BITCOIN

Silk Road ‘black market eBay’ website shut by US law enforcement, founder arrested

TAGs: Bitcoin, Department of Justice, Federal Bureau of Investigation, ross ulbricht, silk road

bitcoin-silk-road-shut-downUS federal authorities have shut down the Silk Road website and arrested its founder, Ross Ulbricht (pictured). Silk Road is/was a notorious ‘deep web’ operation known primarily for allowing its users to buy and sell illegal drugs using the Bitcoin crypto-currency. The 29-year-old Ulbricht aka Dread Pirate Roberts (DPR) was arrested at his home in San Francisco on Tuesday on charges of narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy. The criminal complaint (read it here) also alleges that Ulbricht attempted to take out a contract on a Silk Road user’s life via the site.

Silk Road operated via the TOR network, which utilizes multiple levels of encryption to shield users’ IP addresses from prying eyes. Among the products bought and sold via the site were heroin, cocaine, ecstasy, crystal meth and firearms. The site’s vendors also offered services for hire, including computer hacking, passport forging and would-be hitmen (of dubious veracity). The site provided guidance on how to avoid detection by law enforcement when shipping drugs by mail and how to configure computers to ensure they left no digital footprints.

The indictment indicates that the Federal Bureau of Investigation was able to identify the location of Silk Road’s servers in both the US and abroad. An image made of the Silk Road server on July 23, 2013 indicated there were 957k user accounts registered on the site. Of these accounts, 30% identified themselves as being located in the US, while 27% chose the “undeclared” option and most of the others claimed to be located in Canada, Western Europe and Australia.

In Silk Road’s two-and-a-half-year history, it is believed to have facilitated transactions worth 9.5m BTC, generating 614k BTC in commissions for the site’s operators. (The feds estimate this translates to $1.2b and $80m, respectively, at the time the indictment was filed.) Over 100 of these transactions were initiated by law enforcement agents, who reported the drugs they received “have typically shown high purity levels.”

SILK ROAD TO RUIN
Ulbricht is described as being intimately involved in Silk Road’s activities and “ultimately responsible for running the criminal enterprise it represents.” Intercepted communications depict Ulbricht having “taken it upon himself to police threats to the site from scammers and extortionists, and has demonstrated a willingness to use violence in doing so.”

In March 2013, a Silk Road vendor named ‘FriendlyChemist’ sent Ulbricht a private message via the site threatening to expose a list of Silk Road vendors and customers if Ulbricht didn’t pay him $500k, an amount FriendlyChemist owed to other site users, one of whom was known as ‘redandwhite’. Ulbricht got in touch with redandwhite, helpfully providing him with FriendlyChemist’s home address in White Rock, British Columbia. Later, after FriendlyChemist gave Ulbricht an ultimatum to come up with the $500k within hours, Ulbricht contacted redandwhite, saying “I would like to put a bounty on his head … What would be an adequate amount to motivate you to find him?”

Redandwhite responded with a price list ranging from $150k to $300k “depending on how you want it done” – “clean” or “non-clean.” Ulbricht tried to haggle, saying “the price seems high,” although he noted that “I would like this done ASAP.” They eventually settled on $150k, the transfer of which Ulbricht digitally confirmed in a message to redandwhite. One day later, redandwhite told Ulbricht that “your problem has been taken care of … he won’t be blackmailing anyone again. Ever.” Redandwhite included a photo of the alleged victim after the job was done, to which Ulbricht replied “thank you again for your swift action.”

However, it appears Ulbricht may have been taken for a ride, as Canadian police were unable to confirm the existence of a White Rock resident using the name that Ulbricht provided to redandwhite, nor any evidence of a homicide occurring on or around the date in question. As for the photo redandwhite provided as evidence of the hit, one can’t help but think of that Breaking Bad photo of Jesse Pinkman’s ‘brains’ that convinced Huell a hit had taken place. Did life imitate art, or was it the other way around?

NOW WHAT?
The authorities eventually tracked Ulbricht down after intercepting a package from Canada that contained nine forged identity documents under nine different names but all bearing Ulbricht’s photo. Ulbricht had solicited the documents via a Silk Road vendor in order to rent server space without revealing his true identity. Ulbricht offered authorities more clues by using an internet café near his residence in San Francisco to log into Silk Road’s administrative servers.

The authorities seized Bitcoin wallets containing 26k BTC (worth around $3.6m) belonging to Ulbricht, marking the largest seizure of Bitcoins by law enforcement to date. Predictably, the news sent Bitcoin value tumbling from its Wednesday opening around $139 to as low as $109 before staging a recovery.

While many Silk Road users (and some economic libertarians) will lament the site’s demise, nature abhors a vacuum, and other ‘drug eBay’ sites are undoubtedly frantically buying up server space in a bid to fill the void. But other Bitcoin advocates – including many Bitcoin-accepting online gambling sites – are likely welcoming Ulbricht’s comeuppance, as Silk Road was the Bitcoin skeptic’s easy method of discrediting and dismissing the digital currency’s ability to achieve mainstream acceptance.

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