Charlie Schrem talks about how he became a Bitcoin millionaire

Charlie Schrem went from running a small online business to becoming a Bitcoin (BTC) millionaire and made the cover of Forbes magazine. Then he went to jail.

In the latest episode of Cointelegraph's Crypto Stories, Schrem recounts how he founded BitInstant, grew it into a multimillion-dollar bitcoin empire, and then was arrested for his role in it.

Shrem's first business was an e-commerce site that only charged $5 per item. The idea was his cousin's, but Shrem used his coding skills to create the perfect space. The business sold lamps, toothbrushes, razors and other miscellaneous items.

In his spare time, Shrem hangs out on online message boards. That's where he learned about Bitcoin. At the time, the only way to buy Bitcoin was to transfer large amounts of money to Matt Gox, and it took a week for the deposit to clear the banking system. A customer who wanted to buy a small amount or wanted to buy instantly had no choice.

Shrem met a man named “Garth” on one of these forums, and the two started a business that allowed them to buy or sell bitcoins. Their company was called BitInstant. The company invested in Mount Gox and bought bitcoins to allow faster purchases. They then sell this bitcoin in small amounts to various clients.

But Shrem and his partner run into trouble. As their trading volume grew, they needed more money to put into Mount Gox, and their capital was quickly running out, as Schrem explained:

“As we were growing in transaction volume, it always needed more money. So we needed money to sit in the exchange for a week, the way an ATM needs money to sit in the machine all day. [be]Because it takes up to a week to recharge. Because it was the cycle, we needed seven to eight times our transaction volume.

The two entrepreneurs met Roger Ver, who helped them with a $100,000 capital injection to continue expanding the business. Ver suggested that the team hire Eric Voorhees. Later, Voorhees and Shrem cross paths with David Azar at a technology meeting, who invests more. Eventually, Azar meets Cameron and Tyler Winklevoss on the beach during their honeymoon and convinces them to invest in the company, providing enough money to help the company overcome its problems.

Related: Erik Voorhees slams Bitcoin maxis' ‘disgusting' behavior

BitInstant grew so fast that it eventually accounted for 30% of all transactions on the Bitcoin blockchain. Meanwhile, Shrem was struggling with his relationship with his family and his Jewish community. After falling in love with a non-Jewish man in particular, Shrem began to feel that the religious community was a hindrance. This frustration eventually came to a head, and Schrem decided to leave the Jewish community.

Then, while trying to get off a plane in New York, Schrem was arrested and charged with money laundering for his role in BitInstant. Authorities say some BitInstant customers have used bitcoins they bought from the company for illegal purposes, including criminal transactions on the Silk Road dark web marketplace.

When Shrem was released on bail, he was placed under house arrest and forced to live with his strict Jewish parents, who believed that his imprisonment was God's punishment for leaving the community. “They thought I deserved what was coming to me,” Shrem said. “They were very happy to see me go to jail because they felt I had hurt them so much.”

That's it for Part 1 of Charlie Schrum's Crypto Story. More to come in Part 2.

Watch the full story: The Untold Story of Charlie Schrum.