Charlie Shrem, the co-founder of the now defunt bitcoin exchange, BitInstant, was released from prison a few months ago. He knowingly transmitted money used to facilitate criminal activities on Silkroad.
ANNOUNCEMENT: Silk Road 3.0 is BACK ONLINE and open for business. The team did a massive security overhaul on the site to try and make it more secure and anonymous.
Silkroad was a darknet marketplace where drug dealers bought and sold illicit drugs. Users of Silkroad used the cryptocurrency bitcoin to conduct transactions. The original Silkroad was shutdown in October 2013.
All through his childhood, Shrem had a special interest in technology, computers to be precise. He was a geek.
The bitcoin entrepreneur began his entrepreneurship journey at quite an early age. At only 18 years old, he founded the Daily Checkout, an online platform where he sold refurbished goods.
It was during his college education that Shrem encountered the laissez-faire school of thought, and the possible elimination of government and third party intervention.
He then decided to put the economics theory to practice, through the cryptocurrency bitcoin.
Bitcoin is simply a digital currency that enables transactions to be carried out without government or third party intervention, exclusively used on the Silkroad website.
Shrem in an interview, revealed that he first heard about the concept of bitcoin on an online forum that he was a member of.
At that time, there wasn’t any website or anything, only a white paper referred to the research paper released under the pseudonym, Satoshi Nakimoto, which he said unveiled the concept.
Nevertheless, Shrem’s curiosity was awakened, and he, therefore, proceeded to purchase bitcoins. He bought a few thousand bitcoins that were not worth much that time.
Consequently, he brainstormed and finally found a way of making the purchasing of bitcoins much faster and accessible to consumers, that it became popular on Silkroad.
That marked the dawn of the Bitcointalk.org, through which he managed to launch BitInstant.
Charlie Shrem partnered with payment processors that had physical locations such as at Duane Reade, CVS, Walmart, Walgreens and even 7-11.
The online site enabled consumers to purchase small amounts of bitcoins, with an average ticket size costing about $300-500. They then charged a small fee for each transaction. Such transactions were of huge amounts on Silkroad.
The concept gained popularity and in a few months, BitInstant made millions of dollars also through Silkroad transactions.
People were able to purchase the bitcoins from all over the States. Tremendous growth was experienced and Shrem confessed to having transacted transactions worth a million dollars in one day, as Silkroad users grew by the day.
The lucrative growth definitely attracted investors. It caught the attention of investors like the Winklevoss twins and Roger Vere.
Shrem admitted during the interview that they experienced huge growth over a span of few months. However, he let success get to his head. He began to drink too much.
The fall of BitInstant was as rapid as its rise. In the period of March 2013, new legislation that defined and outlined what institutions were to be regarded as money transmitters.
BitInstant, with its cryptocurrency, was operating without a license hence had to shut down its dealings. Shrem said they could not risk operating illegally.
Several months later, when Shrem was traveling to Amsterdam to speak at a conference, he was intercepted at the JKF airport by dozens of law enforcement officials, among them the FBI, IRS, and DEA.
Silkroad Bitcoin Transactions
The police accused him to have knowingly facilitated bitcoin transactions to Robert Faiella, whose clients were using Silkroad.
Silkroad was an online website where drug dealers bought and sold illicit drugs using bitcoin.
Shrem’s undoing was that he knew of the illegal dealings, but did not file a single report with the United States Treasury Department about Faiella’s illicit activity on Silkroad.
He pleaded guilty when arraigned in court and was sentenced to serve two years in prison for indirectly helping to sell $1M in bitcoins to Silkroad users.
Shrem on podcast speaks of his prison experience. He says that it was no country club. Where he says one out of every ten inmates was a white-collar criminal; senator, judge, few law enforcement officials were among his group.
The fear Shrem says wasn’t as great as in the maximum security prisons as the inmates were non-violent.
The bitcoin entrepreneur confessed that behind bars, he found life difficult. There was no Google or internet, which the computer geek so much relied on.
The information went round by word of mouth. However, his firm belief in cryptocurrency was strengthened, even as Silkroad was no more, while in prison by one thing.
He says that prison also had its own form of currency, bartering mackerels, like bitcoins for Silkroad users then. This was because the inmates were not allowed any form of cash.
Now out of prison, bitcoin no longer has the hype as it had before. The rise of the bitcoin entrepreneur was as swift as his fall.