Silk Road - The Digital Drug Empire of Dread Pirate Roberts

I think for many of us the first time we heard about Bitcoin, it might have been in connection to criminal activity and the infamous Silk Road exchange. Bitcoin and the entire crypto industry have come a long way since then. It has evolved into a new economy and a technological revolution with a bright future ahead. But every once in a while though we still might have to deal with family and friends telling us that crypto is nothing more than a tool for criminals.

Obviously that's an exaggeration, but cryptocurrencies do open up a whole new way for illegal activities to thrive in. From staying anonymous, to avoiding banks, and being able to transfer it anywhere in the world!

Silk Road was one of the first to see this potential, they brought crypto into the mainstream, and changed the way we look at cryptocurrency.

What was Silk Road?

Silk Road was a black market website that was launched in Febuary 2011 by Ross Ulbricht on the darkweb. They revolutionized drug trading by offering an exchange where people could trade Bitcoin for pretty much any drug, in a similar way to how a website like Ebay works. Other than drugs the site also offered, counterfeit cash, weapons, and fake passports, among other things.

If you're not familliar with the darkweb, it's basically a part of the internet that can only be accessed through specific software or configurations. Popular networks are Tor, I2P, and Freenet. Tor was the network where Silk Road was based, and all you needed was the Tor browser and the address for Silk Road, to access the site.

Silk Road grew quickly and by March 2013, the site had 10,000 products for sale, 70% of which were drugs. At its peak there were almost 4000 dealers selling to more than 100.000 buyers! The company was estimated to have monthly revenues in the tens of millions of dollars!

The Rise

In 2009, after graduating and getting his master's degree, Ross moves back home to Austin, Texas, and starts working on his idea for a free market website, where users could be free from the government.

Ross comes up with the idea of combining both encryption and cryptography, by using the Tor network, and combining it with Bitcoin for anonymity and security.

He launches the site in Febuary 2011, and to attract people to the platform, he starts growing his own hallucinogenic mushrooms to sell on the site.

And then...........nothing.

Nobody was going to randomly find this website without advertising it. It is much harder to find websites on the darkweb, and without getting the word out, almost no-one will reach it.

Ross starts posting on online forums hoping to attract some traffic. The posts worked, and soon Silk Road attracted buyers and sellers from around the world to the marketplace.

The business model works just like any other online shopping website. People pay for products with Bitcoin, Silk Road collects the payment, and after taking a comission they transfer the rest to the seller.

By June 2011, the website has already become so popular, that Gawker publishes and article about the platform.

This results in bringing even more traffic to Silk Road, but at the same time the U.S. government becomes aware of it as well.

The Downfall

After the Gawker article, U.S. Senator Charles Schumer asks the Drug Enforcement Agency (DEA) and the Department of Justice to shut down the website. At the same time Homeland Security also becomes increasingly aware of people shipping drugs through packages at Chicago's O'Hare Airport.

"They were addressed with … printed labels on 'em so it looked like it was more of a business. ... It definitely stuck out because you'd find five or six of the same packages, all addressed to different people, going all across the United States" said agent Jared Der-Yeghiayan in an interview with CBS news.

The government started intercepting these packages, and they wondered what was going on. Why were people suddenly mailing drugs to each other? Some packages would simply have a piece of paper with the pills taped to them, while others would put them in a CD or DVD case, some would even stuff them inside the cardboard itself to hide them!

"They started getting a little more brazen … we went from seeing maybe, like, two or three packages a day to 30 packages a day to 50 packages a day. Within a few weeks, it's a hundred."

This leads agent Jared from Homeland Security to follow one of the packages to its intended adress. That person wasn't home, but his roommate was, and simply told the agent that his roommate was buying drugs on the internet from a website called Silk Road.

Was that Silkroad.com or Silkroad.org asked the agent? No said the roommate, .onion. And how did he pay for the drugs, Paypal maybe? No answered the roommate again, with Bitcoin, a cryptocurrency.

Agent Jared Der-Yeghiayan didn't know what he was dealing with. but a Google search helped clear things up, when he finds the Gawker article. 

At the same time Ross is getting scared, and although he is hiding under the pseudonym "Dread Pirate Roberts", he is afraid that one day they'll find him. Ross's girlfriend, Julia Vie, breaks up with him, because she can't cope with the stress from having to hide Ross's secrets and the fact that they might be arrested at any time. Not long after this Ross moves to San Francisco.

But taking down Silk Road isn't easy for the investigators. They arrest some of the sellers by taking fingerprints from the packages in an effort to find out who this Dread Pirate Roberts is, but this doesn't lead them anywhere. They ask the FBI to get involved and they create "Operation Onion Peeler" to find Silk Road's servers, but even the FBI's cybercrime division is having trouble tracing back the server's IP.

When they find the IP, the agents have to get a subpoena from a judge to request more information from the internet provider. But Tor protects its users by constantly changing their IP. The agents were always to late, and by the time they got the information, it would already be useless to them.

Almost two years go by and Ross becomes more confident in his security, he even gives an interview to Forbes, but is careful to hide his identity. It's a very interesting read and I reccomend it to anyone that is interested in reading more about this!

In the article Ross explains that he sees himself as a libertarian and doesn't consider himself a criminal.

Things take a darker turn by spring 2013 though. Ross receives a message from one of the vendors on Silk Road threatening to expose the personal information of thousands of users. The whole point of Silk Road is the anonymity and if the names and adresses of customers are released, it could be the end for the site.

Ross takes the extreme decision of hiring a contract killer for $650.000 paid in Bitcoin, to find and kill the blackmailer and his associates! But it seems like Ross got scammed. Investigators never found any evidence that a contract killing took place.

By summer 2013 the FBI finds a coding flaw in the website, that allows them to find the IP of Silk Road's server, it's in Iceland. FBI officers fly to Iceland and make a copy to take back and study, without raising any suspicion.

At the same time agent Jared from Homeland Security makes undercover buys on the website, and eventually comes in contact with one of the administrators of Silk Road called Cirrus that works under Ross.

He is able to get Cirrus to cooperate with the investigation and takes over his account. He gains the trust of other administrators and eventually Dread Pirate Roberts , AKA Ross.

At this point in the investigation the Internal Revenue Service (IRS) is brought in, the American tax collection agency. They will be tracking all the money that is flowing through the website.

Gary Alford of the IRS uses Google's deep search tool to see if anyone has searched the name Silk Road, before it actually existed. He finds blog posts on forums discussing psyschedlic mushrooms, Bitcoin, the darkweb, and also posts from a user advertising the site. On one of the posts he finds the name Ross Ulbricht and on another Ross's gmail adress. It doesn't take long from there to trace Ross to San Francisco, and although they suspect him of being Dread Pirate Roberts, they don't have enough evidence yet.

The FBI had found clues on the server that lead to San Francisco as well, and during agent Jared's undercover investigation he could see that when he chatted with Dread Pirate Roberts, that he was located in the pacific timezone, the same as San Francisco.

In July 2013, U.S. Customs and Border Protection officers intercept nine fake IDs coming into the U.S. from Canada. They trace the ID's back to an adress in San Francisco, and when they knock on the door, guess who opens the door, yes it's Ross.

Ross at first pretends he doesn't know anyhting about them, but after the police points out that it's literally his picture on the ID's, he admits he bought them from Silk Road, and claims he just wanted to try it out.

After this event, Ross quickly moves to another adress in San Francisco.

The investigation was now starting to close in on Ross. The FBI had the server. The IRS had found Ross's name and email adress, and traced him back to San Francisco. And Homeland Security had an undercover agent communicating with him.

The team starts putting all the pieces together and becomes increasingly convinced that Ross could be Dread Pirate Roberts.

In October 2013, they set up a sting operation in San Francisco.  They were going to follow Ross around, waiting for him to use his laptop and sign in to the website, and when he does the arrest team makes their move.

After a while they follow Ross to a public library in San Francisco. He sits down, opens his laptop, and signs in to the website. As soon as the team confirms this, two agents stage a fight to distract Ross, while another grabs the laptop, with Ross still signed in to his account as Dread Pirate Roberts.

Ross is arrested and the evidence against him is overwhelming. The webstite is finally shut down, and in January 2015, four years after Silk Road was launched, Ross's trial begins. After 12 days he is found guilty and given two life sentences without parole.

The Aftermath

Was this the end of Silk Road? Of course not!

About a month after Ross's arrest, on November 6th 2013, former administrators from the now closed Silk Road relaunched the site, led by a new Dread Pirate Roberts, and they called it Silk Road 2.0.

They promised increased security, and take the precaution of distributing encrypted copies of the site's source code to allow the site to be quickly recreated in case of another shutdown

But it doesn't last long.

On December 20th 2013, three of Silk Road 2.0's administrators are arrested and the new Dread Pirate Robert quits and freezes the site.

A new leader takes over, going by the name Defcon, and promises to restore the site to working order. But by Febuary 2014, the site is hacked through a vulnerability in the Bitcoin protocol. The stolen Bitcoin was valued at $2.7 million at the time.

The administrators at that time use the income from their commissions to pay back the lost funds to their users, with 50 percent of the hack victims being completely repaid as of April 8th of that year.

On November 6th 2014, authorities with the FBI, Europol, and Eurojust announced the arrest of Blake Benthall, the owner and operator of Silk Road 2.0 who went by the name Defcon. This marks the end of Silk Road 2.0.

Afterwards Diabolus Market renamed itself to Silk Road 3 Reloaded, hoping to take advantage of the brand name, but that website is also shut down as of today.

There is still a Silk Road 3.1 floating around on the dark web, but there are mixed reports on its legitimacy with some saying it's trustworthy and others claiming it to be a scam. It is unknown who is in control of that website.

The last bit of news from this story came recently on November 3rd 2020, when the US government seized 69,370 bitcoins from an old Silk Road adress. The coins today are worth about $1.000.000.000!

And that is where the saga of Silk Road ends.

Ironically according to some studies, drug dealing today is mostly done over encrypted messaging apps such as telegram, that avoid the risks of selling on a centralized exchange.

But surprisingly not everyone was critical of Silk Road!

Meghan Ralston, a former harm reduction manager for the non-profit organization Drug Policy Alliance, was quoted as saying that the Silk Road was "a peaceable alternative to the often deadly violence so commonly associated with the global drug war, and street drug transactions, in particular". People in favor of sites like  Silk Road argue that buying illegal drugs from a website is safer than buying them in person from criminals on the street.

All the media buzz that Silk Road generated at the time, brought Bitcoin to the attention of many people that were not familliar with crypto before. For me it was the first time that I had heard of Bitcoin, so maybe at the very least in some way it increased awareness of cryptocurrency, and paved the way for the crypto boom that we are in now.

Could Silk Road come back one day?

Who knows, maybe with the current developments of decentralized finance (DeFi), and better privacy protecting cryptocurrencies like Monero and Zcash, it could be relaunched once again.

Thanks for reading, and I hope you enjoyed this long crazy piece of crypto history.