How the “First Bitcoin Criminal” Used Blockchain to Change the World

Crazy Commentary : Charlie Shrem, who was imprisoned for aiding and abetting the operation of an unlicensed remittance business, conceived of trading items in digital form while in prison. When he was released from prison, he found that many large institutions and more people in the world were interested in blockchain technology and Bitcoin, and wanted to help large banks build private systems based on blockchain technology.

Translation: Nicole

Charlie Shrem was jailed for his involvement in bitcoin trading. Now he is out of jail and investing in the next evolution of bitcoin’s future, using the blockchain, the underlying technology of bitcoin, to conduct transactions.

Charlie Shrem claims to be Bitcoin's first felon. At 22, he was arrested for helping people buy digital currency and then buy illegal drugs on the Silk Road website. Shrem was released from federal prison last July. Keith Romer of our Planet Money team reports on what happened to Shrem in prison and what he's doing now.

KEITH ROMER, BYLINE: In 2012, Charlie Shrem was running a company called BitInstant that helped people trade dollars for bitcoin. It allowed customers to walk into a Walmart and buy bitcoin like they were buying a money order. Charlie says business was booming.

Charlie Shrem

CHARLIE SHREM: We process over a million dollars in transactions a day.

ROMER: One of his biggest clients was a Bitcoin broker on Silk Road, a website where people could buy marijuana or cocaine or heroin using Bitcoin.

Was there a moment when you thought - Oh, no, I've come this far?

SHREM: Yes, that was exactly what happened. That was the moment they put the handcuffs on my hands.

ROMER: Charlie was arrested and eventually pleaded guilty to aiding and abetting an unlicensed money transmission business operation and went to jail. But even when he was in jail, Charlie was still fascinated by the same thing he was on the outside - how people buy things.

SHREM: So the guy who repairs headphones only accepts protein bars. The guy who cuts hair wants peanut butter. But I would say the vast majority will accept mackerel because everyone else will accept mackerel.

ROMER: Mackerel is a fish. The outer packaging of mackerel is the prison currency. But mackerel can go bad, or someone can steal all your mackerel from under your bunk. Charlie thought - what if mackerel could be more like Bitcoin?

SHREM: Instead of people trading individual mackerels between each other, they can trade digital mackerels.

ROMER: In Charlie's thought experiment, there would be no physical packages of fish stored. Instead, the prisoners would have an account that would state how many digital mackerels they owned. Several prisoners were given notebooks - these would represent all the transactions recorded on the computers on the Bitcoin network. In Bitcoin language, the ledgers in these notebooks are called the blockchain.

Charlie never really implemented his whole digital mackerel experiment. Last July, he got out of jail. He discovered that while he was in prison, Bitcoin and blockchain had been going through all sorts of incredible changes. Suddenly, it wasn’t just libertarians and drug dealers who were interested in Bitcoin and blockchain.

SHREM: Before I went to prison, there weren’t a lot of real blockchain products, just Bitcoin. When I got out, it was the year of blockchain, and a lot of things were happening.

ROMER: Social networks, logistics companies, many of the world's largest banks - they all want in. I spoke to Charley Cooper, managing director of R3, which is helping large banks build private systems based on blockchain technology.

CHARLEY COOPER: We now have close to 80 members on every continent on Earth.

ROMER: Charlie Shrem thinks the technology is the one that the banking giants might choose. In the end, it's never the ideology behind a technology that determines how it's applied, but the advantages it brings. But Charlie Shrem is nothing if not adaptable, and last month he launched his own blockchain company, which has nothing to do with Bitcoin.