Since February 2013, when he became the first hire at Bitcoin startup Coinbase, Olaf Carlson-Wee has been living, as much as he can, on the digital currency.
The 26-year-old head of special projects elected to get paid in the cryptocurrency when a single coin was about $20-$30. (As of press time, it's about $450.) At the time, he says, “Most of the world had never even heard of it, let alone understood it, so I had a huge opportunity to hoard Bitcoin and speculate on the value.” Bitcoin was so little known, he says, it was hard for him to explain to his friends and relatives “what I even did.”
Carlson-Wee, who wrote his undergraduate thesis on Bitcoin, tried but failed to negotiate his salary at a fixed amount of Bitcoin. “This turned out for the best as it would likely have nearly bankrupted the company,” he wrote in his initial email. He instead receives a dollar-denominated salary, converted to Bitcoin at the time of payment.
Secret Money: Living on Bitcoin in the Real World explores the cryptocurrency’s rise through the lens of trying to survive a week on the digital coin.
“For me, the primary benefit of getting paid in Bitcoin is a change in mindset,” he wrote. “It means that my ‘default’ currency is Bitcoin. Dollars, when I need them, must be proactively traded for. This means my path of least resistance is to shop at merchants that accept Bitcoin, to pay my rent in Bitcoin, and to store my wealth in Bitcoin.”
He chooses to use it as his primary form of money because, he said by phone, “I view Bitcoin as the more democratic version of money and value transfer, because no one controls it…. I expect the Internet to be around longer than any nation-state, so a nation-state-backed currency is actually less safe than an Internet currency in my mind.”
However, he’s the first to admit that achieving his goal has required various workarounds. Here’s how he’s managed to mostly live on Bitcoin for three years.
How do you pay for your expenses?
I pay my roommate who pays our rent in dollars. If I’m out at a restaurant, I’ll have a friend foot the bill, and then I’ll pay them in Bitcoin. Also, Coinbase recently launched the Shift debit card, which allows you to spend Bitcoin anywhere that merchants accept cards, but it actually pulls Bitcoin from your Coinbase account. The merchant does not see Bitcoin. Shift sells your Bitcoin and pays that merchant dollars.
To live on Bitcoin solely, there’s a lot of these hacks. Over time, there’s going to be more of a closed loop where I receive my salary in Bitcoin, I pay someone for a good or service in Bitcoin, and they source their supplier in Bitcoin. That’s when the transactional benefits of Bitcoin become apparent.
But more and more merchants accept it. A big one was Overstock, because it meant I could buy, for instance, a lamp. I’m kind of a geek, so I buy a lot of high-end electronics, like a VPN [virtual private network] or a server space. Those merchants are early adopters of Bitcoin because there’s a lot of overlap between their user base and Bitcoin’s.
It’s pretty easy to buy things online. The hardest part is everyday expenses like food and gas. I’ve always had to cash out some percentage of my salary to dollars. But now I can use the Shift card, which is a hack, but at least I sell less Bitcoin.
Why did you want to earn your money in Bitcoin so badly?
In late 2012 and early 2013, it was becoming clearer to me that Bitcoin was going to expand a lot, but people had not heard of it, which was a great opportunity to get into the market early.
Now, my reasons for wanting to be paid in Bitcoin are two-part. One half is speculative. I think the technology will get bigger and the price of Bitcoin will go up, so I’m speculating to increase my purchasing power. But I don’t intend to sell the Bitcoin. I intend to hold it until there’s a day where I can just use Bitcoin completely. This is a meme in the community — that the day you want to sell your Bitcoin, you won’t have to. [Find out the arguments for and against investing in Bitcoin.]
The other half is ideological. It’s more about me controlling my money. In the 2008 financial crisis or crises that have since happened in other countries, I think people have realized that banking and fiat money are not as secure as they thought, or that money or dollars in a bank account are abstractions and may not be as real. To me, Bitcoin is more tangible. I understand how to control it, the inflation rate and how it was created.
When you ask your roommate or friends at a restaurant to take your Bitcoin, do they ever not want to?
I have convinced all my friends to do this. It would be a lie to say that was super easy, but I convinced many of them in 2011, ’12, ’13, so they have made profits on the price increase. I made a lot of them bullish about the technology -- they believe it’s a solid investment.
When I was writing my thesis, Bitcoin was worth $2. There’s really only ever been about six months where buying it was a bad idea -- late 2013 and early 2014.
Are there friends who you paid in that time period who say, ‘I gave you $50 for some Bitcoin that's now worth $20’?
Definitely. However, the payments have been over a long time, so it’s a wash. They might have received one payment when it was half of what it is now, and one payment when it’s double what it is now.
Do you have a credit card and checking and savings accounts?
Yes.
Do you have student loans?
I had student loans.
So you are building up credit. It’s not like the banking system doesn’t know you exist.
Yeah, they know I exist, although to tell the truth, it’s something I don’t think about that much.
Of your three methods — paying Bitcoin straight to the merchant, converting to dollars, and paying friends in Bitcoin — what percentage would you say each category comprises of all your expenses?
Because my rent payments are to friends, paying a person in Bitcoin is 50%-60%. Paying a merchant in Bitcoin is 20%, and cashing out and using dollars is maybe 20%.
If your next vacation was going to cost you $X, would you save that in dollars or Bitcoin?
I try to save up to a certain amount of Bitcoin. When I want to buy plane ticket, I use Cheapair.com which takes Bitcoin, or the Shift card.
I’m a victim to the exchange rate on that particular day. I’m in this for the long haul, so if the price goes up and I get a good deal, or it goes down and I get a bad deal, those are rounding errors.
How would you buy real estate?
I would do that in dollars. There are Bitcoin real estate sites, but using them would limit my options to maybe 0.01% the size of the market.
Do you have a 401(k) or other retirement-savings account? And if so, do you invest in a Bitcoin investment vehicle like the Bitcoin Investment Trust (GBTC)?
I do not. But if I were to open a tax-advantaged account, I would invest in normal mutual funds. The goal to me, at that point, would be about the security. There’s probably more stable value in a mutual fund.
Bank and investment accounts have designated beneficiaries. How will you ensure that your Bitcoin go to your loved ones in the event of your passing?
To tell the truth, this is not something I have figured out. I could do a multi-signature wallet, and in my will, have instructions for how to unlock that. It might mean going to a safety deposit box and getting this piece of paper, providing a password that’s stored on a certain flash drive, and then combining those to generate a key that accesses the Bitcoin. [For more on multi-signature and safeguarding Bitcoin, check out this guide.]
What’s it like paying your taxes?
Taxes have been complicated. Every single time I spend a Bitcoin it’s a taxable event. It’s like I bought and sold an asset. It counts as an investment, with a short- or long-term capital gain or loss.
When I get paid, even if I sell that Bitcoin the next day, I have to report short-term capital gains or losses based on that fluctuation. Even if it’s just a dollar. [Read more on how to do taxes for Bitcoin here.]
Coinbase gives you a report with your net over the whole year, and I give that to my accountant. If my accountant didn’t know what Bitcoin is, they would say, ‘You’re a high-frequency trader.’ Because every transaction is a capital gain or loss, it’s as if I was doing trades every day in the stock market.
What would you do if you thought Bitcoin might implode?
I’ve been through a lot of moments when other people thought Bitcoin was going to implode, and in those instances, I generally have seen through inaccurate coverage of it.
The most existential moment for me with Bitcoin was in 2011. I had been very obsessed with it and decided to write my college thesis on it. But this Wired article called ‘The Rise and Fall of Bitcoin’ came out, and my professor said to me, ‘What are you going to write about now that Bitcoin is dead?’
I said, “Listen, I know that that Wired article says that Bitcoin is dead. I know the price went from $31 dollars to $2” — which is a much more massive drop than we’ve experienced in recent years — “but I said, I don’t think this thing is dead.”
That was the one moment I wondered if this thing I’d decided to focus my entire undergraduate studies on was not going to happen.
What would actually make you sell your Bitcoin?
The scariest thing for me would be something in quantum computing that allowed people to misuse the core protocol.
But even then, I still don’t think I would sell my Bitcoin. Because Bitcoin is a piece of software. It can be upgraded. Suppose that quantum computing breakthrough came out. It would be in the best interest of everyone in the Bitcoin space — miners, developers, and users — to patch that as quickly as possible.
How has your net worth in dollars changed over time?
It’s changed a lot. If you look at the Bitcoin price from 2011 to now, that mimics my net worth in dollars.
Getting paid in Bitcoin, you have to be prepared for a roller coaster. I’m young, so I’m not worried about long-term savings, and I’m willing to take a lot of risk on something I believe in. It’s not for everyone. If I had children and was paying a mortgage, it would be different.
How has living on Bitcoin changed over time?
More people have heard of Bitcoin. When I started at Coinbase and I would say, hey, if you buy me this slice of pizza, I’ll pay you with Bitcoin, most people would say, what are you even talking about? Nowadays, if I say that, they may not have a Coinbase account, they may not own any Bitcoin, but they at least know what I’m saying.
