financial system can
and should work in
the Internet era, and a
catalyst to reshape
that system in ways
that are more
powerful for
individuals and
businesses alike.
Less than a year earlier,
Wences had sat in Arizona
with Chris Dixon, a young
partner
at
Andreessen
Horowitz who had been
trying to get the firm to dive
into
Bitcoin.
Now
Andreessen
himself
was
becoming the most outspoken
public
advocate
for
the
technology, taking on a role
that had previously been
occupied by people like
Roger Ver and Hal Finney.
Andreessen had quietly
begun his investing in Bitcoin
a year earlier, when he put
some of his own money into
the Series A fund-raising
round of the secretive Bitcoin
mining
company,
21e6,
created
by
the
Stanford
wunderkind
Balaji
Srinivasan. Since then, in
addition to the $25 million
that Andreessen Horowitz
had put into Coinbase, the
firm had also made a secret
$25 million investment in the
confidential Series B round
for Balaji’s mining company.
That Series B also included
another $10 million from
other Series A investors and
$30 million more in venture
debt.
The
best-funded
company in the Bitcoin
world, with $70 million, was
one that only a small elite
even knew about. Andreessen
liked the investment in part
because while he and many
others in the Valley believed
that venture capital firms
should not buy Bitcoins
outright, he thought it was
kosher to invest in a mining
company like 21e6 that paid
out its dividends in the virtual
currency it mined.
Balaji’s mining company
had already started rolling out
its custom-fabricated mining
chips in the fall of 2013 and
had quickly come to account
for 3 to 4 percent of the
hashing power on the entire
network. In early 2014 the
company was planning to pay
the
first
dividends
to
investors and was building its
own dedicated data center
that would hold more than
nine
thousand
machines
containing the company’s
custom chips.
Balaji’s promise was so
great that in late 2013
Andreessen had invited him
to become the ninth partner at
Andreessen Horowitz, in no
small part to help scout out
new investments related to
virtual currencies and the
blockchain. Balaji was as
ambitious and utopian as
anyone out there about what
Bitcoin could do. He believed
that it could help open the
door
for
what
would
essentially be new breakaway
countries, created by people
wanting to push technological
experimentation to the limits.
For Wences, the more
immediate indication of how
quickly this was all moving
came in an e-mail from
Hoffman not long after their
breakfast.
Hoffman
had
talked with a friend at the
venture capital firm Index
Ventures, and together they
were
prepared
to
offer
Wences another $20 million
for Xapo. He could still take
the $20 million he already
had as a Series A, but this
could be a quick follow-on—
a Series A1. And while
Wences’s first investors had
valued Xapo at $50 million,
Hoffman and his partner were
ready to value it at $100
million. In little more than a
month, Wences had doubled
the value of his company.
STANDING BEHIND THE black
bar, Charlie Shrem opened a
fridge under the liquor and
pulled out two beers, a Blue
Moon for himself and an
Amstel Light for Nic Cary,
the chief executive of Roger
Ver’s
company
Blockchain.info, who was in
New York on a business trip.
The bar, EVR, was closed,
but
Charlie
lived
right
upstairs and had all-hours
access
thanks
to
his
investment a year earlier. His
girlfriend Courtney, who now
lived with him, stopped by to
see
if
Charlie
needed
anything.
Charlie looked noticeably
more weathered than he had
the previous summer when he
shut down the BitInstant site.
He had shaved off his
youthful curls and grown a
scruffy beard that matched
his bushy eyebrows. None of
this, though, signaled defeat.
Charlie
was,
in
fact,
benefiting as much as anyone
from the rising interest in
Bitcoin. He had taken on a
role as an unofficial money
changer for some of the big
holders of Bitcoin, allowing
them to sell large blocks of
coins without going on an
exchange, where big sales
could move the price.
More important, Charlie
had managed to connect with
a new group of investors who
were looking at putting up
money so that Charlie could
reopen
BitInstant.
The
potential investment was a
complicated deal, providing a
way to pay off the legal bills
from the previous summer
while also giving the site a
more
simple
regulatory
structure moving forward.
After taking a swig from
his beer, Charlie boasted that
one of the consultants who
had been helping him—one
who was a former regulator—
had told him: “You and some
of your friends have become
such super experts in finance,
law, and Patriot Act and all
these things. There are people
who have like thirty graduate
degrees who don’t know as
much as you do.”
“And
I’m
like,
‘It’s
Bitcoin,’” Charlie said with a
grin.
David
Azar,
his
old
investor, was ready to sign
off on the deal to reincarnate
BitInstant. The one hitch was
the Winklevoss twins. Charlie
had offered to give the new
investors more than half of
his
own
equity
in
the
company—bringing him from
a 27 percent stake down to a
12 percent stake. All the
twins and David had to do
was give the new investors 2
percent of their 25 percent
stake. When the twins shot
back a curt e-mail dismissing
Charlie’s
offer,
Charlie
quickly replied that he would
provide all the shares to the
new investors so that David
and the twins did not have to
dilute their stake in the
company at all. When Charlie
met with Nic, he was still
waiting to hear back from the
twins.
In the meantime, though,
Charlie was not twiddling his
thumbs. Earlier the same day,
he and his girlfriend Courtney
had lunch with a few guys
who wanted to sell shares in