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If you’ve been interested in cryptocurrency for a number of years, you’re probably aware of something called The Silk Road. What you may not be aware of however, is the fate of the website and the fallout surrounding the cryptocurrency Bitcoin which followed.
Of course, when you hear the words The Silk Road, you are probably thinking of a collection of trade routes which crossed Asia from 200 BCE until the early 1800’s. While they do share the same name, the Silk Road being discussed in this article is an infamous dark web site where users could purchase items such as forged documents and illegal narcotics from vendors all over the world. Because of its highly illegal nature, users could only transact in Bitcoin to maintain their anonymity.
The way The Silk Road worked, is that if someone wanted to buy a fake passport, they would do a search similar to one you would do today in the Amazon search bar. Then when they found a vendor selling the passport they wanted, they would pay the price in Bitcoin and the money would be placed in escrow. Now the seller had to make and deliver the product. The money would be stuck in escrow until the seller delivered the product. Once the buyer received the product, they would indicate as such via a review, and the money would be released from escrow to the seller. Basically, The Silk Road was using something similar to a form of Smart Contracts (currently used on the Ethereum blockchain) to buy and sell goods.
The items for sale on The Silk Road ranged from drugs, to jewelry, to fake IDs, and even art and books. Even though the site was illegal in nature, anything which could harm another individual, such as child pornography or stolen credit cards was prohibited.
The designers of the illegal website began brainstorming in mid 2010, and later launched the network in February 2011. It was, of course, named after its historical counterpart as it aimed to be a marketplace which brought goods from all over the world to customers. To access The Silk Road, you had to use Tor hidden service so that website traffic was unmonitored. At first, there were a limited number of seller accounts available, and if you wanted to become a new seller you needed to purchase an account from an old seller. As the website gained popularity, this changed, and soon sellers could acquire an account for a fee.
The Silk Road was operated by someone under the pseudonym Dread Pirate Roberts, after a fictional character from the movie The Princess Bride. There were two other pseudonyms who were involved with the creation of the site and they were Variety Jones and Smedley.
In June 2011, a New York City Blog named Gawker, posted an article about the illegal website. Unfortunately, it seems the writers of this blog didn’t understand the whole point of an illegal website was to keep it a secret from the US government. As a result of their article, the DEA (Drug Enforcement Agency) and Department of Justice became aware of the website and began to try everything in their power to stop it in its tracks.
Of course, the US government is notoriously slow when it comes to taking down criminals. Although the investigation began in late 2011, the US government didn’t get its first taste of money from the website until June 2013 in the form of a sting. The sting was called “honeypot” and as a result the FBI seized 11.02 BTC which was worth about $814 at the time. It was much longer still before the FBI was finally able to take down the entire operation. According to them, they were able to do so because of tracing through the website’s CAPTCHA and help from the IRS.
After hours of research, it was discovered that Ross Ulbricht was the infamous Dread Pirate Roberts. The FBI arrested him on October 2, 2013, on charges of money laundering, computer hacking, conspiracy to traffic narcotics, and attempted murder. None of the murder charges held however, and all were dropped before the court filing. The FBI seized 26,000 BTC worth $3.6 million in 2013.
Ulbricht was found guilty of all the charges (besides the attempted murder) and was sentenced to two life sentences. As of the writing of this article, he resides in the United States Penitentiary in Tucson and runs a petition on his Twitter trying to get people to sign for an appeal. After he was convicted, the FBI allegedly seized 144,000 BTC which belonged to Ulbricht. At the time, these Bitcoins were worth an astonishing $28.5 million.
You’re probably wondering just what the US government did with all this treasure they stole from users and Ulbricht alike. They claimed they couldn’t keep it (thought I’m sure they wanted to) and the sold 29,657 Bitcoins in 10 blocks in an auction in June 2014. Tim Draper subsequently bought the Bitcoins and lent them to a Bitcoin Startup.
If you’re thinking the math doesn’t quite check out there, well, you’re not wrong. There are still over 140,000 BTC in the US governments possession from the seizure. It’s unclear what they plan to do with it, but at this point it may become an object of civil forfeiture. Not only that, but in November 2020, the US government seized a further 69,370 BTC from a wallet they claimed was owned by someone who was involved in the Silk Road.
After it’s shutdown, there was a second website launched, aptly named The Silk Road 2.0 in November 2013. It was again led by someone with the pseudonym Dread Pirate Roberts. This turned out to be kind of a dumb idea however, because in December 2013, all three of the new website’s administrators were arrested. The site was temporarily taken over by a new administrator named Defcon. In February 2014, this Defcon announced that all accounts had been compromised resulting in the theft of all deposits currently in escrow. The current administrators used their commissions to pay back all the money which was compromised, and as of April 8th, 2014, 50% of users reported they had been refunded.
This Defcon didn’t last long either, and he was arrested on November 6th, 2014. This didn’t stop the dark web though, and Silk Road 3 was launched in January 2015. Sometime between then and now, this third reboot of The Silk Road also went defunct.
Although the life of the Silk Road was short lived in the grand scheme of Bitcoin, it really laid the road for the cryptocurrency to become mainstream. After all, if a criminal wanted an easier, less risky way to attain drugs, they might as well learn to use a website and an anonymous digital currency. And it wasn’t just people learning how to use a new currency, The Silk Road gave some much needed press to a cryptocurrency which was still in its infancy. If the Silk Road hadn’t existed, it’s hard to say where the world would be on Bitcoin today. Maybe it would still be in the same place, but there’s a chance it wouldn’t be near as popular as it is now. It’s impossible to know for sure.