Less than thirty blocks away, Tyler Winklevoss sank into the black leather of a Cadillac Escalade SUV backseat, trying to shed the nervous energy pirouetting through his body. Through the window, he could see the nondescript entrance to their office building; the SUV was sitting right by the curb, engine running. There was a good hour before he and Cameron’s sworn testimony at the Virtual Currency Hearings was set to begin. The public hearing was being held by the New York Department of Financial Services, the regulator that had subpoenaed him, Cameron, and twenty-two other Bitcoin heavyweights. Given the midmorning traffic between the Flatiron and Tribeca, the trip would probably take thirty minutes. Enough time to calm himself and mentally prepare.
Out on the sidewalk, Cameron was stretching his legs before joining Tyler in the back of the car. Although they weren’t in rowing singlets and they were nowhere near water, Tyler felt the same sensations—anticipation mixed with a little fear—that he’d usually felt before a big rowing event. Maybe not quite the level of the Olympics, but something close, perhaps Henley or the Head of the Charles.
When Cameron finally entered the SUV and sat in the bucket seat across from him, Tyler gave his brother the same look he’d given Cameron a thousand times before, oars above the water.
“You ready?”
“Pretty sure. It’s hard to be certain when you don’t know if you’re heading toward a gunfight or a square dance.”
“No doubt it’s going to be a little bit of both.”
After getting over their initial dismay at being subpoenaed by the government for the first time in their lives—and finding out about it from the press—Tyler and his brother had quickly discovered that the move had not been meant as an accusation of wrongdoing or criminal activities; in fact, the request for documentation and later for them to testify in front of the superintendent was a real opportunity; the twins had been chosen as representatives of the new virtual economy to help the Department of Financial Services understand Bitcoin and virtual currency, and help shape what sort of regulations were necessary, now that Bitcoin was becoming an unavoidable part of New York City’s financial landscape.
In a way, the subpoena was actually an honor that had been bestowed on the twins. As Forbes magazine had headlined, EVERY IMPORTANT PERSON IN BITCOIN JUST GOT SUBPOENAED BY NEW YORK’S FINANCIAL REGULATOR. Among the people and companies subpoenaed were venture capitalists Marc Andreessen and Ben Horowitz, along with the founders of Coinbase, Bitpay, CoinLab, Coinsetter, Dwolla, Payward, ZipZap, Boost VC, and even Peter Theil’s Founders Fund—pretty much a who’s who of everyone who had made a major investment in or ran a major company in the Bitcoin space.
At the same time, there was reason to believe that the event would be confrontational. Ben Lawsky, the head of the NYSDFS, the man who had signed the subpoenas, had been quoted as calling Bitcoin “a virtual Wild West for narco-traffickers and other criminals.” The point of the session was not just to gather information, but also to use that information to rein in the Bitcoin economy. In his statement, Lawsky continued: “We believe that—for a number of reasons—putting in place appropriate regulatory safeguards for virtual currencies will be beneficial to the long-term strength of the virtual currency industry.”
On the one hand, it was exactly what the twins had been pushing for. That being said, regulation had to get it right. It had to be tough enough to snuff out the darker elements of Bitcoin, while at the same time not so draconian that it killed the innovation itself.
As Tyler and his brother prepared for what would undoubtedly be an intense day—hunkered down at the headquarters at Winklevoss Capital writing their testimony and gaming potential questions and answers—they’d tried, and hopefully succeeded, to come up with what they believed to be the sort of healthy regulation that would make sense.
The SUV fully loaded with Winklevii, the driver began to pull away from the curb when there was a loud knock on the window next to Tyler. He looked up and saw Beth standing next to the car. She appeared out of breath, like she’d just sprinted down the stairs from their offices instead of taking the elevator. Tyler rolled down the window.
“Charlie Shrem,” Beth managed to get out as she was catching her breath. “He was arrested last night at JFK. He was just arraigned.”
Tyler’s stomach dropped. His first thought was he hoped it was for something minor—but then again, did they keep you overnight for smoking pot on an airplane?
Beth told him the charges: money laundering, failing to file suspicious activity reports, operating an unlicensed money transmitter.
Fuck. This wasn’t just Charlie. This was BitInstant. This was—
“Silk Road,” Tyler said. “This has to be related to Silk Road. What the fuck did that kid do!?”
The money laundering charge on first blush seemed insane, probably something tacked on, and the “unlicensed money transmitter” could be the sort of thing Charlie might have unwittingly stepped into by being a mostly absentee CEO—but the suspicious activity reports had to be related to someone using BitInstant to purchase bitcoin for illegal activity—and the most obvious possibility was buying drugs on Silk Road. Once Silk Road had been taken down, it was open season, more like a turkey shoot, on the people who had been using it for illicit purposes—and the feds had probably dedicated a whole unit to trying to track them down. If Charlie had been stupid enough to knowingly let someone use BitInstant for that purpose—he was going to go down.
“We need to put out a statement,” Tyler said. “Right away.”
Here they were, literally on their way to testify in front of Superintendent Lawsky and the New York regulators to urge them to regulate Bitcoin in a reasonable way, and the CEO of the Bitcoin company they had first invested in had just been arrested for exactly what the regulators feared most about this new virtual currency.
Working with their outside counsel, Tyler Meade—a former prosecutor who had served as a legal adviser for the twins during the Facebook saga—they quickly put together what they needed to say:
When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws—including money laundering laws—and we expected nothing less. Although BitInstant is not named in today’s indictment of Charlie Shrem, we are obviously deeply concerned about his arrest. We were passive investors in BitInstant and will do everything we can to help law enforcement officials. We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of bitcoins.
If the charges were accurate, then Charlie had duped them. Tyler and Cameron had done everything they could to try and make BitInstant a serious player in not just the Bitcoin world but also the financial world. They had put Charlie in front of prestigious investors, banks, and other potential partners, had made sure the company was licensed, and had tried to make Charlie into the CEO that BitInstant needed. And when that hadn’t worked, they had demanded that he straighten up—and obviously, all of it had failed.
Tyler knew the arrest would hit the Bitcoin community hard. Charlie was one of its biggest names and one of its thought leaders, even a founding member of the Bitcoin Foundation, a nonprofit organization headed by many of the biggest names in the cyber economy, aimed at building up the reputation of Bitcoin and helping raise its profile in the world at large. He guessed that many Bitcoiners would support Charlie—some, for the wrong reasons.
“Roger Ver has already given a statement to Forbes,” said Beth through the car window, echoing Tyler’s thoughts as he looked at his phone:
People own their own bodies, and have the absolute right to put anything they want into it. People like the FBI, and DEA agents who want to lock people in cages for buying, selling, or using drugs are the ones committing evil, and they need to stop. I look forward to the day when they see the error of their ways, and stop committing evil acts in the name of “law enforcement.”
Tyler felt these same beliefs had seduced Charlie into handcuffs. These two opposing statements perfectly illustrated the divide in the Bitcoin community. The libertarians and anarchists saw Bitcoin as a weapon in their war against regulated society. The entrepreneurs and VCs increasingly gravitating toward cryptocurrency wanted Bitcoin to be part of that society, a new, programmable money for the modern world.
Beth headed back toward the office to get their statement out on the newswire. The connection to Charlie and the crimes he’d been charged with were unpleasant, but Tyler and Cameron had done nothing wrong beyond investing in the wrong company. Investing in the wrong person. They had made a mistake, but that didn’t change where they were going, or what they had to do to get there.
“Let’s roll,” Tyler said.
It was not an overstatement to say that they were on their way to fight for the life of Bitcoin. Without the blessing of the regulators, Bitcoin would never rise above the dark cloud of these early days, and the entire virtual currency industry might be doomed.
“The timing of this couldn’t be worse,” Cameron muttered as the SUV pulled away from the curb.
“I don’t know,” Tyler said. “One could argue that the timing couldn’t be better.”
Maybe Cameron didn’t see it yet, but in Tyler’s mind—the anchor had just been thrown out of the boat.