S15 E53: Charlie Shrem on Block Size Wars & Prison

Charlie Shrem is one of those rare bitcoiners whose biography reads like the plot of two different documentaries. In fact, it is the plot of two different documentaries. He was the co-founder and CEO of BitInstant, one of the founders of the Bitcoin Foundation, and one of the first Bitcoin martyrs: a man who went to prison over the fungibility of the coins that passed through his company. He also once tweeted that jail turned him into more of an American patriot, which is not the conclusion most people reach behind bars.

I had tried to get him on the show many times, and the calendar always won. What finally broke the stalemate was a Twitter exchange. The person behind the BitMEX Research account had described Charlie's position on the block size wars as clearly pro-BTC, Charlie replied that he had never actually clarified it, and I jumped in to offer him a microphone. "Let's do it," he said, and so I ended up live with him, freshly haircut (for those of you listening on Spotify, that is a reason to watch the video).

What followed was an hour of history from someone who mostly watched the scaling debate through the mail, a surprisingly cheerful take on stablecoins, a gloomy detour into fear and privacy, two surprises from my side, and a poem he wrote on the day he got arrested. If you expected a bitter man, you will not find one here.

Missing the Civil War

My first question was the obvious one: where did Charlie stand when Bitcoin tore itself apart over block size? His answer started with a correction about vocabulary. "I don't even like calling it a war," he said. And he pointed out that nobody had ever sat him down to ask how he saw it in historical context, including the author of The Blocksize War, a book he had promoted many times on his own podcast, The Charlie Shrem Show. In his view, the author simply "read from historical context what he thought my position was or would be."

I confessed that I was only a spectator back then. I was not running a node, I was just hearing about SegWit, SegWit2x, Bitcoin Classic and Bitcoin Unlimited the way you hear about storms in another country. Only later, after I "got radicalized a bit by the winning side," did I discover that many people now labeled small blockers had once wanted bigger blocks. BIP 103 is living proof that Pieter Wuille and others were interested in a gradual increase at one point.

Charlie zoomed out. When he got arrested in January 2014, an entire era ended within a couple of months: Silk Road had been shut down, Ross Ulbricht was in custody, Mt. Gox was proven insolvent, and the price hit its all-time high before dumping. Before that, words like censorship and size war simply did not exist in the community. "If the concept of raising the block size had come up one year earlier, probably it wouldn't have been anything like what it became," he told me.

What he described next sounded like a changing of the guard. It was "the end of the anarchists and the misfits and the people throwing shit at the wall to see what sticks," the end of the BitInstant era and the rise of the Coinbase era. Of the companies from those days, he could only name two that were still operating: BitPay and Blockchain.info. Vitalik had not even talked about Ethereum until a couple of months after his arrest.

Smart Scaling Beats Fast Scaling

Charlie did not pick a jersey so much as recite two lessons that stuck with him. The first one came from someone who told him: "Charlie, you can't solve a technical problem with a political solution." That was the moment he realized SegWit2x would not succeed.

The second came from Bitcoin developers, many of whom are his friends and live near him in Florida. "Charlie, smart scaling is better than fast scaling," they told him. The argument was that the block size would not stay frozen forever, but if Bitcoin bent the knee to all the forces pushing on it, "we will have failed the social experiment that is Bitcoin." Did scaling and growth eventually come? "Yes, no, how, maybe," he laughed. Those are questions we can debate.

He summarized the technical side the way most of us remember it: bigger blocks, once they filled up, would in theory make it impossible to run a node on smaller computers. SegWit, in his opinion, "was probably one of the best technical solutions at the time." On top of that you had political and personal attacks, and a layer of American versus Chinese tension that he says is more transparent today than it was back then. "There's so many layers to this story," he said, which is exactly why he recommends the book.

Just to be fair to everyone involved: Charlie spent the hottest years of that debate in a cell. "When I was in prison was when the block size debate started, which is why I missed out on the Hong Kong agreement and the New York agreement," he explained later in the episode. His main source of news was Roger Ver, who kept mailing him information from the outside. So the clarification he gave me is less of a verdict and more of a testimony from someone who heard the gunfire from very far away.

The Rise and Rise of Charlie Shrem

Before the interview, I watched The Rise and Rise of Bitcoin, a documentary that foreshadows an absurd amount of what happened over the last decade. There is Bobby Lee talking about BTCC and mining migrating to China, and there is the filmmaker's brother, an enthusiastic miner who preorders Avalon machines and gets burned by Butterfly Labs before giving up on mining altogether.

Charlie said that was simply life in those days. You would buy machines without knowing whether they would ever arrive, and cloud mining "was like 90% of it was a scam." His explanation is pure game theory: if you build a machine that mines bitcoin, why ship it before you run it yourself while the difficulty is low? Most early miners were funded by forum posts along the lines of "hey guys, I have an idea for a Bitcoin miner, everyone give me 10 bitcoin," and "most of those people never came back."

The same documentary has a scene I could not get out of my head. During the 2013 crash triggered by the Mt. Gox shutdown, Charlie tries to explain to BitInstant customers that they still have their bitcoin, and even that he gave them extra, but all they want is their US dollars. So I asked how that same man feels about Elon Musk pumping bitcoin and Tesla letting people preorder the Cybertruck with BTC. "It's very humbling," he said. "It's happened too fast."

He even reframed the block size fight as a sign of success. The scaling war happened because people were using Bitcoin and blocks were filling up. "It was a champagne problem," as he put it. "I still don't believe it," he added, and that disbelief is part of why he is writing a book about it.

Tether Is a Financial Backbone

Then came the first question I expected to make him wince. In 2012, would Charlie Shrem have believed that stablecoins would one day have a much higher trading volume than bitcoin? To me it feels like a defeat. He did not wince at all.

His view is that stablecoins have become a great explainer of crypto, and that most people who touch a stablecoin end up using bitcoin or something else too. He thinks it will take "probably another 100 years until you see like a Bitcoin standard," and until then people need a way to move in and out of their fiat currencies. "If you look at Tether across the world, it is literally a financial backbone that is taking millions of people out of poverty every single day," he said. Get a cell phone with a Tether account and "you can now use your brain and start a business."

I brought up something closer to home. My girlfriend is from Iran, her parents cannot use the banking system to send her money, so they send Tether, because everyone wants dollars and bitcoin looks too wild. I keep telling her she should use bitcoin, and I am conflicted about it. Charlie's answer was philosophical. "We are just humans living the short amount of time," he said, and the transition to better money "may not happen during our lifetimes."

He also admitted that the cypherpunks of his generation missed something. "We're a bunch of kids in our parents' basements," he said, and while they theorized about Cyprus, Argentina, Weimar Germany and Zimbabwe, nobody predicted that the first effect would be a stronger dollar. His explanation is that America is exporting its inflation to the rest of the world, and he thinks "it's really wrong that the American government does that." Later he came back to the point with a question for me: don't I think the dollar is also losing its purchasing power, "just a little bit slower"? I do. But as I told him, people have limited patience and they choose whatever works right now.

A Pepe, a Dishwasher and a Snow Plow

At this point I had a surprise. My girlfriend, who was taking a medical school exam while we were recording, had drawn Charlie as a Pepe that morning after we watched the documentary together. I asked him to look at it on his phone. "That's beautiful, can you put it back, I got to see it again," he said, and suggested inscribing it on Bitcoin. (She passed her exam during the episode, and he liked the Pepe. Good day for our household.)

The drawing led us to the other documentary, Banking on Bitcoin, which I remember as "the one where you wash dishes." Charlie remembers that job fondly. "That was a good job for six months, 'cause you're just putting headphones on and you're washing dishes and you don't have any problem in the world." I reminded him of the ankle bracelet and the miserable wage. He reminded me that in prison you only make "like $30 a month or something like that."

Everyone has to work in prison. Charlie spent a few months in the education department helping inmates get their high school diplomas, then got transferred to landscaping, which he called "a great job." It was nearly always cold, so he drove a snow plow, salted the ground and drove a big tractor over something like 5,000 acres. I told him about the Simpsons episode where Homer becomes Mr. Plow, which he somehow did not remember, and we agreed that there is something therapeutic about being the person who clears the road for everyone else.

Rebirth With a Million Dollar Debt

The tone shifted when he described what he walked out to. "When I got out of prison I was poor," he said. "Not only that, but I had a million dollar debt I had to pay to the government," as part of his plea agreement. All his money had gone to lawyers.

What he said next was the most personal moment of the conversation. "My parents abandoned me, excommunicated me. I haven't spoken or seen them in 10 years." The person who held everything together was his girlfriend, now his wife, who left New York, moved about an hour away from the prison and sent him money. The Bitcoin community split down the middle: "half the Bitcoin community supported me, half didn't," but many people sent beautiful letters and money.

Being that deep in debt had a strange side effect. He stopped thinking of money as something to accumulate over the long run, and the fresh start felt "almost like a rebirth." He worked as a dishwasher, a waiter and a table cleaner at a restaurant in Pennsylvania, eventually moved to Florida, and at the time of our recording had been free for eight years. They got engaged the day he was released, married a year later, and were celebrating their seventh wedding anniversary.

I told him I hoped to hear a similar story about Ross Ulbricht soon. Charlie was optimistic about Trump's chances, and showed off his sense of humor about it. As a felon himself, he owns a hat that says he is voting for the convicted felon.

Why the Crypto Anarchists Went Quiet

When I asked about the state of Bitcoin, Charlie gave me a gift basket. He praised Layer Two Labs and Paul Sztorc, whose white paper he went through with Paul himself, calling drivechains "one of the best technological solutions that we have for scaling for Bitcoin." He likes that there are so many competing methods, from soft forks to OP_CAT, with websites that explain the trade-offs. In his view Bitcoin is "a couple of years behind" the rest of the crypto ecosystem, and the only place it is really lacking is the user experience. "I have really nothing bad to say," he concluded.

So I complained instead. Bitcoiners used to be far more enthusiastic about creating anarchy with cryptography and building a parallel economy. Charlie knew exactly where I was going, and he admitted he has spent "a lot of sleepless nights over this culture loss." His explanation was blunt: "the fact of the matter is too many people went to prison." The Amir Taakis of the world, the ones pushing for maximum privacy, will either stay undoxxed and be ignored by the mainstream, or they will simply be afraid.

He did not sugarcoat it. Outside America, he said, they are arresting people, and he pointed at France and the CEO of Telegram. "You think you can be safe writing a blog post about privacy on Bitcoin? Absolutely not." His conclusion was even darker: "No one wants to be the next Ross." He also thinks the community is splitting into people who want everything regulated and people who say regulate crypto but leave bitcoin alone, which he finds unfair: "why are we throwing crypto into the fire?"

I offered a different perspective from Romania. Our constitution was drafted with the memory of the communist regime, it is more freedom-centric, and I am not aware of anyone being arrested here for privacy activism. Charlie's reply was that in the US "they come up with another charge," because the authorities do not want to create martyrs. I noted that the conversation "got pretty gloomy very fast." He protested: "I was the positive one."

The Only Opt Out

And he really was. Charlie loves bitcoin for what it is today: "it's the only opt out financial system we have." Before Bitcoin, there was never a way to say no to the money printing and the loss of purchasing power. All the narratives about what bitcoin needs to be are subjective, he argued. "Bitcoin is whatever you want it to be because it's yours."

The most beautiful thing he said in the whole interview involved an 11-year-old relative who had visited him. "Her whole life, Bitcoin has existed. She doesn't know a world without Bitcoin." That brought a tear to his eye, because to him it means the experiment already succeeded. "Bitcoin's existence is validated by its existence through time," he said, and every holder, every distributor and every podcast like mine extends that validation. I answered with the old saying that you win when you outlive your enemies, which he liked.

When I pressed him about scaling, with Lightning not getting much traction and custodial solutions like Fedimints and ecash looking like banking reinvented, he admitted that he does not know the answer. What he does know is what bitcoin meant to him: "I possess the money now." He described Bitcoin as two things sharing one name, the financial system and the monetary unit, and said "Satoshi should have named them separate things."

The unit has succeeded slowly, held by enough people to represent "some macro thing in the world." The system is where he wants growth: he wants the Uber driver and my girlfriend's parents to use it, and he notes that the number of bitcoin sitting on exchanges keeps falling, which could someday feel like a supply squeeze.

His bedtime reasoning goes like this. The monetary unit might need a couple more decades, but in the meantime people are getting used to the technology Bitcoin created. Satoshi's solution to the Byzantine Generals' Problem enabled the blockchains where Tether lives, so "over time we're going to see both come back together." Then, with a smile: "sorry for the long-winded answer."

Bitcoin Cash and the Cult of No Leader

The Bitcoin Cash community had asked me to get Charlie's take on their project, which focuses on peer-to-peer payments and has added opcodes Bitcoin lacks. I like that kind of open source experimentation, because the most conservative project gets to pick what works. Charlie was diplomatic but honest. He called it "a shame how Bitcoin Cash was created," because of the con artist who convinced people he was Satoshi, a man Charlie will not name "because I don't want that guy to sue me." That stain, in his view, spread mostly to the Bitcoin SV side after the fork.

He spoke warmly about Amaury Séchet, the longtime lead developer of Bitcoin Cash, whom he had hosted on his own podcast and met in Mexico. Amaury told him, "Charlie, it'll just take time." I had to break some news: Amaury had already left Bitcoin Cash and was running his own fork, eCash (XEC), with the Avalanche protocol layered on top of proof of work. "It's a fork of a fork," Charlie said. "I can't even keep up anymore."

That turned into his strongest thesis of the episode. "I don't like any crypto that has a leader," he said. Satoshi disappeared, and anyone who tries to become Bitcoin's leader gets humbled or rage quits. He named Elon Musk and Michael Saylor as examples. "Our value and the reason we exist is because we have no leader," he said. "Once we have a leader, you can take it down. It's over."

I pointed out that Ethereum and Tron do not seem to suffer from having famous leaders. Charlie's answer was that they are different things: smart contract platforms, "very interesting scientific experiments," which need people behind them, especially when raising money. He applied the same logic to Zcash. "I love Zcash, but at the same time I don't see it being a replacement for Bitcoin because it's VC funded, has leadership." He does love their research, though.

As for other projects, he advises a few crypto teams on fundraising and launches, but when he goes to a friend's birthday party, the gift is still bitcoin. "I'm still orange-pilling people," he said. "The crypto, I still don't know what to do. I'm still experimenting."

Two Poems and a Book

My second surprise was a poem by a listener named Samuel, who desperately wanted it on screen during this interview. Charlie insisted on reading it aloud himself, new glasses and all: "it captures the shape of what occurred, the movement of itself by our movement." He loved it, and asked permission to print it in his book, where he plans to open every chapter with a poem.

The book is the project he cares about most. He started journaling the minute he got into Bitcoin in late 2010, because "I knew something really important, something really big" was happening. The notes, stories and blog posts piled up, then prison happened, then the letters from Roger and the rest of the community. "In order to understand where we're going, we really need to understand where we came from," he said, and his book is meant to cover the early days and all those stories. You can follow his work on his website.

Then he read the poem he wrote on the day he was arrested, which he wants to turn into a song. It is funny and dark in equal measure: "here comes my legal team, they're setting bail, please God help, I'll never survive jail." And later: "from early on Bitcoin was on the frontier, we decided to change the way we've lived for thousands of years." I told him it has to go in the book. He promised it would.

We wrapped up with plans to meet at the PoW Summit in Frankfurt, which he called "the coolest city ever." Charlie is a man who lost his company, his freedom, his parents and a million dollars to the US government, and he still ended the call by saying "I love you." The block size war may have happened while he was away, but the optimism of the BitInstant era never left him. In a space that keeps trying to crown kings, that is a pretty good lesson to take from the original Bitcoin martyr.

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Time stamps:

00:00:23 – Introducing Charlie Shrem
00:01:51 – How This Interview Happened
00:02:41 – The Block Size Wars
00:05:16 – 2014 Marked the End of an Era
00:06:55 – Bitcoin Community Dynamics and Changes
00:08:04 – Technical and Political Challenges
00:10:43 – The Rise & Rise of Bitcoin Documentary
00:12:39 – Stablecoins vs. Bitcoin
00:15:29 – Philosophical Reflections on Money
00:17:02 – Charlie Shrem's Pepe
00:18:18 – Personal Reflections on Prison Life
00:21:45 – Rebirth After Prison
00:23:17 – The State of Bitcoin
00:27:09 – Cultural Shift in Bitcoin Community
00:30:03 – Privacy Concerns in Bitcoin
00:32:09 – The Future of Bitcoin
00:35:05 – Scaling Challenges
00:36:33 – Bitcoin's Value and System
00:37:55 – Bitcoin's Success and Adoption
00:39:04 – Bitcoin's Transactional Volume
00:40:03 – Encouraging Bitcoin Usage
00:41:26 – The Role of Stablecoins
00:42:32 – Bitcoin Cash
00:43:34 – Samuel's Poem on Bitcoin
00:46:08 – Bitcoin Cash's Origins
00:47:27 – Amaury's New Project
00:48:17 – The Importance of Leaderless Systems
00:50:12 – Interesting Projects Beyond Bitcoin
00:52:14 – Elon Musk and Bitcoin
00:53:54 – Working on a Bitcoin Book
00:56:00 – Charlie Shrem's Poem
00:57:40 – PoW Summit in Frankfurt
00:57:54 – Closing Remarks