Crypto Stories: Charlie Shrem tells how he became a Bitcoin millionaire

Shrem made a fortune off his Bitcoin payment service, BitInstant, but then went to prison for alleged money laundering.

Charlie Shrem went from running a small online business to becoming a Bitcoin (BTC) millionaire and making the cover of Forbes magazine. And then he went to prison.

In the latest episode of Cointelegraph’s Crypto Stories, Shrem tells the story of how he founded BitInstant, grew it into a multimillion-dollar Bitcoin empire, and then was arrested for his role in it.

Shrem’s first business was an e-commerce site that only charged $5 shipping per item. The idea was his cousin’s, but Shrem used his coding skills to create the actual site. The business sold lights, toothbrushes, razors and other assorted items.

In his free time, Shrem hung out on online message boards. That’s where he found out about Bitcoin. At the time, the only way to buy Bitcoin was to wire transfer large amounts of funds to Mt. Gox, and it took a week for the deposit to clear within the banking system. A customer who wanted to buy smaller amounts or wanted to buy instantly had no way of doing so.

Shrem met up with a person in one of these forums named “Gareth,” and the two started a business that would allow people to buy or sell Bitcoin instantly. Their company was called BitInstant. To allow for instant purchases, the company deposited money into Mt. Gox and purchased Bitcoin with it. They then sold this Bitcoin off in smaller amounts to various customers.

But Shrem and his partner ran into a problem. As their transaction volume grew, they needed more and more cash to deposit into Mt. Gox, and their capital was running out quickly, as Shrem explained:

“It always needed more money because we were growing in transaction size. So, in a way that an ATM needs money to sit in the machine all day, we needed money to sit in the exchanges for a week, [be]cause it would take up to a week to top up again. It was a cycle, so we always needed seven to eight times our transaction volume.”

The two entrepreneurs met Roger Ver, who helped them with a $100,000 capital injection to continue scaling the business. Ver also suggested the team hire Erik Voorhees. Later, Voorhees and Shrem ran across David Azar at a tech convention, who invested more. Finally, during his honeymoon, Azar met Cameron and Tyler Winklevoss on a beach and convinced them to invest in the company, which provided enough cash to allow the company to overcome its scaling difficulties.

Related: Erik Voorhees lashes ‘disgusting’ behavior of Bitcoin maxis

BitInstant grew so fast that it eventually became responsible for 30% of all transactions on the Bitcoin blockchain. Meanwhile, Shrem was struggling in his relationships with his family and the Jewish community he belonged to. Shrem began to feel that his religious community was stifling, especially after he fell in love with a person who was not Jewish. This frustration eventually reached a peak, and Shrem decided to leave the Jewish community.

Then, while attempting to disembark from a plane in New York, Shrem was arrested and charged with money laundering for his role in BitInstant. Authorities claimed that some BitInstant customers had used the Bitcoin they purchased from the company for illicit purposes, including criminal transactions on the Silk Road dark web marketplace.

When released on bail, Shrem was placed under house arrest and forced to live with his strict Jewish parents, who believed that his arrest was a punishment from God in response to him leaving the community. “They thought I deserved what was coming to me,” Shrem said. “They were excited to see me go to jail because they felt that I hurt them so hard.”

That’s all for Part 1 of Charlie Shrem’s crypto story. There is more to come in Part 2.

Follow the full story: The Untold Story of Charlie Shrem.