In late January 2014, Wences Casares, the Argentinian entrepreneur, pulled his white Subaru Outback into an elegant, understated strip mall off Woodside Avenue, one of the main roads winding down out of the hills above Palo Alto. Wences was looking forward to an early breakfast at Woodside Bakery and Cafe, a favorite spot for Silicon Valley deal making that provided a bit more seclusion than the restaurants down in Palo Alto.
The man waiting for him inside was often referred to as the most well connected person in the Valley, and not just because he had cofounded LinkedIn, the business-networking site. Reid Hoffman’s girth and bearing hinted at his larger-than-life character. After studying at Oxford, on the elite Marshall Scholarship, Reid had been brought on by Pete Thiel to help build PayPal—Thiel called him the "firefighter-in-chief." Reid later introduced Thiel to Mark Zuckerberg, which led to Thiel making the first major investment in Facebook. By that point, Reid had already begun building LinkedIn with some colleagues from an earlier startup.
When Wences first met Reid, not long after arriving in Silicon Valley, Reid was looking for new investments and serving on the boards of startups. The breakfast at Woodside Cafe was one of their periodic check-ins. Wences, who had founded the digital wallet company Lemon, was finalizing the investments in his new Bitcoin wallet and storage company, Xapo, and was eager to tell Reid about his plans.
Hoffman, an expert on social networks, had been captivated by arguments he’d been hearing about the power of the incentives built into Bitcoin—primarily through the mining process—that encouraged new users to join the decentralized network while also encouraging powerful miners to do what was best for the system so as not to see their holdings lose value. "That’s actually super important," Hoffman would say later. "That makes it less of a pure technological marvel and more of a potential social movement."
But Hoffman had remained skeptical and was particularly put off by the suggestion that Bitcoin would replace credit cards—the possibility that all the bank research reports were talking about. Credit cards seemed to work pretty well in Hoffman’s estimation. Despite the security risks and costs to merchants, he didn’t see too many consumers complaining about their credit cards failing them. If that wouldn’t get people using this new kind of network, Reid wondered, what would?
Hoffman had finally gotten a satisfying answer to this at a dinner with Wences and Paypal CEO David Marcus and a few other Valley power players late in 2013. Wences agreed with Hoffman that Bitcoin was unlikely to be catch on as a payment method anytime soon. But for now, Wences believed that Bitcoin would first gain popularity as a globally available asset, similar to gold. Like gold, which was also not used in everyday transactions, Bitcoin’s value was as a digital asset where people could store wealth. This was enough to get Hoffman to go home and ask his wealth adviser—the Valley’s most prominent money manager, Divesh Makan—to buy some Bitcoins for his portfolio.
When Wences sat down for breakfast with Reid at Woodside Cafe, he told him about the progress he was making with Xapo.
"Just to be clear, I’d be super interested in investing," Reid told Wences.
Wences paused, a bit chagrined. "I wish you’d told me that the last time we talked," he said.
"You told me you weren’t interested in venture investing," Reid shot back.
Wences explained that things had changed since they last talked, and that he had decided to take on investors and had struck a deal with Benchmark Capital. "I just don’t think I can include you in that," Wences said. "It wouldn’t be the honorable thing to do." Reid was not so easily deterred. He told Wences he was going to go home to figure out a way they could make it work. Wences said he would do the same.
Reid’s newfound enthusiasm was part of a broader passion for Bitcoin and its underlying technology that was sweeping Silicon Valley in early 2014. These views were crystallized, and projected to a much broader audience, the day after Wences’s breakfast with Reid, when Marc Andreessen, cofounder of the investment firm that had put $25 million into Coinbase, published a lengthy cri de coeur on the New York Times website.
Like many Valley firms, Andreessen’s was thinking about intelligent robots, and Bitcoin seemed to like a perfect medium of exchange for two machines that needed to pay each other for services. Beyond all that, though, the decentralized ledger underlying Bitcoin was a fundamentally new kind of network—like the Internet—with possibilities that still hadn’t been dreamed up, Andreessen said.
He went on: Far from a mere libertarian fairy tale or a simple Silicon Valley exercise in hype, Bitcoin offers a sweeping vista of opportunity to reimagine how the financial system can and should work in the Internet era, and a catalyst to reshape that system in ways that are more powerful for individuals and businesses alike. Andressen was already investing his own money into the unpublicized Bitcoin mining company, 21e6, created by the Stanford wunderkind Balaji Srinivasan. His firm, Andreessen Horowitz, had also made a secret $25 million investment in 21e6, helping make it the best funded Bitcoin company in the world.
For Wences, the more immediate indication of how quickly this was all moving came in an email from Reid not long after their breakfast. Reid had talked with a friend at the venture capital firm Index Ventures, and together they were prepared to offer Wences another $20 million for Xapo. He could still take the $20 million he already had as a series A, but this could be a quick follow on—a series A1. And while Wences’s first investors had valued Xapo at $50 million, Reid and his partner were ready to value it at $100 million. In little more than a month, Wences had doubled the value of his company.
From "Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money," by Nathaniel Popper. Copyright © 2015 by Nathaniel Popper. Reprinted courtesy of Harper, an imprint of HarperCollins Publishers.
Nathaniel Popper is a reporter at The New York Times.