Tyler and Cameron Winklevoss are no strangers to taking wild risks at the farthest reaches of the internet economy.
In the early 2000s, the identical twins were economics students at Harvard armed with a radical idea to take people's social lives online. After hiring a young developer named Mark Zuckerberg to help build the platform, they were stunned to discover in early 2004 that he had instead launched a competing website called TheFacebook.
Alleging that Zuckerberg stole their idea, the two brothers embarked on a bruising legal battle that would net them a $65 million (€61 million) settlement in 2009 and serve as the inspiration for the 2010 film, The Social Network.
While the outcome was less than they had hoped for, the twins hold no regrets for how they handled Zuckerberg and the subsequent court case.
“Despite how a lot of it played out in courtrooms, the experience was invaluable. We stood up for what we believed, achieved a degree of justice and we moved on. I think that anybody who was in our position would have proceeded the way we did,” Tyler explains. “Despite the dispute and the unfortunate aspects of it, we were a part of an incredible business that quickly scaled and changed the world.”
A half-decade later, the twins are applying the lessons learned from the Facebook episode to a space they see as far more disruptive than any social network: digital currencies.
Missing piece
“We see bitcoin as potentially the greatest social network of all,” explains Tyler, adding that the missing piece of the digital economy has always been a currency designed specifically for exchanging value over the internet.
Much as Facebook fundamentally transformed the way people around the world interact, the brothers see bitcoin as not just a technological disruptor, but as the key to radically changing the way in which transactions are conducted and value is stored.
The twins were first introduced to bitcoin in 2012 while on holiday after finishing their MBAs at Oxford. They were enthralled by its potential to send money cheaply and efficiently, facilitate remittance flows and offer banking services to the estimated 1bn “unbanked” people currently without access to financial services.
But what truly sold them was the notion that bitcoin and its underlying blockchain technology could be a potential investment alternative to the precious metals that humans have used to store value for millennia.
“Our basic thesis for bitcoin is that it is better than gold,” says Tyler, explaining that when compared with the nine foundational traits that make gold valuable, such as scarcity, durability and portability, “bitcoin matches or beats gold across the board”.
Because the number of potential bitcoins in existence is capped at 21 million, the brothers see its finite nature as invaluable given the emergence of asteroid mining technology that could reduce the scarcity of gold and dilute its value. “Precious metals are precious on earth, but [they are]not that precious if there’s cheap access to space,” Tyler explains.
"It sounds sci-fi, but it's not that far off to think that Elon Musk or someone is going to come along and mine these asteroids."
Winklevei
But for bitcoin to fulfill its transformative promises, the Winklevosses - or Winklevei, as the press has dubbed them - decided that its Wild West image would need a makeover. Since its launch in 2009, bitcoin has caught the eye of not only tech pioneers, but also unsavoury characters who use it to finance criminal activity. Asset security also became a big problem in 2014 when hackers stole $450 million worth of bitcoins from the Tokyo-based Mt Gox exchange.
“One of the things that has plagued bitcoin is not bitcoin itself but the companies built on top of it,” Tyler says, adding that there was a “race to the bottom” of unlicensed offshore exchanges popping up that did not offer meaningful protections or oversight.
The twins therefore made it their mission to construct the infrastructure needed to secure the full faith and confidence of current and future investors, including retail traders, institutional fund managers and regulators.
With the launch of Gemini in 2015, they unveiled one of the first regulated and licensed digital currency exchanges in the developed world. The vision is to provide a secure venue that allows anyone from day traders to institutional investors to buy, sell and store bitcoins.
“We wanted to build an exchange that was similar to Nasdaq or NYSE for digital currency,” Tyler explains. “We wanted something that both Wall Street and Main Street felt comfortable with.”
Their next project is the Winklevoss Bitcoin Trust, an exchange traded fund (ETF), which would publicly trade on the better alternative trading system (Bats) exchange, a global operator of exchanges and services for financial markets. It has been under review by regulators for almost four years, but it took a promising step forward in mid-October when State Street, a bank, agreed to serve as fund administrator.
Embarrassing
But if the twins have learned anything from their experience with Facebook, it is that mistakes, setbacks and criticism are unavoidable. One embarrassing incident came in 2014 when Charlie Shrem, head of a bitcoin start-up in which they were heavily invested, was sentenced to prison for his involvement in Silk Road, a black market website that was shut down by the FBI.
“They had a lot of egg on their face after that,” said one industry observer.
Further, the relatively anonymous bitcoin community still seems reticent to fully embrace the twins and the publicity they have brought to the space. While the competition is welcomed, there is a sentiment that the Winklevosses, who are still relative newcomers, are simply copying ideas.
"What they're doing isn't really innovative, they're just providing on- and off-ramps into bitcoin. If you're asking 'blockchain experts', that's fairly 1.0 [basic] stuff," said Joe Colangelo, president of Consumers' Research in Washington.
But Colangelo stressed that the twins’ work, including Gemini and the ETF, is critical because many blockchain companies are looking beyond current technological capabilities.
“It is a mischaracterisation to say that they are not adding a lot of value in what they do,” he said.
“If bitcoin is where the internet was in 1993, these exchanges are the web browsers of that era.”
Ultimately, the twins have learned that facing and dealing with criticism, valid or otherwise, is natural and inevitable when it comes to disruptive technologies.
“I remember when people said Facebook was a fad,” Tyler says, holding back a laugh. “We saw this movie play out already with Facebook. We feel like we’re in the same movie again, just with a different cast of characters.”
-(Copyright The Financial Times Limited 2016)
