A Fortune in Small Packets
By Charlie Shrem
Charlie Shrem is a bitcoin pioneer and host of the Untold Stories podcast…
In 2011 at the dawn of the crypto era, Charlie founded BitInstant, the first and largest bitcoin company. In 2013, he founded The Bitcoin Foundation and served as its vice chairman.
Since then, Charlie has advised more than a dozen digital currency companies, launched and managed numerous partnerships between crypto and non-crypto companies, and is the go-to guy for some of the world’s wealthiest entrepreneurs. He recently started Crypto.IQ, the premier advisory firm providing expert research, education, and advice in the world of crypto assets.
My company, BitInstant, was one of the first and largest companies in the bitcoin space from 2011 to 2014. We handled 30% of all the global bitcoin transaction volume.
But then came the bitcoin bubble in 2012-2013… the first real bubble that put bitcoin on the map… when the price went from $100 to $1,200 and then crashed back down over the next few months to $200.
And that was around the time that the U.S. government started giving bitcoin some attention and clarified that anyone who operates a bitcoin company needs the same money-transmitter licenses that companies like PayPal and Western Union have. All these other companies that operate in the financial services sector need these transmitter licenses because now they consider bitcoin to be a store of value.
And so my lawyer sent me a letter saying, “We can’t represent you anymore, you need to shut down.” It was a hard thing to do, but we shut down.
Six months later, in January 2014, I was giving a talk in Amsterdam. And as I was in passport control coming home, someone walked up to me and said, “Hi, I’m an agent from the FBI. And these are the other agents. You’re being arrested for money laundering.”
I was arrested. I served a year under house arrest. Eventually, I called my lawyer and said, “Let’s make a deal.” So I pled guilty to aiding and abetting the operation of an unlicensed money transmitting business. And for that, I served 18 months in federal prison, and I had three years of probation…
It’s a six-year saga that just ended last month.
And it’s been a crazy six years for bitcoin, too. Bitcoin has really grown. We saw a massive bubble where the price went to $20,000, crashed back down to $4,000, and is now trading for around $9,000.
But I saw something really interesting in prison…
There’s no currency in prison. There’s no money. There’s no way to transact.
There’s a commissary. You can go every Tuesday. Your family or friends can wire money to the prison and it goes on your “books”… but you can never have more than $360 on your books at any given time. And you can also never spend more than $360 a month.
So it doesn’t matter whether you’re poor or a billionaire on the outside. It’s communism on the inside. Everyone is the same. And if you don’t have anyone on the outside to send you money, you can work.
I actually had a really good job. I drove a snowplow and a streetsweeper every day, and I got paid $50 a month… which was a good wage in prison.
One day – it might have been a Friday – I was sitting in my cell on my bunk, and it wasn’t a commissary day. And it was kind of well-known that if you wanted to transact with someone, you had these stores. You had inmates who ran these little Walmarts out of their cells where you could buy stuff not on commissary day for a premium. And of course, in the absence of sound money and a fair market, a black market will emerge…
Just look at Argentina, North Korea, and even China. Even during World War II all over Europe, black markets emerged in the absence of a sound economy.
So what was money?
There were no physical bills. If you were caught with even a nickel, you’d get sent to the “hole.” And trust me, you don’t want to go to the hole because you never come back.
So what did people transact with?
Money was single-use packets of mackerel in soybean oil that cost $1.50 in the commissary.
Do you ever go to the supermarket, and buy the single-use packets of tuna fish? It’s just like that, but with more of a well-bodied fish instead of the mushiness of tuna.
So if I wanted to get a haircut, it would cost three “macks” – three mackerels.
Now why was mackerel valuable?
These mackerel packets are about the size of your cellphone, and they were stackable. So they’re easy to store. People had their life savings in these mackerel packets.
And everyone in prison works out. These mackerel packets were the best source of protein in prison. So it was sound money because everyone agreed that it had value. Everyone ate it.
There was also a finite supply. Mackerel cannot be debased in prison. There was no federal reserve of mackerel that was printing mackerel on demand. There were 500 inmates in my compound. Every inmate could only go to commissary once a week. And they could only buy up to 14 mackerel per week.
So the total amount of mackerel in circulation was a maximum of 364,000 a year.
And mackerel gets eaten. So you have mackerel that gets taken out of circulation. There’s not just an infinite supply coming into the system – it’s also going out.
So I’m sitting in my cell. And I really want a cold Dr. Pepper. So I go downstairs. And I ask Jose, “Can I get a Dr. Pepper?” He says, “Sure, that’ll be one mack, or two money macks.”
And I say “What the hell is a money mack?”
And he goes, “I’ll show you.” He hands me a six-year-old expired mackerel. When you feel the soybean oil, you don’t even feel the mackerel anymore. It’s disintegrated inside the bag. It’s completely inedible.
“So you’re telling me that if I give you two of these horrible, expired mackerels that you can’t even eat, you’ll give me a soda?” He says, “Yeah, it’s money.”
I didn’t understand this. You had an alternative currency system that had no utility. No actual real use. But it was still considered money because everyone agreed that it had value. And this was insane…
I didn’t understand this. You had an alternative currency system that had no utility. No actual real use. But it was still considered money because everyone agreed that it had value. And this was insane.
I was thinking about this for so long, and it did kind of make sense. You had inmates in there for 30 years who had mackerel that they could eat, and over time it expired but they still wanted to use it as money, and all the other properties of mackerel still existed.
Then one day, I see a lot of commotion in the cafeteria. There was an inmate who had been in jail for 26 years or so. And he had his life savings of hundreds – maybe even thousands – of money macks in his locker. This was his savings. When he got released, he would have been able to sell it to someone and then that person’s family would have wired him payment. This was real money. But he got sent to the hole or something – no one was sure what happened.
And for some reason, the administration emptied out his locker. They took his expired mackerel, put it in a big mail bin, and set it out in the hallway for anyone who wanted them.
All of a sudden, people’s life savings were wiped out overnight… The government debased the mackerel.
Charlie’s tale is a good one for anyone interested in sound money, economics, and the future of currency. Anything can be money if it’s accepted by two parties. Even small packets of fish… Cryptocurrencies have been used for some time as an exchange of value… and one that the government can’t debase. As that trend continues, adoption will rise.