How the Winklevoss Twins Found Vindication in a Bitcoin Fortune


Over a few months, the brothers bought one percent of all the outstanding Bitcoin at the time — or some 120,000 tokens. As they did, the price soared, making their Bitcoin portfolio worth around $11 million by the time they went public with it in April 2013.

Their buying spree was mocked at the time, and a few of their early decisions fueled that derision. They also invested in Bitinstant, one of the first companies to trade Bitcoins online. Bitinstant’s executives, in fact, had tutored the brothers in the basics of Bitcoin.

The chief executive of Bitinstant, Charlie Shrem, was arrested in 2014, accused of helping to supply Bitcoins to users of online drug markets. Mr. Shrem pleaded guilty to lesser charges and was sentenced to a year in jail. The Winklevosses were never implicated in the wrongdoing, which happened before they became investors.

While that drama was unfolding, the twins applied to create the first Bitcoin exchange traded fund, or E.T.F., an investment product that would hold Bitcoins but be traded on stock exchanges. That brought more criticism from people who wondered why someone would buy a fund rather than Bitcoin itself. Earlier this year, regulators rejected the application.

On top of all that, until last year the price of Bitcoin was sliding and the virtual currency concept was looking wobbly. But the Winklevosses, who once bet that years of punishing rowing practices would take them to the Olympics, held their ground.

“We are very comfortable in very high-risk environments with absolutely no guarantee of success,” Tyler Winklevoss said. “I don’t mean existing in that environment for days, weeks or months. I mean, year after year.”

They sold some of their tokens to pay for Gemini, a name that means twins in Latin. Like the Bitcoin E.T.F., their investment in Gemini was driven by their experience with the difficulty of buying and securely storing Bitcoin.

Every Bitcoin sits in an address that can only be accessed with the corresponding password, or private key. The problem with this system is that anyone who gets hold of a private key can easily take the Bitcoin. And unlike money taken from a bank account, stolen Bitcoin are essentially impossible to retrieve. A number of virtual currency exchanges and wallets have collectively lost billions of dollars worth of Bitcoin to thieves.

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The Winklevoss brothers recorded parts of the security code for their Bitcoin on papers stored in safety deposit boxes around the country.

Credit
Vincent Tullo for The New York Times

The Winklevosses came up with an elaborate system to store and secure their own private keys. They cut up printouts of their private keys into pieces and then distributed them in envelopes to safe deposit boxes around the country, so if one envelope were stolen the thief would not have the entire key.

With Gemini, they have created a high-tech version of this process to hold customer money. Getting into the company’s wallets requires multiple signatures from cryptographically sealed devices that were never linked to the internet.

Gemini got a license from New York State regulators that allows them to hold Bitcoins for regulated banks and asset managers — something essentially no other virtual currency companies can do. That has turned Gemini into one of the most trusted destinations for sophisticated investors.

“Gemini is an underappreciated exchange, one of the few exchanges I trust as a custodian,” said Ari Paul, a managing partner at the virtual currency hedge fund BlockTower Capital.

Gemini is now expanding from its old 5,000-square-foot offices to new, 35,000-square-foot facilities in Midtown Manhattan.

This doesn’t mean Gemini or the Winklevosses have ironed out all the kinks. Like many other exchanges, Gemini has struggled to stay online in the deluge of new customers in recent weeks.

These growing pains are part of the reason the brothers say they are holding onto their Bitcoin. They believe virtual currencies are still a long way from real mainstream adoption.

They said they might look at selling when the value of all the Bitcoin in circulation approaches the value of all gold in the world — some $7 trillion or $8 trillion compared with the $310 billion value of all Bitcoin on Tuesday — given that they think Bitcoin is set to replace gold as a rare commodity. But then Tyler Winklevoss questioned even that, pointing out the ways that he believes Bitcoin is better than gold.

“In a funny way, I’m not sure we’d even sell there,” he said. “Bitcoin is more than gold — it’s a programmable store of money. It may continue to innovate.”

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