Cryptocurrency’s Controversial Pioneer: The Charlie Shrem Saga

From mediocre salesman to CEO of one of the largest cryptocurrency exchanges: Revisiting the incredible story of Charlie Shrem, the Bitcoin prince. Discover how this self-taught individual went from millionaire to federal prison inmate, and finally emerged as a crypto influencer and podcaster!

An Ordinary Childhood

Charlie Shrem grew up in Sheepshead Bay, a predominantly Russian and Jewish neighborhood in the heart of Brooklyn. Raised by Orthodox Jewish parents, Charlie and his two sisters were brought up in accordance with Jewish traditions. His father worked for a jewelry retailer, and his mother took care of the home. From an early age, Charlie aspired to become a rabbi, but the economic realities of the 2000s steered him towards a different ambition: money. “The only way out was money,” he reveals.

Shy and awkward, Charlie flourished when he discovered his knack for computers. A self-taught programmer, he spent time on online hacker forums. In 2009, while attending Brooklyn College, he co-founded with his cousin a daily electronics deals website, Daily Checkout, which only charged $5 for shipping per item, a site he developed himself using his programming skills.

The Discovery of Bitcoin

Charlie’s introduction to Bitcoin came in 2009 through online discussion forums. “Someone wanted to show me how Bitcoin worked and transferred 30,000 Bitcoins to me. I sent them back. Today, that would be worth about 240 million dollars,” he recalls. Following this discovery, he claims to be one of the first ten people in the world to understand what Bitcoin was.

At that time, the only way to buy Bitcoin was to transfer large sums of money to Mt Gox, and it would take a week for the deposit to clear in the banking system. Customers who wanted to buy smaller amounts or make instant purchases had no way to do so.

BitInstant: The Starting Point

Meeting someone named “Gareth” on one of these forums led to the creation of BitInstant in September 2011, a company that enabled instant buying or selling of Bitcoin. What started as a hobby soon gained momentum. To support their growth, Charlie received a $10,000 loan from his mother. The company then began depositing money on Mt Gox to purchase Bitcoin, which they resold in small quantities to various customers.

A Meteoric Rise

But Shrem and his partner encountered a problem: as their transaction volume increased, they needed more and more liquidity to deposit on Mt Gox. Money was short and the two associates had to find investors to meet the growing demand. “We always needed more money because the size of the transactions was increasing. Just like an ATM needs money to stay in the machine all day, we needed money to stay in the exchanges for a week, since it would take up to a week to recharge again. It was a cycle, so we always needed seven to eight times our transaction volume,” Shrem explained.

Facing this growing need for liquidity, Charlie and his partner met Roger Ver, who injected $100,000 into their business. On the advice of the new investor, the two founders hired Erik Voorhees, then David Azar. The latter played a crucial role, as it was during his honeymoon that he crossed paths with millionaires Cameron and Tyler Winklevoss at a party in Ibiza. Thus, in the fall of 2012, the Winklevoss twins injected an additional $1,500,000 into BitInstant.

By 2013, BitInstant was handling about 30% of all Bitcoin transactions. “I was about 22 years old, had half a million dollars in the bank, and no expenses. Life was beautiful,” Charlie recalls. The company grew rapidly, expanding from 2 people to more than 30. Following this, they decided to move into larger offices. “We needed a military security guard, our own floor, and tinted windows.”

Unshakeable Arrogance

Charlie Shrem loves to be in the spotlight and boast. A true salesman, he possesses extraordinary eloquence!

He was one of the first public faces of the crypto phenomenon, so much so that in 2013, when GQ was looking for a “spiritual guide” to the obscure world of cryptocurrency, they turned to Charlie Shrem. And of course, he accepted! He even made an appearance in the documentary The Rise and Rise of Bitcoin.

He co-founded the Bitcoin Foundation, the first non-profit advocacy group for digital currency. Shrem had boundless ambitions. He always wanted to make BitInstant the “Apple of Bitcoin”. In just a few months, Charlie Shrem went from managing a small online business to being a Bitcoin millionaire, eventually gracing the cover of Forbes magazine.

The Beginning of Problems

Just when everything seemed to be going well for Charlie, numerous problems began to emerge. First, a dispute with investors led to the resignation of his two best friends at BitInstant, and it appeared his drive for success left with them. Often distracted, he spent his nights partying and drinking. “I started to drink too much. I invested in my friend’s nightclub. In fact, I lived on the floor above it. I think it was the only place in the world at that time where you could actually spend Bitcoin in a physical location,” he confessed.

It was in this very nightclub that Charlie met the woman who would become his wife. Their first date was memorable: Charlie vomited on her, but against all odds, this did not prevent their love, and they eventually got married. However, his parents did not accept his new partner because she was not from the Syrian Jewish community, and for this reason, Charlie decided to leave the Jewish community out of love.

On the BitInstant side, the influx of customers was so massive that the team struggled to keep up and process transactions… This led to waves of complaints from many customers. But everything changed in March 2013!

Regulators began to observe crypto companies and pointed out those that were not complying with new rules. BitInstant, operating without a license, was forced to cease operations. However, this did not seem to affect Charlie or his lavish lifestyle.

He then flew to Argentina for a mission with the Bitcoin Foundation. His life at that time was nothing but parties, alcohol, and drugs. “I had to bring lots of people to clubs, buy bottles, pay for dinners,” he said. During this period, Shrem was paid as a consultant, speaking at conferences and sharing his expertise for a fee.

However, the problems related to BitInstant caught up with him on January 26, 2014, when he returned to New York after a convention in Amsterdam. Charlie then faced law enforcement: a joint task force of the FBI, IRS, and DEA. Shrem was arrested on money laundering charges.

Prison Time

Authorities claimed that some BitInstant customers had used the Bitcoin they bought from the company for illicit purposes, including criminal transactions on the dark web marketplace Silk Road.

Indeed, Robert Faiella, a BitInstant user, had begun reselling Bitcoin on Silk Road, a market known for its illegal activities, Shrem explained: “This guy was one of our clients. He bought Bitcoin and then resold it to people who would go on to buy drugs and stuff like that. I knew it. I cared enough not to stop him because I was making money”.

Shrem blatantly encouraged Faiella to conceal his identity with a new username and a new email address. But Shrem himself said he eventually had a change of heart and sent an email to the user saying, “I know you’re on Silk Road, I know you’re reselling. You’d better stop, you know. You’d better calm down.”

His decision not to alert the authorities proved costly

Charged on April 10, 2014, with “operating an unlicensed money transmitting business, money laundering conspiracy, and willful failure to file suspicious activity reports with banking authorities,” he pleaded guilty on September 4, 2014, telling the judge, “I made a mistake,” and was sentenced to two years in prison. He surrendered to the authorities on March 30, 2015, and entered the federal detention camp in Lewisburg, Pennsylvania. He used his time in incarceration to detoxify and read 137 books.

Redemption

Released on bail in June 2016, he emerged transformed. The ordeal had its benefits; his isolation helped him regain balance. “In prison, you must forget the outside world. You have no internet, no communication, and you are cut off from the entire world. Everything is provided for you. You have shelter, food, a shower, water. You don’t need to spend a penny. You don’t have to worry about bills,” he explains.

Once released on bail, Shrem was placed under house arrest and forced to live with his strict parents, who believed his arrest was a divine punishment in response to his departure from the community. “They were happy to see me go to prison because they felt I had really hurt them.”

The Irresistible Call of the Crypto Industry

Despite his time in prison, Charlie Shrem remained a fervent advocate for Bitcoin and cryptocurrencies. “I invest, I acquire a lot of bitcoins, I sell them as the price increases, and I put it into real estate. Because if bitcoin falls to zero, which is a possibility, I won’t be on the street,” all while becoming much more cautious. “Many people have about 95% of their wealth in Bitcoin. Good for them, but I have to be smart. I’m getting married, we’ll have children one day, I can’t speculate with my rent.”

Charlie has also been involved in many new projects since 2016, notably sharing his expertise as a consultant.

Charlie’s New Life

Since his release from prison, he has become an influential voice advocating for ethical regulation of the sector. His podcast has become a reference for enthusiasts and professionals seeking reliable and insightful advice on cryptocurrencies. Additionally, he has invested in film production, including a romance titled “Ask Me to Dance.”

His upcoming book promises to immerse readers in the fascinating story of his rise, fall, and impressive resilience. Through his writings, Charlie Shrem aims to inspire those facing challenges, proving that redemption is possible through determination and the will to do better.