What prison mackerel taught this man about blockchain

Bitcoin advocate Charlie Shrem went to prison for facilitating illegal payments – and the prison economy taught him a thing or two about blockchain’s potential.

Bitcoin wunderkind Charlie Shrem went from pioneer to prisoner. His exchange company, BitInstant, had been facilitating payments to notorious online drug market Silk Road. He ended up serving a two year sentence in a federal prison. Cigarettes had been the default currency for prisoners for years – if you wanted Bob in cell eight to give you a haircut, say, you’d give him a couple of packs of smokes.

But, as cigarettes had been phased out over the course of a decade, prisoners had had a chance to transition to a new currency system. Tins of mackerel became the favoured monetary substitute. Tins are cheap, at about $1.50 each, and have a long shelf life, so they don’t depreciate like other food items. That haircut from Bob now costs two tins of mackerel, or ‘macks’.

Shrem was surprised by the sophistication of the prison economy – it ran more like a real economy, with a real currency, than a barter system. It even had a makeshift exchange system involving “messages in books”. But, for Shrem, it was too much like a traditional currency system. The appeal of Bitcoin for Shrem was that it was completely free of government meddling.

No political changes would affect the value of the currency – that was completely controlled by the users. The ‘government’ in this case was the prison guards. Shrem recalls a time when a prison guard confiscated a load of mackerel tins, but left them out for anyone to take, basically introducing hyperinflation. Macks lost their value.

As Shrem had time on his hands, he decided to think about how blockchain – the digital system that underpins Bitcoin – could work in the mackerel system. “The prison is a completely controlled economy, like North Korea,” he explains. “If you have a completely controlled and oppressed economy, how would an alternative payment system emerge that can be completely free of that control?”

The internet is banned in prison, so the ‘blockchain’ would have to be paper-based. Essentially, it would involve keeping a central ledger of all the day’s transactions, shared and double-checked by several outside ledger keepers (‘nodes’ in blockchain speak). Sound like bookkeeping? Well, in essence, blockchain is a bookkeeping system.

“Imagine tens of thousands of bookkeepers keeping the same ledgers up to date in real time. If I’m standing in a room with you and give you £10, there’s a bookkeeper next to us, and he writes in his transaction ledger ‘Charlie gave Mark £10’, deducts £10 from my balance and adds £10 to Mark’s balance.

“In real time, 10,000 or more individual, independent bookkeepers are updating that ledger. So, if I go and threaten that bookkeeper to give me my £10 back, he can’t give it to me. I would need to threaten 51% of all of those bookkeepers at the exact same time.” This makes the blockchain system practically incorruptible, he explains.

“It’s impossible for anyone to counterfeit or double-spend any transaction. It takes the power of money and finance out of the hands of the one and puts it in the hands of the many.” Shrem’s time in prison changed his thinking. While he once saw Bitcoin as a disruptive force that would improve global finance, he now sees blockchain as an empowerment tool. His new venture, mainstreet.ky, uses blockchain to let small businesses effectively go public, but, for Shrem, its potential goes beyond finance.

“Steemit is a social media blogging platform built on blockchain,” he explains. “Every time you post or write an article, it gets distributed to thousands of computers in real time. There’s no way of blocking that. That right there is the social empowerment potential of blockchain.”

This article first appeared in the May/June issue of Accounting Technician. AAT members can read this issue and previous issues in the Accounting Technician archive. 

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.