I’ll Admit It…I Had No Idea What SilkRoad Was Until It Got Shut Down By the Feds

Topinfopost - This story is long, but completely insane, totally worth reading all the way through. In case you need some teasers, this story involves billions of dollars worth of drug transactions, an enormous illegal fortune made entirely out of Bitcoins, fake passports and even a couple of hitmen. SilkRoad was founded in 2011 as an underground marketplace where internet users could buy, sell and trade illegal drugs anonymously. The reason it worked was because SilkRoad required every potential buyer and seller to use a routing service called Tor. When someone uses Tor, their IP address (geographic location) is encrypted several times over then routed all over the world to dozens of locations. Using Tor, someone could be sitting in Los Angeles but would be tracked as a zipping line that appears then disappears from one location to the next instantaneously. Tor was originally invented by the U.S. NAVY to help mask top secret messages.

When it was up and running, there wasn’t much of a difference between SilkRoad and eBay or craigslist. It was a website where buyers and sellers met to exchange money for goods and services. The main difference, aside from the fact that most of the products being listed were illegal, was that on SilkRoad you couldn’t simply charge a credit card or use your paypal account to complete the transaction. Instead, users traded Bitcoins. Bitcoin is a completely anonymous virtual currency. The most recent value of a single Bitcoin was right around $130. So that means if you wanted to buy $250 worth of cocaine on SilkRoad, at today’s price you would need to own at least two Bitcoins. SilkRoad would make money by taking a 10% commission on every transaction. It has been estimated that prior to being shutdown, SilkRoad was responsible for more than half of the daily trading volume of Bitcoins around the world.

It turns out, the FBI had been trying for over a year to unmask the mastermind of SilkRoad who they only knew by the internet handle “Dread Pirate Roberts“.The FBI was able to piece together that the vast majority of SilkRoad’s operations were being run out of a coffee shop on a quiet San Francisco street. Agents then began to track Ulbricht back and forth to the coffee shop.

Here’s where the story gets completely insane: According to the indictment documents filed today in New York, the FBI was able to determine that over the last two years, SilkRoad processed $1.2 billion dollars worth of transactions. What does that mean for Ross Ulbricht personally? Over that same time period, the FBI determined that Ulbricht collected some 600,000 Bitcoins in the form of his commission. How much are 600,000 Bitcoins worth? At today’s closing price, $78 million. At yesterday’s closing price? $90 million (the price of Bitcoins dropped sharply in the wake of Ulbricht’s arrest). When Bitcoins hit an all time peak value in April 2013 of $266 per coin, his virtual collection was worth $160 million. To give you some idea of how insane the market for Bitcoins has been recently, in the fall of 2011 when SilkRoad was founded, a single Bitcoin was worth just $2. Just to re-iterare: 29 year old Ross Ulbricht earned nearly $80 million in commissions for maintaining and operating SilkRoad over the last two years. Here’s a screenshot of his LinkedIn page:

And the story gets crazier: As if operating a billion dollar illegal online narcotics marketplace wasn’t bad enough, the FBI alleges that Ulbricht hired at least two hitmen over the last 12 months to murder people who were threatening SilkRoad and his own personal anonymity. When FBI agents arrested “Josh”, AKA “Dread Pirate Roberts”, on Tuesday, it was 3:15 in the afternoon and Ulbricht was quietly working away at his local branch of the San Francisco public library. Today his funds are being seized and SilkRoad has been shut down completely.

I feel like such a squid for not even knowing what the fuck SilkRoad was until it was shut down. Like if somebody asked me 2 weeks ago what SilkRoad was I wouldn’t have even hesitated.  “It’s a horse duh. Ran in the 4th at Belmont Saturday”. Nope. Turns out it was a bazillion dollar underground drug exchange that was operating right under my nose.  The Internet is my thing. It’s my house. I don’t know how I missed it. I feel violated. And you want to know something else? I don’t care how many times somebody explains Bitcoins to me I still can’t understand it. I know the Winklevoss’s are involved but that’s about it. Is it real money or not? I mean I know it’s not but can it be traded for real cash? And if so where? Was this guy a billionaire or an internet dollar billionaire? Huge difference. I feel like Homer Simpson when he goes into the Witness Protection plan whenever somebody explains how it works. I just can’t wrap my noodle around it.