Once a Bitcoin Miner

Scandal and Turmoil in the Cryptocurrency Wild West

Ethan Lou

• Publisher: ECW Press
• Year: 2021
• eBook ISBN: 9781773055886
• Topic: Business
• Subtopic: Business Biographies
• Index: Business

A map to the new frontier, and a rollicking ride across it

Ethan Lou goes on an epic quest through the proverbial cryptocurrency Wild West, through riches, absurdity, wonder, and woe. From investing in Bitcoin in university to his time writing for Reuters, and then mining the digital asset ? Lou meets a co-founder of Ethereum and Gerald Cotten of QuadrigaCX (before he was reported dead), and hangs out in North Korea with Virgil Griffith, the man later arrested for allegedly teaching blockchain to the totalitarian state.

Coming of age in the 2008 financial crisis, Lou's generation has a natural affinity with this rebel internet money, this so-called millennial gold, created in the wake of that economic storm. At once an immersive narrative of adventure and fortune, Once a Bitcoin Miner is also a work of journalistic rigor. Lou examines this domain through the lens of the human condition, delving deep into the lives of the fast-talkers, the exiles, the ambitious, and the daring, forging their paths in a new world, harsh and unpredictable.

Act I
2013 High: $1,200

Chapter 1

I grew up in Wuppertal in western Germany, the birthplace of both aspirin and heroin, invented by the same guy in a two-week period in the nineteenth century. My childhood began a little after the fall of the Berlin Wall, and my doctoral-candidate father supported the family on the modest income typical of his position. I remember when he hauled home an old bicycle for me, all the way from another city. I hated it and never rode it. I think it used to belong to a girl. The plastic decorations on the spokes were too pink, and like the hand-me-downs I wore, the bicycle was too big.

When I turned eighteen, it was in a job market battered by the 2008 financial crisis, a milestone marked by need and uncertainty. Banks had increasingly profited by offering risky mortgages to those who should not be getting them, and then building complicated investment products on top of them. When those borrowers couldn’t repay, that triggered an avalanche in the interconnected financial system, and people around the world lost homes, jobs, and retirement savings. That same year, a faceless figure known only as Satoshi Nakamoto released a nine-page white paper, made with off-brand software: “Bitcoin: A Peer-to-Peer Electronic Cash System.” Whoever was behind that pseudonym, that person or group had been fueled and driven by the financial crisis. In Bitcoin’s first batch of transaction records, dated January 3, 2009, called the Genesis Block, Satoshi Nakamoto encoded a message that directly referenced that sordid affair. The creator cited a Times of London article about a potential second government bailout for the banks. Billions were to be spent helping the usurers — again — to rescue them from a storm of their own making. And that storm had spewed forth something: Bitcoin was spawned from an opposition to the financial status of the world, a frustration against the same bleakness that had surrounded me my whole life. It was, perhaps, natural that eventually it would pull me in –– although probably not in the way that Satoshi Nakamoto had intended.

---

I first heard of Bitcoin in my second year of university, but I can’t remember if it was 2012 or 2013. My friends Dillon and Clinton can’t remember either. It’s been too long, and there is a non-zero possibility we had too much marijuana that day. Clinton has the worst recollection: “Don’t think I was there.”

I was in university in Toronto, in Canada, where I studied journalism. We three were at Clinton’s city-subsidized apartment in a building full of drug dealers and hoarders, a place described by a newspaper columnist as “freakishly menacing and macabre” due to the frequent mysterious deaths there. We were on the dark web that day, the internet’s uncharted armpit, for a reason commonly behind the questionable decisions young men make, not unlike the reason people risk their lives to climb tall piles of rock or ride raging farm animals just to see how long they can stay atop.

The dark web is unmapped by mainstream search engines and accessible only through special software, most commonly a browser called Tor. The dark web has many legitimate uses, but it is more well known for the illegitimate ones. If you can imagine something — anything — then it can be found on the dark web. Al-Qaeda and pedophiles and all forms of the grotesque have lurked on its pages. My friends and I stumbled upon the term “vore” and clicked on a related link, only to discover it meant cannibalism porn. We did not linger long enough to see if it was real or staged. Elsewhere on the dark web, various marketplaces offered stolen credit card details and passwords, drugs, and guns. You could also hire someone to say the right words to police so that a tactical team would raid a house of your choice, a process called “swatting.” My friends and I even found purported assassinations on offer –– just unbelievable.

Whatever the service or product, those dark web entrepreneurs required payment in Bitcoin. Not long after its release, the world’s first cryptocurrency had seen its first major use case. Like the BitTorrent file-sharing protocol, Bitcoin operates through a network of its users, without a central administrator. All the dark web transactions were theoretically outside any government’s reach. I could not help but feel that held some sort of broader value, even if I could not exactly place it, and I soon revisited the subject.

After that year of university, I spent the summer interning at a newspaper in Saint John on Canada’s east coast, an economy so decimated that, on my way in, the taxi driver was surprised I was in town for a job. I made $15 per hour, $10 less than at big-city newspapers such as the Toronto Star, where my application was among the hundreds rejected.

It was in Saint John that I interviewed over the phone a Bitcoin advocate for an article: Anthony Di Iorio, founder of what was then known as the Bitcoin Alliance of Canada, a late-thirties alumnus of my university, a serial entrepreneur who previously dug geothermal boreholes and operated rental housing, among other ventures.

It’s hard to explain Bitcoin to people, Anthony said. “You get what I call the Bitcoin stare, where people look at you a little bit weird.”

But explain traditional money to people, and you often get the same reaction. The two are actually quite similar. Consider the Micronesian island of Yap, which had once used large, donut-shaped stones as currency that the people dubbed “rai.” Because they were heavy, the rai stones themselves didn’t actually change hands. People simply agreed the ownership had changed, as if there were a ledger tracking all the stones. So the actual stones became less important. At least once, a stone was somehow lost, but it continued to be traded as if it still existed. The figurative ledger had become the actual currency system. In a fundamental way, that’s how all money works, just records on ledgers. What makes Bitcoin different, though, is that its ledger, called a blockchain, is distributed among its network and governed entirely by code, making it theoretically impossible for any one party to forge a transaction, go against pre-defined rules, or otherwise control it.

As seen with the dark web, that feature was useful, and with a limited quantity hardwired into Bitcoin’s code, supply and demand had driven up its price, kind of like a stock. The creator Satoshi Nakamoto had meant for Bitcoin to be a medium of exchange, but it moved more wildly than any currency from a functioning economy. “It’s grown more in value than anything else,” Anthony said matter-of-factly. Bitcoin’s first known real-world transaction had been 10,000 units for two pizzas in 2010, an abysmally low per-coin valuation that quickly became outdated. “I mean, when I first purchased,” Anthony said, “I got in at around $10, and it’s gone up as high as $250.” By the time we spoke, Bitcoin was hovering around $100, but there was still a certain confidence in Anthony’s speech, the kind that belongs to the sinewy sort of man who seems competent in a poker game. “It will grow much higher. I think, eventually, it’s going to be up in the thousands.”

Bitcoin’s properties had implications for everything from monetary policy to geopolitics. But for all the wider potential that Anthony saw, my personal takeaway from our conversation was the price movement. I could not stop thinking about how much Anthony had made as I walked home that day to my rental apartment void of furniture, in an aging city where all the young were moving away, where, right in the middle of downtown, for the first time in my life, I saw an actual bingo hall. “The thousands!” I thought as I passed the discount supermarket’s rusting trash bins, which inexplicably bore cheery slogans such as “Smile,” “Enjoy life,” and “Never give up.” They spewed forth the whiff of expired milk that, damp with the ocean air, smelled just like cheese.

Chapter 2

Later in the summer of 2013, I got a call from the Toronto Star. I was finally going to work in that gray, waterfront monolith that had been voted by one-fifth of the newspaper’s own readers as the ugliest building in the city. But faced with declining revenue, the Star had considered eliminating that internship program, and when I skipped the first day of my third year of university and walked into its concrete eyesore, I was taking a one-third pay cut from what had been offered to the previous year’s interns. It was pretty close to what I had made at the east coast paper. That was not unique, not to internships or even to the media world. The job market everywhere was decaying, even as universities pumped out more graduates. I was keenly aware that I was among the lucky ones.

A month later, I tried LSD for the first time with my buddy Dillon, with whom I had earlier discovered the dark web, in his little room in a shared house. I lived in one of those places, too. Mine cost some $500 per month, and the streetlamps shone right through my windows, and hookah smoke kept creeping in from the hazy den downstairs. It was the hallmark of student life, even as many lived there long after graduation. Dillon and I unwittingly took three times the standard dosage and followed Bilbo Baggins across Middle-earth’s vast and lawless plains in the film The Hobbit. In terms of the original books, I’ve always loved The Hobbit more than the related The Lord of the Rings. The former I read as an adult, but the latter when I was no more than thirteen years old, when I understood little and retained even less, perusing it in part because I wanted people to see me flipping through a big book and assume I was smart and beyond my years for reading such a big book. Watching The Hobbit with Dillon, what drew me in especially was the sullen dwarf, Thorin, bitter and lonely after years of wander, who never so much as unfrowns until the end. “The young dwarf prince took work where he could find it,” Bilbo says in the opening narration. Thorin is on a quest seeking enchanted gold and a home — “you don’t have one,” Bilbo later tells him. That day, that resonated in me with an intensity that wrung my heart.

In many ways, my generation considered itself damned. In the United States, young adults were half as likely to own a home as their counterparts in 1975. More than half of millennials with student loans had delayed major life events, such as marriage or having children, because of their debt. Full-time employment for Canadian men between 17 and 24 had fallen by almost a quarter over the past 40-some years. In the United Kingdom, those problems were causing millennials to be the first generation to have worse health than their parents. While looking up those numbers, I also read that a male millennial’s fertility would have been irreversibly damaged by age eighteen because of all the processed modern junk food in the average diet. It didn’t have much to do with the economy, but it made me sad all the same to learn that, on top of everything, there was something wrong with the fundamental function of me and my fellow men.

So when the end of the year came, and Anthony Di Iorio’s Bitcoin price prediction turned out to be right, it was as if the fates had whispered something important, and only I was listening. Bitcoin, once cheaper than half a can of bacon grease, had touched what was then an all-time high of more than $1,000. As I sat in the Toronto Star offices, I wondered how many millions Anthony must have made. Outside, the winter wailed.

Years later, I would tell part of this story to Anthony. I even told his parents, when I unexpectedly ran into them. But I don’t think I ever got across to Anthony the journey that he sent me on. We were not and would never become close acquaintances. I was just an extra in the background of his life.

I took the plunge that December day. So excited was I, I gave small portions of my Bitcoin purchase to my parents as belated Christmas presents and excitedly extolled to them the currency’s virtues. “This is the future of money,” I said, channeling Anthony. “It’s bound to go up.”

It wasn’t long before I started cursing Anthony, his matter-of-fact confidence and “toned physique and aloof manner,” as one newspaper would later describe.

Unknown to me, trouble stirred in the Bitcoin world, and it was wild, and it was heavy. Japan’s Mt. Gox, the world’s largest platform for buying and selling Bitcoin, perhaps the one major brand in cryptocurrency the mainstream knew at the time, was collapsing like a dead star, and the weight of it all would ripple. Less than three months after I’d bought Bitcoin on that fateful New Year’s Eve, the currency had fallen 50 percent from what was then its all-time high. What the hell had I been thinking? I vowed to sell all my bitcoins and never touch the cursed currency again.

Of course, I did neither.

---

Run by Mark Karpeles, a plump Frenchman in Japan with kind eyes and an easy smile, Mt. Gox let users deposit traditional currency to buy Bitcoin from each other or vice versa. The name was short for “Magic: The Gathering Online eXchange,” as the site had originally been intended to be a platform for trading collectible cards. Naturally, the mainstream finance world still viewed Mt. Gox as such. It did not help that Karpeles, who looked really silly in a Reuters interview sitting inexplicably on a blue exercise ball, was like many Bitcoin early adopters. Young men more geek than entrepreneur, they were ironically uninitiated to the red tape and clunky inner workings of finance that cryptocurrency was purported to solve, yet that which an exchange could not avoid. Accused of frequently boasting of his high IQ and prioritizing the needs of his cat over attending industry events, Karpeles soon began to feel the weight of finance jargon like “compliance,” “know your customer,” and “money services business.” In 2013, the U.S. government seized some of Mt. Gox’s funds. Banks shunned it. Users could not withdraw their money. Then came the revelation of what Karpeles described as hacking attempts that had stolen nearly $500 million of Bitcoin over the years. Karpeles showed up uneasily in a gray suit at a Japanese news conference. His long, dark hair looked like it was slicked down with gel for the first time. He bowed before he spoke. “We have lost bitcoins due to weaknesses in the system,” Karpeles said in Japanese. No doubt, he tried to keep his face neutral, but he was one of those people whose resting expression was gentle and friendly, almost like a smile, like Private “Gomer Pyle” in Full Metal Jacket. “We are really sorry for causing trouble to all the people concerned.” And so Mt. Gox went bankrupt.

For a product whose dollar-value swings solely on supply and demand, that scandal had torpedoed the price, analysts said. By the summer of 2014, Bitcoin had bounced back just a sliver to $600, a little more than half of the height from which it fell. It was a price pitiful, yet also heavy.

There was, as well, the social price. The thing about embracing cryptocurrency is that once you go down that path, you become “that guy,” the one who explains Bitcoin to all your friends, the one who springs to mind when they chance upon the topic. “Oh, Bitcoin? I know a guy who has some.” Every gathering, every party, I was quizzed about my investment.

“Oh, I’m doing fine,” I would say with a chuckle, to show I was doing fine. “You know what they say, never gamble with money you’re not prepared to lose. Haha.”

Beneath the armor, I was gashes and gore. It wasn’t that much money. I wasn’t stupid enough to play with funds I needed to pay bills or buy food or anything. And I had had an upgrade in my internship, ascending to $25 per hour. But what had gone into Bitcoin was all of my savings. I floated month to month untethered, one bad day away from blood seeping through mail and plate and into the open. Sometimes, when nobody was looking, I swear all I did was stare into the distance, as if I had lost a brother to pneumonia.

Then there were my parents, to whom I had given Bitcoin for Christmas. I’m sure they’d read the news of the fall. Yet they never brought it up. Those coins I gave them hung like some Greek sword over every weekly video-call session, like that incriminating, Vaseline-lubricated carrot in the Chuck Palahniuk short story “Guts” that a character’s mother stealthily takes from his room and then never mentions again. I started to dread the video calls — did my parents believe they’d sired a simpleton who pissed away everything on worthless internet-scrip monkey money?

“God, our son’s a jackass,” they must have thought, “just a mistake or two away from becoming Carrot Boy.”

It was a long summer — the sort that stretched and stretched and faded into time itself — in my tiny apartment above the hookah place, where I claimed a decisive yet hollow victory against bed bugs, and where an eyebrowless neighbor with severe mental-health issues constantly tried to hit on me. Sometimes when I looked out the window that summer, silently resentful of all creation, it was as if I could see the world standing still.

The person I least wanted to see was Anthony Di Iorio, so naturally, I would meet him in person for the first time.

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Table of contents

• Also by Ethan Lou
• Prologue
• Act I: 2013 High: $1,200
• Act II: 2017 High: $20,000
• Act III: 2018 High: $17,700
• Intermission: North Korea
• Act IV: 2018 Low: $3,200
• Act V: 2019 Low: $3,400
• Act VI: 2019 High: $13,800
• Author’s Note
• Selected Bibliography
• Acknowledgments
• Index
• About the Author
• Copyright