Money

What a 20-something bitcoin millionaire learned from going to prison and starting over

Charlie Shrem
Source: Wikipedia
Charlie Shrem

Long before bitcoin hit a high of $19,000 this week, Charlie Shrem took a chance on it — and it changed his life.

As Shrem explains on a recent episode of WNYC's "Death, Sex & Money," he grew up in an insular religious community in Brooklyn, New York, where his parents, who "didn't do anything to excess," taught him the value of a dollar. But once he started making his own money, and lots of it, he became unmoored.

He ran a lucrative computer-repair service with his friends in high school and, in college, he co-founded BitInstant, an e-commerce website that helped people convert dollars into bitcoin.

"I was, like, 22 years old," he tells podcast host Anna Sale. "I had half a million dollars sitting in the bank. I had no expenses. Life was great."

At one point, according to a report on Bitcoin.com, BitInstant accounted for almost 30 percent of all bitcoin transactions and even received investment capital from investors like Roger Ver.

Then a mistake cost Shrem nearly everything and landed him in prison.

A BitInstant user began reselling bitcoin on Silk Road, an underground marketplace known for illegal activity, Shrem explains to Sale.

"This guy was a customer of ours," he says. "He bought bitcoin and then would resell [them to people who] would then go buy drugs and stuff like that. I knew about it. I didn't really care and I was a young kid. I didn't care enough to stop it because I was making money."

But then Shrem had a change of heart. He sent an email to the user, saying, "I know you're on Silk Road, I know you're reselling. You better stop, you know. You better calm down."

His decision not to alert authorities, though, would cost him. Even after shutting down BitInstant, Shrem was arrested, charged with money laundering and operating an unlicensed money-transmitting business.

The entrepreneur spent a year in federal prison and lost, or had to spend on legal fees, most of the money he had earned through his website. When he was let out on parole, he got a job washing dishes.

Some good did come of the whole ordeal, though. His isolation helped him rebalance himself. "In prison, you have to forget about the world on the outside," Shrem says.

"You have no internet, no communications and you're cut off from the whole world. Everything is given to you. You have shelter, you have food, a shower, water. You don't need to spend a dime. You don't have to worry about bills."

Working as a dishwasher helped him grow up, too. "In hindsight, it was one of the best experiences," he tells Sale. But, he adds, it was humbling. Shrem says he worked for 11 hours a day, "going from being a millionaire [to] washing dishes for $8 an hour." And yet, he says, "I loved it."

Now 27, Shrem, who also appears in the Netflix documentary "Banking on Bitcoin," still applies some of those lessons in his daily life. He's an executive at a technology firm, WNYC reports, he's starting a new family and he's careful with his money.

While he still owns a few bitcoin, he says he's striving toward more financial independence and responsibility.

"I'm investing, I'm taking a lot of bitcoin, selling it as the price goes up and putting it into real estate. Because then if bitcoin goes to zero — which, it's an experiment, it could — I won't be on the street," he says.

"A lot of people have, like, 95 percent of their wealth in bitcoin. Great for them, but I got to be smart. I'm getting married, we'll have children eventually, I can't, you know, I can't speculate with my rent."

Listen to the full podcast episode below.