Civic News

Brooklyn’s place in Bitcoin history is Charlie Shrem’s mom’s basement

As regulatory environment for virtual currency heats up, Brooklyn's Bitcoin pioneer is awaiting his fate under house arrest.

Charlie Shrem at a screening of the movie SILVER CIRCLE. Feb. 2013. From Flickr user Silver Circle Movie [Creative Commons]

Brooklyn’s Bitcoin pioneer sits under house arrest in Brooklyn, while more cautious entrepreneurs move to take up the space his formerly high flying firm, BitInstant, once occupied.

Scrutiny of the digital currency is getting more intense. Bitcoin hardcores are annoyed that the government is moving to regulate the buzzy currency, but others in the Bitcoin space are ready for it come. They view a regulated Bitcoin market as another step on the path to legitimacy, according to a new story from Motherboard:

And unlike many of the startups that Coinbase has since replaced, such as MtGox … the latest generation of Bitcoin business looks prepared to tackle existing and new regulations head first.

“When Coinbase first began in mid-2012, no industry company was focusing on both creating a user-friendly interface to Bitcoin, while also clearly regarding consumer protection, regulatory matters, and compliance as necessary elements to succeed in this rapidly evolving landscape,” Fred Ehrsam, co-founder of Coinbase, said on Wednesday. “We have since invested disproportionate amounts of time, energy, and capital into exactly these areas.”

Brooklyn inadvertently earned itself a dubious place in the evolution of Bitcoin. We linked to a post about Charlie Shrem, Brooklyn College grad and founder of BitInstant last year. Shrem has become one of the voices of the Bitcoin movement. He also made a lot of money off of facilitating Bitcoin transactions.

Shrem was arrested when he got off a plane from Amsterdam last Monday.

In an account of Shrem’s rise and fall to house arrest, where he currently resides, at his parent’s home in Brooklyn, it sounds as though the young CEO wasn’t quite careful enough about laws governing how money transmitters are meant to work with the government to prevent fraud.

Appearances suggest that Shrem may have run afoul of the investigation into Silk Road. In fact, he might have even used the secret site. It’s all detailed in The Verge, in a case that primarily deals with BitInstant’s dealings with a Robert Faiealla, who was just indicted in Florida:

“He [Faiella] has not broken a law and Silk Road itself is not illegal,” Shrem said in one email to his co-founder cited in the complaint. “We also don’t have any rules against resellers. We make good profit from him.”

Right, Nelson replied, but “so many of his transactions smell like fraud or money laundering.”

“Cool,” came the one-word reply.

The criminal complaint alleges that Shrem himself had bought drugs on Silk Road, which squares with the pothead lifestyle he boasted about to reporters. “I won’t hire you unless I’ve either had a drink with you or smoked weed with you. That’s just my rule,” he told both The New York Observer and Vocativ. In February of 2012, he messaged a Verge reporter, excited about receiving a package. “Wow, Silk Road actually works,” he wrote. “Just got my batch of brownies.” (While Silk Road did sell non-drugged food items, it was implied that the brownies were laced with pot.)

Series: Brooklyn

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