Bitcoin’s Last Gunslinger

When Erik Voorhees discovered bitcoin, cryptocurrency was untamed. Memories of the Great Recession, in which global economies tanked, banks were bailed out by governments, and taxpayers were left with the bill, were still thick in the air and in the headlines. Bitcoin was still largely unknown around the world, and the secret message embedded by Satoshi Nakamoto in the bitcoin genesis block ten years ago today, warning of a future bailout of banks, was considered sacred knowledge among early bitcoin initiates:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

So-called crypto-anarchists, who sought to use cryptography to ensure extreme privacy, and their more mild-mannered libertarian brethren, who wanted to build a world with less government influence, were among the first to adopt the cryptocurrency, which allowed anyone in the world to move value without the need of what they viewed as untrustworthy banks, and, some thought, to do so beyond the reach of regulators.

To further those ends, just months before Voorhees, the cofounder of the cryptocurrency exchange Shapeshift, discovered bitcoin in May 2011, a 26-year-old Penn State grad named Ross William Ulbricht founded the Silk Road, an online marketplace that accepted bitcoin and was designed to operate outside the jurisdiction of any government. Shortly thereafter, aspiring entrepreneur Charlie Shrem launched the early cryptocurrency exchange BitInstant, and Voorhees became employee number three. As BitInstant’s founding chief marketing officer, one of Voorhees’ key responsibilities was to explain to the rest of the world how the nascent cryptocurrency could enable a new financial paradigm without banks.

Now, on the ten year anniversary of the mining of the first bitcoin block, Voorhees has survived the imprisonment of his former BitInstant boss; the life sentence of Ulbricht, whose black market was in part propped up by back-office dealings with Shrem; an agreement with the U.S. Securities & Exchange Commission to settle multiple charges; and most recently, reports that another investigation is under way to see if he violated terms of an earlier agreement with the SEC.

As the stock market wraps up one of its worst year's in a decade and bitcoin's potential as the foundation of an alternative financial infrastructure is increasingly doubted, Voorhees remains defiant. Through it all, he has emerged as a staunch defender of bitcoin’s earliest promises and a symbol of how compromise might still be the best way to open up global finance to the masses.

“If we get shut down and are sent to jail, who did that help?” asks Voorhees. “So, ultimately, we pay taxes, but I am morally opposed to taxation. Why do we pay taxes on the business? Is it because our principles on the matter changed? No, it’s because we’re forced to do it, and if we don’t we get thrown in a cage.”

The concept of freedom—and its absence—permeates Voorhees’ work, going back to before he discovered bitcoin. Born in Danbury, Connecticut, in 1984, Voorhees grew up in a libertarian household set in the thick Colorado forest. His father, Jacques Voorhees, sold diamond trading platform Polygon for $8.4 million in 2004 and is recognized in the libertarian community as a leader for both his extensive writing on libertarian thought and for the way he ran his business.

Jacques taught the young Erik his first lessons on economics using the very woods they lived in. When Voorhees was 4 years old he met a local boy, Justin Blincoe, and the two immediately hit it off, bonding over what Blincoe describes as a common mischievousness. Shortly after they met, perhaps taking a cue from Voorhees’ father or perhaps following an inborn entrepreneurial spirit, Voorhees and Blincoe started their first business together, selling pine cones they collected in Voorhees’ backyard.

“Who wouldn’t want to buy them?” Blincoe jokingly asked, referring to the pine cones. “They were awesome!” Alas, the boys’ fellow schoolkids disagreed, and the operation failed to take off. Now the chief financial officer of ShapeShift, Blincoe describes a lecture on the economics of pine cones he and Voorhees received from Erik’s father following the failure as their first lesson in supply, demand and scarcity.

The friends briefly parted after their sophomore year in high school when Voorhees was shipped off to Vail Mountain School, a private school in Vail, Colorado, and Blincoe stayed at the public Summit High School. But the two friends never lost touch.

In 2003 Voorhees enrolled at the University of Puget Sound in Tacoma, Washington, where he became friends with Nic Cary, a fellow student of business leadership and political economics whom Voorhees would later, fatefully, introduce to bitcoin. After graduating, Voorhees moved to Dubai, where he worked as a communications manager for a real estate company. Blincoe joined him four months later.

When the Great Recession hit in 2008, Voorhees and Blincoe were still in Dubai. They describe watching the U.S. economic collapse slowly ripple around the world as a defining moment in their lives. “The world really was bigger than the United States," Blincoe says. “It just became really obvious that government should have nothing to do with money whatsoever," Voorhees adds. "The government would never give up the control of money. So what were we going to do?"

To more seriously pursue his ever-strengthening beliefs that government—and banking—power should be limited, Voorhees picked up stakes and moved to New Hampshire, the Live Free or Die state. There he worked with the Free State Project, a long-term effort to build a society with as little government meddling as possible, and met Keith Ammon, a rising local politician. In May 2011 Ammon introduced Voorhees to bitcoin, which unlike the pine cones of his youth was limited in supply and unlike the U.S. dollar was not minted by a government.

Voorhees describes reading an article Ammon posted on Facebook and thinking cryptocurrency “was sort of weird.” Then he read further, and by the third article, he says, “It clicked.” Beyond the scarcity of bitcoin, Voorhees says, what most attracted him and what has permeated each of his businesses since was the idea that no one owned the open source blockchain technology that powered it—it couldn’t be shut down by a government—and money could be moved anywhere on earth at “basically zero cost.” If he could get enough people to use the cryptocurrency, it could weaken the influence of traditional banks.

“This had to be the most obviously useful invention that I’d ever seen,” he said. “And I just totally fell in love with it.”

Repurposed with a mission, Voorhees dove into Satoshi Nakamoto’s bitcoin white paper and quickly landed a job with BitInstant, a then-unknown New York-based cryptocurrency exchange led by Charlie Shrem and backed by Tyler and Cameron Winklevoss, who had just received a lucrative settlement from Facebook. Voorhees made a place for himself in the high-tech startup by leveraging his communications experience to become the company’s founding chief marketing officer.

This period, starting around the end of 2011, when bitcoin was worth about $2, is widely known as the Wild West of cryptocurrency. At the time, bitcoin was thought to be both unregulated and unregulatable. Among BitInstant’s many customers was a startup called the Silk Road, a digital black market for buying illicit goods, especially drugs. By 2013, BitInstant was processing a third of all bitcoin transactions, according to some accounts, and indirectly helped Silk Road users conduct some of the $200 million in estimated illicit drug sales during this period, seemingly beyond the reach of the law.

Between playing hands of poker for 10 bitcoin each with his former boss, Shrem, and helping build BitInstant into one of the most popular early bitcoin exchanges, Voorhees was becoming a spokesperson not just for BitInstant but for bitcoin itself. One of Voorhees more influential moments took place in the winter of 2011, when he found himself fishing with his old college friend Nic Cary in Gardiners Bay, Long Island. As Cary describes the fateful meeting, while Voorhees fished for flounder he cracked open a “cheap Budweiser” and explained how the open-source code behind bitcoin could eventually become the future of money.

“We’re all sharing a world that was structured in advance of our participation in it,” says Cary, who went on to raise $70 million for Blockchain Inc., a bitcoin wallet provider. “And if we have even a shot at building an economic frame that lets all people exchange value regardless of where they were born, that is a worth spending a career on.”

Having helped inspire the creation of Blockchain Inc., the largest bitcoin wallet provider in the world, with 30 million bitcoin wallets, Voorhees, who was still living in New Hampshire, returned to his day job at BitInstant. Browsing the social media site Reddit, he discovered a few simple lines of code that mimicked the behavior of dice. It had been less than a year since he'd discovered bitcoin, and those few lines of code were about to turn him, one of the first people to earn a living in crypto, into one of its first multimillionaires.

The code he was shown by the anonymous Reddit user ended up forming the building blocks of a casino dice game with bitcoin. Voorhees tested the code and says two things stood out. First, no account was necessary. Gamers could gamble from anywhere in the world without having to hand over any personal information. Second, the odds of the games were cryptographically verifiable, so gamers could rest assured that the dice weren’t rigged.

Sensing this could be a game changer, Voorhees bought the code for 40 bitcoin, worth what he estimates was about $350 at the time, and launched SatoshiDice, an online casino accessible by anyone with an internet connection. Between August 2012 and February 2013, Voorhees raised 50,600 bitcoins at a price of about $14, worth approximately $722,659 at the time, according to a U.S. Securities & Exchange Commission (SEC) estimate. He did this by selling 13 million unregistered shares on the now-defunct MPEX exchange. Speaking at a conference in May 2013, Voorhees estimated that SatoshiDice was at the time responsible for half of all bitcoin transactions ever conducted and more than half of all the fees paid to miners who helped audit the bitcoin blockchain.

“I can’t take too much credit for it,” Voorhees says today. “What it really came down to was it’s a beautiful demonstration of how powerful bitcoin itself was.”

But Voorhees had to make a choice. Online casinos are a legal gray area in the United States, and he was increasingly becoming a public figure in the rapidly growing bitcoin community. “Ultimately, I realized, I could either go underground and keep running this very lucrative casino, which was pretty compelling and interesting to me,” he says, “or I would need to sell it so I could continue being a public voice for bitcoin, but I couldn’t do both.”

In early 2013 the path to becoming a more vocal public voice was partially cleared when Voorhees had what he called a “big falling out” with BitInstant investors Tyler and Cameron Winklevoss, who now run the Gemini cryptocurrency exchange. Shortly after the dispute he left BitInstant, and made his first big compromise to achieve widespread adoption of bitcoin. In July, he sold SatoshiDice to an anonymous buyer for 126,315 bitcoin, then valued at $11.5 million. At today’s bitcoin price of $3,800, SatoshiDice would be worth $479 million. In terms of the bitcoin involved, excluding the increase of the cryptocurrency’s value over the same period, that’s a 315,687% increase.

“It should go down as one of the greatest investments of any person, of any time ever,” says Voorhees, who claims his shareholders profited much more than he did. Nevertheless, Voorhees had to pay the SEC $50,000 in penalties, not counting legal fees and taxes as part of a settlement for selling the unregistered securities.

If Voorhees and many his fellow early bitcoin entrepreneurs were originally attracted to bitcoin because of a theoretical disgust with government regulation, being forced to pay these fines made his resentment of the government very, very personal and became a reminder of how much he personally had at stake.

“It was a terrifying experience for me,” says Voorhees, who calls selling the unregistered SatoshiDice shares his biggest regret over the past ten years. “And for all that to happen after having created something that was cool and useful and revolutionary and that made investors a bunch of money seemed like such an obvious injustice to me that it was really validating.”

In addition to scaring Voorhees, the SEC fines were in many ways the beginning of the end of the cryptocurrency Wild West. Not only did the fines pave the way for a spate of recent SEC actions, they forced Voorhees to make a series of compromises in order to stay on the right side of the law, he says. “That’s something that remains, in hindsight, a horrible decision,” he adds. “Not because it’s wrong to sell to people but because of all the problems it led to with the SEC and because of the decisions I made after that, which ended up being horrible financial decisions that I was forced into doing.”

Further marking the decline of bitcoin’s Wild West, the same month Voorhees sold SatoshiDice, his former employer BitInstant was shut down and Shrem was accused (and later convicted) of helping launder money for Silk Road users. Though Shrem served almost two years in a federal prison, Voorhees was never accused of any wrongdoing. Then, at the end of 2013, the Silk Road itself was shut down when its founder, Ross Ulbricht, was caught in a local library and charged with narcotics trafficking and money laundering as well as a “kingpin” charge usually reserved for crime bosses. Convicted of all charges, Ulbricht is serving a life sentence in the maximum security Florence Prison in Colorado.  

In spite of being a symbolic end to cryptocurrency’s Wild West, Voorhees also calls the closure of the Silk Road the single most important event for bitcoin since Satoshi wrote the white paper describing it. Not because he thinks the Silk Road’s reputation was bad for bitcoin (“I think that site had every right to exist,” he says) but because before then, most people who knew what bitcoin was thought it was inextricably tied to the success of black markets. “I think that moment was really profoundly important for people to see that this was something real that did not rely on any specific service,” Voorhees says.

Watching his former colleagues and friends defend themselves in court and then get hauled off to prison taught Voorhees a hard lesson. While Satoshi’s goal of creating an ecosystem that was more democratic and decentralized might still be possible to achieve, the notion that it would exist beyond the reach of regulators anytime soon was doubtful.

So Voorhees hit restart and invested the SatoshiDice profits into about two dozen crypto projects, including Coinapult, a short-lived startup intended to let customers more easily send bitcoin with a mobile device, and ShapeShift, his current company, a cryptocurrency exchange that lets customers easily convert their assets into other assets without the exchange taking custody of either.

From the time Voorhees cofounded ShapeShift at the tail end of 2014, what set the company apart from most other exchanges was its login process—as with SatoshiDice, there wasn’t one. If a user had an account with bitcoin in it, he or she could use ShapeShift immediately. Voorhees was so stern about not collecting customer data that, rather than comply with New York state regulations that required ShapeShift and certain other cryptocurrency companies to collect information about their customers, he blocked New York residents from using the product. Once again Voorhees demonstrated his knack for simultaneously sticking it to the man and staying away from the long arm of the law.

The controversial move to block New York users was also accompanied by a relocation of ShapeShift’s official headquarters to crypto-friendly Zug, Switzerland. In the years that followed, ShapeShift’s monthly transaction volumes grew from about $110,000 in 2014 to $30.26 million in 2017. By March 2017 Shapeshift had raised $10.2 million from mainstream investors such as Early Bird Venture Capital, and the company was on its way to becoming one of the best-known exchanges in the world.

As ShapeShift grew to 125 employees today, Voorhees began to exercise his influence around the world in other ways, too. In 2017, the price of bitcoin skyrocketed in value, increasing from about $1,200 when ShapeShift raised its capital in March to $19,000 by the end of the year. In part spurred by the suddenly very large stakes, squabbles from within the global group of bitcoin users (many of whom no longer like to be called a community) threatened to destroy bitcoin.

Factions had formed among bitcoin users trying to figure out how to prepare the cryptocurrency for widespread adoption. Currently, bitcoin can only handle about seven transactions per second; by comparison, Visa can handle about 24,000 transactions per second. While many of bitcoin’s early adopters joined a group that preferred a solution favorable to ordinary users, Voorhees joined a group of venture-backed startups to support a solution that many believed was better for businesses. For the first time, Voorhees found himself on the side of the establishment.

Before the dust settled on the heated debate about how to scale bitcoin, an entirely new cryptocurrency had formed, called bitcoin cash, and another split was narrowly avoided when Voorhees’ group cancelled its efforts to change the bitcoin code at the last minute. “Basically, the community that was very much on the same team and very much fighting for a noble cause, instead of being beaten down by its real opponents has allowed itself to splinter internally and spend much of its time beating itself up,” Voorhees says. “This has just been a horrible thing to watch.”

The price of bitcoin dropped 70% in 2018, finishing the year at $3,878.

As bitcoin has gone on to become a household name and bitcoin cash was created, the industry started to change in other ways that will continue to be felt for years to come, and Voorhees was there, too. Rumors that the SEC was planning a sweeping series of actions against cryptocurrency startups and those who raised capital via an initial coin offering (ICO) materialized in September 2017 with the formation of the regulator’s Cyber Unit, which was dedicated in part to going after shady crypto startups.

As a result of the formation of the Cyber Unit, entrepreneurs who had gotten into cryptocurrency and the blockchain technology that enables it in order to create a parallel financial system controlled by the people who used it started having to learn the language of the establishment. Otherwise-random strings of letters like AML and KYC started taking on ominous meanings like “anti-money-laundering” and “know-your-customer.” By December 2017 the U.S regulator’s Cyber Unit filed its first charges against a crypto startup, freezing the assets of the alleged perpetrator, based in Quebec, as part of an ongoing investigation.

As a result of the ever-tightening grip and increasingly international reach of U.S. regulators, Voorhees grew concerned about his own company’s potential vulnerability. In spite of being legally based in Switzerland, he says, he dedicated “millions of dollars” to research ways to avoid having to comply with the SEC’s AML/KYC requirements. But in September 2018, after 18 months of research, Voorhees announced that ShapeShift would in fact implement customer accounts—not only as an optional way to receive membership benefits but, as he said later, just in case a government regulator requested the information.

“The whole company has suffered for that on a philosophical and emotional level,” Voorhees says. “To have to do something that we think is morally and ethically wrong just because government regulators may require it is a really horrible position to be in.” The timing, however, was no coincidence.

In September 2018, the Wall Street Journal reported that multiple people had used ShapeShift to launder money. Two months later the SEC formally announced its first public investigation into a cryptocurrency exchange, indicating increased involvement in Shapeshift’s industry, and at the end of that month the Journal reported that the SEC was looking into whether Voorhees himself might have violated an agreement he made with the regulator as part of the SatoshiDice settlement. Voorhees staunchly denies the allegations and calls the Journal’s data set and methodology “nonsense.”

Now 34 years old, Voorhees still has his entire career to implement the tough lessons he’s learned about the price of reaching mainstream bitcoin adoption—if he can survive the transition from Wild West gunslinger to rancher. From the initial hand-slap by the SEC, which woke him up to the very personal threat regulators could pose to his vision of absolute financial freedom, to his decision to force ShapeShift’s customers to submit personally identifiable information, he has learned to make painful compromises in pursuit of what he believes is a greater good.

“Back when I first got involved, crypto was a few thousand mostly radical libertarian types, and mostly hardcore engineers or cryptographers really passionate about this cool project,” Voorhees says. “It has grown, and I’m glad it has grown. There are people who use it with no ideological cares about it at all. People who simply use it because it helps them in some economic way. And that’s exactly what should happen.”