The FBI arrested the suspected inventor and operator of online illegal drug market Silk Road in San Francisco on Wednesday, seizing a record $3.6 million in the online currency Bitcoin in the process.
Ross Ulbricht, who until Wednesday was known only by his online pseudonym “Dread Pirate Roberts,” allegedly created Silk Road in January 2011, using the anonymous software system Tor to evade scrutiny while building a drug marketplace the Feds believe was worth $1.2 billion in narcotics sales over its lifetime.
Users could shop for products like marijuana, ecstasy and methamphetamine in much the same way one shops for books or DVDs on Amazon.com.
Federal agents also closed down the site itself; a banner on Silk Road’s front page now displays the badges of various law enforcement agencies along with the message “This hidden site has been seized.”
Silk Road operated successfully for so long thanks in part to Bitcoin, a digital currency designed to lend semi-anonymity to its user. Buyers and sellers used an internal Bitcoin “bank,” and a so-called “tumbler” sent all payments through a series of complicated, fake transactions designed to obscure the users’ identities.
Contrary to popular understanding, Bitcoin does not completely protect a user’s identity. Jerry Brito, a Bitcoin expert at the free market-oriented Mercatus Center, told The Daily Caller News Foundation that the FBI could have examined the public “block chain” ledger, which records all transactions in the Bitcoin network, to nab their suspect. But they did not do so.
“[The federal complaint] tells me that the FBI is not using techniques that security researchers are now developing to look at transactions on the block chain, to de-anonymize those transactions and sort of tie identities to the transactions,” he said.
“Bitcoin really had nothing to do with how they identified the suspect here,” Brito continued, “and Bitcoin topography and security has not at all been compromised here.”
Instead, Ulbricht was caught after purchasing nine fake IDs from a Silk Road user in Canada. Customs and Border Patrol agents intercepted the package during a routine inspection in July, prompting additional scrutiny that eventually led to Ulbricht’s arrest.
As the Dread Pirate Roberts, Ulbricht wasn’t shy about sharing his political opinions with the Silk Road community. An avowed libertarian, he posted screeds on everything from the War on Drugs, free markets, the right to bear arms and even the Federal Reserve.
“Silk Road was founded on libertarian principles and continues to be operated on them,” he said in 2012. “The same principles that have allowed Silk Road to flourish can and do work anywhere human beings come together. The only difference is that the State is unable to get its thieving murderous mitts on it.”
But Ulbricht apparently had some murderous tendencies of his own. The complaint alleges he hired a hitman to kill a Canadian citizen threatening to release the identities of a long list of Silk Road users.
“I would like to put a bounty on his head it it’s not too much trouble for you,” he messaged the alleged killer. “What would be an adequate amount to motivate you to find him? Necessities like this do happen from time to time for a person in my position.”
Ulbricht transferred Bitcoins to the killer-for-hire after the job was supposedly completed, but Canadian authorities told the FBI that no record existed of the alleged homicide.
Some financial regulators, such as New York’s Benjamin Lawsky, have proposed onerous regulations on Bitcoin due to its potential to facilitate criminal activity. Although the FBI’s seizure of $3.6 million in Bitcoins is the largest in history, Brito believes proponents of the digital currency are pleased with Wednesday’s outcome.
“I do think that there are some folks who today are probably celebrating in the Bitcoin community, especially entrepreneurs who want to comply with regulation,” he said. “Next time they meet with somebody like Lawsky, they’re going to be able to point to this and say, ‘See, the system works… You can allow Bitcoin to operate as a completely legitimate network and also go after those who are using it in a criminal manner.’”
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