete pressed them to present their best investment ideas.

“Pete, I told you, I'm interested in Bitcoin,” Wences said when his turn came to talk. “It hasn't changed.”

Wences drew the group in with an explanation of the basic notion of a new kind of network that could allow people to move money anywhere in the world, instantaneously—something that these financiers, who were frequently moving millions between banks in different countries, could surely appreciate.

“You can call someone in Jakarta on Skype,” Wences told them. “You can see them and you can hear them and there's a synchronous connection with a lot of bandwidth. There's a ton of magic happening, which is incredible. And you hang up and you want to send them one cent and that's not possible. That's ridiculous. It should be a lot easier to send a cent than to see video and audio.”

The blockchain technology made that previously impossible task possible. But it was much more than that, Wences emphasized. It was the next step in the evolution of money. He tried to explain his recent discoveries about the ledger as the foundation of all money. With Bitcoins, unlike pesos or dollars, everyone using them knew exactly how many existed, and they were not tied to
one country. Unlike gold, which was universal but difficult to acquire and hold, Bitcoins could be bought, held, and transferred by anyone with an Internet connection, with the click of a mouse.

“Bitcoin is the first time in five thousand years that we have something better than gold,” he said. “And it's not a little bit better, it's significantly better. It's much more scarce. More divisible, more durable. It's much more transportable. It's just simply better.”

Pete had a habit of taking long, anxiety-inducing pauses before responding to anything, and his first questions for Wences were distinctly skeptical. But his subsequent questions suggested that something was clicking. Pete's job as an investor in distressed companies made him good at spotting broken systems, and the more he thought about it, the more broken the current methods of moving money around the world seemed to him.

Something else caught Pete's attention. Wences had put his wallet where his mouth was. Throughout 2012 Wences had methodically ramped up the pace of his Bitcoin purchases, so that now he had over 10 percent of his net wealth—tens of millions of dollars—in Bitcoin. Pete respected numbers and bold, confident moves like the one Wences had made.

From the ski lodge, Pete e-mailed one of his most trusted lieutenants at Fortress, Bill Tanona, and asked what Bill knew about Bitcoin. When he got back to San Francisco he opened a Mt. Gox account and quickly built up his own $100,000 position in Bitcoin. At work, he started talking with Tanona and a few other colleagues about how Fortress could get involved in this new market.

December 2012

F
or all the new mainstream interest, the most successful entrepreneur in the Bitcoin world was still Ross Ulbricht, the operator of the world's largest online drug bazaar. Silk Road had continued adding new members and new products through 2012.
Some $1.2 million worth of Bitcoin was changing hands each month, spinning off $92,000 in commissions for Ross. By the end of 2012 there were
seventy thousand different topics on Silk Road's forum, and there were even resident security experts who helped users ensure their anonymity and a resident doctor who answered questions about drugs and their health effects.

Initially, Ross had enjoyed the success by traveling to Southeast Asia and Costa Rica. But as the year went on, the site increasingly required all-consuming work. Ross now had several moderators and administrators on staff who helped him deal with customer support and mediate disputed transactions. He chose members whom he trusted, even when he didn't know their identity.

In the fall of 2012 Ross had moved in with a childhood friend on a hilly street in one of San Francisco's residential neighborhoods.
He could have afforded his own place, but by now he was trying to leave as few traces as he could for the authorities to pick up on.
His work on Silk Road was done at an Internet café around the corner from his friend's house; at this café he would log in remotely to Silk Road's servers, making it that much harder for anyone to find him.

Ross was becoming acutely aware of just how difficult it was to remain anonymous even with the best technologies.
Over the summer, a Silk Road user had managed to follow a series of transactions and find one of Silk Road's main Bitcoin wallets, which contained coins worth about $2 million. This didn't cover any losses, but it was a reminder that while Bitcoin did not require users to provide an identity, accounts were pseudonymous, attached to a particular identity, rather than anonymous. In Australia, police traced transactions to make the first arrests of Silk Road vendors in that country.

None of this, though, dented Ross's boldness and ambitions for the site—if anything, he grew more committed as time went on. On the forums, under his screen name Dread Pirate Roberts, or DPR, he wrote that he would keep this up to his “last breath”:

Once you've seen what's possible, how can you do otherwise? How can you plug yourself into the tax eating, life sucking, violent, sadistic, war mongering, oppressive machine ever again? How can you kneel when you've felt the power of your own legs?

As Dread Pirate Roberts, Ross became a kind of folk hero for his members, engaging with them on the Philosophy, Economics, and Law section of the forum and later on DPR's Book Club, where he advocated for a world in which “the human spirit flourishes, unbridled, wild and free!”

As time went on, though, it was hard to avoid the growing reminders of the dangers of living in an anonymous world with
no source of authority. In November 2012 a hacker threatened to release an enormous trove of data about Silk Road users if Ross didn't pay a ransom. That was soon followed by a denial-of-service attack that eventually forced the site down. The only way Ross was able to get the attack to stop was by
paying the attacker $25,000. When the site came back online, Dread Pirate Roberts's style and approach had shifted, leading some users to suspect that the site had changed hands.
Ross explained that he was changing his writing style to elude capture.

In November, Ross flew to Dominica, an island in the Caribbean known for being an easy place to secure “economic citizenship” (Roger Ver was also trying to obtain citizenship from the country). The small island offered a passport in exchange for a $75,000 donation. The sum was no problem for Ross and he began filling out the application on his laptop, listing his profession as “IT consulting.” A new passport would allow him to move that much further out of the reach of a government that he knew was chasing him.

He was, though, getting used to his new life. When he chatted with a Silk Road member, scout, who was thinking about joining his staff, Ross answered scout's concerns about getting arrested by explaining why he believed it would be hard to ever get caught.

“put yourself in the shoes of a prosecutor trying to build a case against you,” he said in a chat with scout. “Realistically, the only way for them to prove anything would be for them to watch you log in and do your work.”

But Ross acknowledged how much even the small possibility weighed on him.

“the biggest con about this work is not the risk of going to jail or having your life disrupted,” he wrote; “it's getting used to and living with that possibility no matter how remote.”

“and,” he added, “keeping your work a secret.”

By now he had been hardened enough that he knew how to keep things to himself. Even the friend he was living with and the girl he began dating didn't know. The only people with whom he could be honest were the users and administrators of his site, who didn't know his identity, and it was becoming increasingly hard to believe that he could trust even them. Silk Road forums were rife with debate about which users and vendors on the site were likely to be undercover cops. One of the most vigorous debates sprang up around a user named nob. Toward the end of 2012, nob put up a listing for a kilogram of cocaine for $27,000 in Bitcoins. nob had done almost no reviewed sales of drugs on the site and many other users were very suspicious.

“If this acct isn't [law enforcement], it's some other bullshit for sure,” a user named MC Haberdasher wrote on the forum. “I'd rather wake up from a heroin induced blackout sitting bitch in a car full of fat chicks listening to speed garage than even attempt to order from this guy.”

In this case, though, Ross trusted nob, who had slowly built a relationship with him over the course of the previous year.
Ross decided to help nob sell his kilogram of cocaine, connecting him with one of the site administrators, chronicpain, who had been the first employee Ross hired back in 2011. The administrator was, in real life, Curtis Green, a forty-seven-year-old poker player and grandfather living just outside Salt Lake City.

Green found a buyer for nob's cocaine and offered to receive the package at his home before sending it on to the buyer. The package was delivered to Green's house on January 17, 2013. Just as he took it inside and was opening the package to check its contents, a SWAT team swarmed in. As the agents spread through the house, they found a stack of black, custom-made Bitcoin-mining machines. The floor around the computers, and in the rest of the house, was littered with hardened dog shit.

Even after Ross learned about Green's arrest—and his release on bail—he did not assume that it was nob who had compromised the deal.
Ross had always been somewhat skeptical about Green, believing that he was doing it for the money rather than the ideals. Ross asked nob (who he still believed was a powerful drug dealer) if he could have Green
“beat up, then forced to send the Bitcoins he stole back.”

nob agreed to the proposition. But a day later, Ross changed his mind: “can you change the order to execute rather than torture?”

Ross explained to nob that he was concerned that Green would give the authorities information about Silk Road users, potentially jeopardizing the whole site and its grand mission. He said that he had “never killed a man or had one killed before, but it is the right move in this case.”

The federal agents who had Green in custody, and who were the undercover puppeteers behind the user nob, obliged by staging Green's death (without actually killing him), and e-mailing bloody photos to Ross. When the photos came through, Ross responded that he was “a little disturbed, but I'm ok.”

“I'm new to this kind of thing is all,” he said, before quickly adding: “I don't think I've done the wrong thing.”

The purported murder of Green was paid for with a transfer of $80,000 to a Capital One Bank account in Washington, DC. The money was sent through an anonymous money-transferring service in Australia that hid the location and identity of the sender. But the agents were already digging into the wealth of information on Green's computers, seeking clues to find their way to their real quarry, Dread Pirate Roberts himself.