Silk Road Darknet Market Testing for Bitcoin – Bitcoin Magazine
This is an opinion piece by Jacob Kozhipatt, a YouTuber and writer.
For the uninitiated, The Silk Road was a darknet marketplace where users bought and sold all kinds of products, including those considered illegal – most commonly drugs.
Supporters argued that the Silk Road harnessed technology to create markets necessarily divorced from the corruption of governments and big banks. For critics, the marketplace was an enemy of the state, facilitating the sale of illegal drugs that decimated countless lives.
For Bitcoiners, however, the marketplace was the first example of bitcoin being used as an actual currency — a mixed legacy as the site popularized the alternative currency, but also created a stigma around digital currencies that endures even today. So what exactly was Silk Road and why did it play such an important role for bitcoin?
What was the Silk Road?
The Silk Road was created and run by Ross Ulbricht. He created the marketplace in 2011 as a manifestation of his libertarian philosophy, rooted in the ideas of Austrian economists such as Ludwig von Mises. Ulbricht believed that governments inherently use force to impede an individual’s sovereignty—a sentiment he believed manifested in America’s war on drugs.
Ulbricht believed the US war on drugs cost US taxpayers billions of dollars and was a bigger driver of violence than drugs themselves.
Alluding to Silk Road and his motivation for creating it on his Linkedin profile, Ulbricht wrote that he was trying to create an economic simulation that would show the governed first hand how to live in a world without, what he describes as, ” the use of excessive force.”
It is important to note that the Silk Road explicitly prohibited the sale of products or services, “which are intended to harm or defraud”, e.g. child pornography, weapons-grade plutonium or stolen credit cards. However, the US government reported that hacking services were available on the website.
An intriguing aspect of Silk Road was the professionalism it took to present its illegal substances/services. While the drug trade is notorious for violence and the sale of fake drugs, Silk Road allowed dealers to sell their products through the mail and let buyers know if the product they were buying came from a legitimate seller, as Silk Road used a seller review. system similar to other e-commerce sites such as Ebay or Amazon. While some were fans of this, others like New York Senator Chuck Shumer were outraged by the apparent causality of buying drugs through the platform.
In October 2013, Silk Road was shut down. At this time, the website had over 100,000 users and had thousands of transactions, amounting to tens of millions of dollars exchanged, every day. Ross Ulbricht was soon convicted of seven felonies and sentenced to life in prison, without the possibility of parole.
Bitcoin and the Silk Road
Central to Silk Road was the concept of buyers and sellers hiding their identities. Two technologies served as the marketplace’s agents of anonymity: the software Tor and the cryptocurrency bitcoin.
Users would use a Tor browser to access the dark web, where their IP addresses, among other digital locators, would be hidden from third-party monitoring.
Although hiding one’s digital address was important, it did not solve the problem of trading anonymously. One’s identity can still be discovered through common centralized payment processors, such as Visa and Mastercard, both of which work with authorities to identify users engaged in illegal activities. This is where bitcoin played an important role.
At this time, bitcoin was still a new technology with few people familiar with the forensic accountability that the blockchain provides. Thus, bitcoin served as a medium of exchange on the Silk Road. Tens of thousands of users would exchange millions of dollars in bitcoin to buy goods on Silk Road.
When Silk Road was shut down, 70,000 bitcoins (now worth: $1.3 billion) were seized from the site. A vocative report detailed the volume of drug sales that had occurred on Silk Road: Marijuana transactions totaled more than $46 million on Silk Road, while heroin sales were worth about $8.9 million; cocaine amounted to $17.4 million.
The impact of the Silk Road
The story of Silk Road has lasting effects on bitcoin and the larger cryptocurrency landscape.
Silk Road was the first example of bitcoin’s ability to be used as an actual currency – a true financial facilitator of exchange between individual parties. Silk Road has collected approximately 9.5 million bitcoin in revenue since 2011, an impressive amount since there were only 11.75 million bitcoin in existence at the time. In other words, 80% of all bitcoin in existence went through Silk Road at the time it was shut down. Within two hours of the news of Ulbricht’s arrest becoming public, the price of bitcoin fell from $140 to $110.
To this day, Silk Road is often used as an argument by cryptocurrency critics to show that bitcoin is primarily used as a facilitator of crime. This is best demonstrated through New York’s steep rules, specifically the BitLicense, which was put in place in 2014, shortly after the conviction of Ulbricht. Senator Schumer specifically called out Bitcoin for its use on Silk Road, saying: “[Bitcoin is] An online form of money laundering is used to hide the source of money, and to hide who both sells and buys the drug.” This rumor has proven to be enduring, with Duke professor and former Federal Reserve regulator Lee Reiners arguing as recently as 2021 that bitcoin and other cryptocurrencies should be banned for their use to facilitate crime.
Obviously, bitcoin bulls, like Tim Draper, strongly disagree with this perspective. They claim that bitcoin’s immutable ledger actually makes it easier for authorities to track criminal activity conducted via bitcoin. For example, the $4.5 billion hackers of Bitfinex, Ilya Lichtenstein and Heather Morgan, also known as the “Crocodile of Wall Street”, were sent to government officials while trying to launder their stolen bitcoin due to their blockchain transaction history. Also, many new cryptocurrencies market themselves as anonymous alternatives to bitcoin, claiming that the first cryptocurrency’s privacy components are inadequate.
Many bitcoin believers see Ross as a hero to the movement and are actively campaigning for his release in a movement called “Free Ross”, run by Ulbricht’s mother, Lyn. Lyn Ulbricht mentions that the national perspective on drugs has changed since the conviction of Ulbricht. Marijuana, the most popular drug sold on the Silk Road, is more normalized in modern Western society. US President Joe Biden recently announced that all federal marijuana convictions would be overturned by the government, urging lawmakers to reconsider the federal perspective on marijuana.
It is often people on the fringes of a society who first adopt new ideas and technologies. Many of the YouTube content creators of the early 2000s, such as Jeffrey Starr or Lucas Cruikshank, were members of the LGBTQ community. In Chinua Achebe’s famous novel, “Things Fall Apart,” the first members of the Igbo tribe to convert to the then new idea of Christianity were the disaffected misanthropes of the tribe. Similarly, the first people to popularize bitcoin – for better or for worse – were drug dealers and users who are arguably on the fringes of our society.
This is a guest post by Jacob Kozhipatt. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
