bitcoin mania

Inside the Bitcoin Bubble: A Q&A With BitInstant’s Stressed-Out CEO

I’m writing this post from my Bitcoin-funded oceanfront cabana in St. Tro — actually, I’m still right here at my desk, watching as the 93.523120 percent of a Bitcoin I bought last week goes on a bubble-fueled roller-coaster ride.

I’ve made out well from my Bitcoin investment so far. Thanks to a weekend rally, it’s now worth about $185, up from the $124.81 I paid for it. But since my post ran, I’ve heard from a number of readers who have attempted to buy in to the Bitcoin frenzy the way I did (which, to be clear, I am not endorsing!), only to hit a glitch with BitInstant, the payment processing go-between I used to get my dollars converted into Bitcoin exchange credit.

One dissatisfied BitInstant customer wrote me: “Their Facebook page is littered with complaints from people who have no idea where their money is. I wish I had looked at those first. They do not answer the phone, are not returning emails, and not letting their customers know the status of their money.”

In the past week and a half, the infrastructure of Bitcoin-related services has become a mess. Like most of the major Bitcoin processors and exchanges, BitInstant — a start-up based in New York — has been struggling to keep up with an insane demand spike. I knew, from experience with them, that backlogs and delays were common. (I’d had to personally e-mail the CEO, Charlie Shrem, to get my payment processed.) But I wanted to see how things were looking from inside the bubble.

So I called Shrem today, to get his take on the Bitcoin Boom of 2013 and ask him where his customers’ money was.

So, it’s been a week since Bitcoin exploded in value. I’m guessing you’ve been busy?
I haven’t had any sleep. I’ve been going to the gym a lot, to keep my energy up. But, yeah, three or four hours of sleep a night. It’s so exciting, but it’s a lot of pressure and stress to keep things running.

I’m hearing that some of your customers are upset about delays in getting their payments processed.
Our support is on an eight-to-twelve-hour delay. But a lot of these guys are entering incorrect account numbers. Then, when the payment doesn’t go through, they e-mail us saying, ‘Where’s my money?’”

Have you hired more people to deal with the influx of orders?
Yes. Our support staff went from two to five people since last week. Our volume has basically tripled. We went from doing a few hundred transactions a day to doing two or three thousand.

Have you had to upgrade your servers?
The big issue isn’t our servers. We rely on the exchanges for liquidity. And, for instance, Mt. Gox’s API [its back-end payment system] fails 50 percent of the time.

Mt. Gox? That’s the biggest Bitcoin exchange, right?
Yes, and the API is terrible. It doesn’t scale up. So we had to design our own program to keep sending data over and over again until it gets through. We’re launching a new website this week, and moving our volume across all the exchanges — totally different payment flow, so that will help.

What’s been the biggest problem for you guys, technically?
We’ve been processing payments in the six figures every day. But when a customer pays us [through a service like Moneygram or a bank wire], we don’t get the money for a few days. But we pay them [by crediting their Bitcoin account] instantly. So we had to get more liquidity. 

And the delays? Are those acceptable to you?
It’s not acceptable. We have our support staff being trained on a higher level right now. But when people don’t get their orders, they freak out and think we’re scamming them.

One guy showed up to my house. He knocked on my door and said, “Where’s my money?” And I told him, “Send me an e-mail with your details.” When he did, it turned out that he gave me an incorrect Bitcoin address.

How many people do you have working for you now?
We have twelve employees. There’s been a film crew at the office making a Bitcoin documentary, so they’ve been following some of us around. 

And lastly, if you had to guess, how do you think the Bitcoin bubble will end?
We’re definitely in for a correction soon.

So people shouldn’t buy?
I wouldn’t say not to buy, but it’s a really risky investment. Don’t put in money you can’t afford to lose.

This interview has been edited and condensed. Also, as disclosed above, I own almost one Bitcoin.

Inside the Bitcoin Bubble: BitInstant’s CEO