Throwback Stories #3: On The Silk Road
It is a good time for cryptocurrencies. Bitcoin came back to form after the 2018 crisis. Many companies and corporations turn to blockchain technology. The idea of crypto has grown into our world. But it wasn’t always like that.
Once upon a time, when Bitcointalk was still young, Mt. Gox story had just begun, and Mark Zuckerberg probably never heard about blockchain, there was an exceptional place on the Internet. According to its creator, its primary purpose was freedom. But in the end, it made the crypto industry associated with crimes and darknet. This is the tale of the infamous Silk Road.
In the name of freedom
I’ve already teased this story in the first episode of the series. An article dedicated to Bitcointalk should at least mention this marketplace. This forum was its birthplace after all. But now we will take a closer look into the ‘Silk Road’ case – cause its influence over the industry was (and somehow it still is) undeniable.
It all begins with one person. Ross Ulbricht was a dreamer kind for sure. In his university years, he got into the libertarian economic theory, admiring Ludwig von Mises philosophy, and Ayn Rand works. After he had graduated from Pennsylvania State University, with a master’s degree in engineering, he had many possible ways to go through. But a vision of regular employment seemed not satisfactory enough for this ambitious young man. Ulbricht tried to run some businesses on his own, but all of those ideas failed.
Finally, his beliefs led him to the creation of the Silk Road. He considered it as an experiment, which would give people a taste of true freedom, based on his economic views. To implement this idea into life, he needed tools which would provide necessary anonymity, to prevent any government interference.
As you may guess, that’s where the Bitcoin came in. Around the year 2010, when Ulbricht started working on his marketplace (back then, it was still a part of his previous project, an online library), the cryptocurrencies were still a fresh idea, without any worldwide attention. He found Bitcoin suitable for his libertarian views and decided to use its potential in his ongoing project.
But still, Ulbricht needed to provide a secure place where his marketplace would be safe – alongside with its users. The deep web seemed to be a perfect solution in that matter. For those of you who haven’t heard about it before – the deep web is a part of the Internet not accessible via standard WWW browsers. It’s considerably much bigger than the regular web (although I will not undertake to provide accurate data about its size – it’s very varied depending on the source) and consists of pages which are not indexed by standard web search engines.
The deep web is such a complicated topic alone that it deserves a separate article. Here, let’s focus on one aspect: a darknet. This part of the network is considered untrackable and safe, and it’s only accessible via dedicated software, like Tor, which anonymizes IP addresses of visitors. Ulbricht chose it as a way to provide the necessary security to his marketplace.
Finally, our libertarian dreamer, under the pseudonym “Dread Pirate Roberts,” managed to run his work of life. Silk Road went online in February 2011. The deep web marketplace has one rule: every human being should be free to have anything he or she wants, as long as it doesn’t hurt anyone else.
In practice, Silk Road became an oasis for the drug trade. Most of the offered products were illegal substances of all kinds. Everyone was free to add his own offer into the platform, and soon it became an eBay of the darknet. Some other commodities were also available on the platform, but until its last days, Silk Road was associated mostly with drugs.
Of course, a marketplace offering illegal goods attracted the attention of the government. FBI eventually managed to trace it down. And they did it because of Ulbricht negligence. Federal agents found his private email in one of his old messages. After connecting different identities and aliases, everything became clear.
An end of the dream
Ulbricht was arrested in October 2013, caught completely surprised by the FBI. On the same day, the Silk Road was closed, and all Ross’s plans for a better world were ruined. Agents found on his laptop everything they needed to prove him guilty: his private journal and a significant sum of bitcoins.
The list of charges against Ross mostly concern Silk Road activity, but one of the allegations was the most surprising. According do FBI, Ulbricht attempted to murder six people, by hiring assassins to kill some inconvenient individuals. This part of the story is especially intriguing not only because such action doesn’t match the peaceful nature of Silk Road creator.
As it turned out, one of the hired people was, in fact, an undercover DEA agent named Carl Force, who fake-ordered assassination and took reward in bitcoins for himself. In the end, he got caught and sentenced to six and a half years in prison for his actions.
But the fate of Ulbricht was much worse. Although the court dropped charges for murder attempts, he was charged with money laundering, computer hacking, and conspiracy to traffic narcotics. The sentence was rough: double life imprisonment plus forty years, without the possibility of parole.
What was the exact scale of the platform? According to an official complaint in Ulbricht case, “there were approximately 1,229,465 transactions completed on the site. The total revenue generated from these sales was 9,519,664 Bitcoins, and the total commissions collected by Silk Road from the sales amounted to 614,305 Bitcoins.”
Why did it work so well? Despite evident demand for such services, the success of Silk Road lies in the character of its creator. According to both his testimony and overall attitude, Ulbricht actually believed in his work. He thought that such kind of online marketplace was a far better solution than trading with some shady drug dealers.
On the website dedicated to Ulbricht, his family describes him as a peaceful person, an idealist who wanted to make the world a better place. And it’s hard to disagree, cause his story doesn’t resemble a ruthless, criminal drug boss. Yes, there are pieces of evidence for hiring paid assassins by him – but this part of the story also contains manipulations of a corrupt DEA agent. After all, the sentence seems very harsh.
But, despite my compassion to Ulbricht, we are here to talk about cryptocurrencies after all. And Silk Road was undoubtedly one of a turning point within its history. It shares some similarities with Mt. Gox case. Both of them have significantly influenced public opinion about cryptocurrencies – and not necessarily in a positive way.
Main heroes of both stories also have something in common. Although their businesses were different, both Ulbricht and Karpeles made the same mistake. They underestimated the scale of their work. In the case of Mt. Gox, it failed because of the lack of proper structures and preparations. Silk Road fell because of government attention, attracted by its illegal activity.
One thing is sure. Just like historical Silk Road was the place where the West had been meeting the East, that Ulbricht’s marketplace was the moment when public opinion met crypto for the first time. And it wasn’t a friendly meeting. In the end, the crypto industry had sent one of the least suitable emissaries.
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