BitCoin Plunges Following US Government Seizure Of Silk Road Website, "Dread Pirate Roberts" In Custody

Tyler Durden's picture

Earlier today, one of the most popular websites that use and promote the use of BitCoin, Silk Road, was shut down by the US government. As Reuters reports, U.S. law enforcement authorities raided an Internet site that served as a marketplace for illegal drugs, including heroin and cocaine, and arrested its owner, the Federal Bureau of Investigation said on Wednesday. The FBI arrested Ross William Ulbricht, known as "Dread Pirate Roberts," in San Francisco on Tuesday, according to court filings. Federal prosecutors charged Ulbricht with one count each of narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy, according to a court filing. Anyone visiting the site would be greeted with the following "game over" screen.

As part of the raid, The FBI said it has also seized approximately $3.6m (£2.2m) worth of bitcoins. The agency described it as the biggest Bitcoin seizure to date. It is unclear just how the FBI will keep the money: since there is no physical manifestation, and increasingly less practical uses, will it just be stuck on some FBI hard disk in perpetuity?

Further details from the FBI's complaint via BBC:

"From in or about January 2011, up to and including September 2013, the Silk Road Hidden Website... has served as an online marketplace where illegal drugs and other illicit goods and services have been regularly bought and sold by the site's users," court papers filed in the Southern District of New York state.

"The complainant further alleges, in part, that the Silk Road Hidden Website is designed to facilitate the illicit commerce hosted on the site by providing anonymity to its users, by operating on what is known as The Onion Router or Tor network... and by requiring all transactions to be paid in bitcoins, an electronic currency designed to be as anonymous as cash."

It adds that Mr Ulbricht - who is alleged to have gone by the pseudonym Dread Pirate Roberts - had generated sales of more than $1.2bn via the Silk Road.

The FBI believes he took cuts ranging from between 8% to 15% and was subsequently involved in a money laundering operation to hide the activity.

 

A second document alleges that private communications recovered from the Silk Road's computer server suggested the suspect had been willing to pursue violent means to defend his interests.

 

It said that messages sent in March and April indicated he had "solicited a murder-for-hire" of a Canadian Silk Road user nicknamed FriendlyChemist who had tried to extort money by threatening to release the identities of thousands of the site's users.

 

Subsequent messages indicated he had been sent a photograph of the victim after paying $150,000 to have the blackmailer killed.

 

"I've received the picture and deleted it. Thank you again for your swift action," Mr Ulbricht is alleged to have written to an assassin.

Who is the Dread Pirate Roberts?

The court documents described Mr Ulbricht, 29, as a former physics student at the University of Texas, who had gone on to study at the University of Pennsylvania between 2006 and 2010.

 

It was here, according to Mr Ulbricht's LinkedIn profile, as quoted by court documents, that his "'goals' subsequently 'shifted'".

 

He wrote on the social network that he had wanted to "give people a first-hand experience of what it would be like to live in a world without the systemic use of force" by "institutions and governments".

 

Authorities said he took to online forums to publicise Silk Road as a potential marketplace for drugs back in January 2011.

 

In one such message, a user believed to be Mr Ulbricht allegedly said: "Has anyone seen Silk Road yet? It's kind of like an anonymous Amazon.com."

 

Investigators said he used the same channels months later to recruit help - starting with a search for an "IT pro in the Bitcoin community".

 

The FBI said Mr Ulbricht would appear in San Francisco federal court later on Wednesday.

And more from NYMag:

The dark Internet's favorite massive drug marketplace, Silk Road, was shut down by the FBI last night and its alleged mastermind arrested on an array of colorful charges after a nearly two-year undercover operation.

 

Twenty-nine-year-old Ross Ulbricht, a.k.a. "Dread Pirate Roberts," was picked up in San Francisco and accused of running the underground e-warehouse while allegedly laundering money, trafficking narcotics, and even hiring a hit man to kill one of the site's users. Fittingly for a computer nerd, not a Heisenberg, he left a rich personal trail online.

 

According to the federal complaint, filed in the Southern District of New York, "Silk Road has emerged as the most sophisticated and extensive criminal marketplace on the Internet today," enabling "several thousand drug dealers" to move "hundreds of kilograms of illegal drugs." The site's sales totaled about $1.2 billion in the form of 9.5 million Bitcoins (naturally). About $3.6 million in the Internet currency has been seized.

 

Ulbricht, though, wasn't exactly great at covering his tracks, attaching his name, photo, and personal e-mail address to Silk Road business, eventually resulting in his arrest.

...

Last year on his Google+ account, Ulbricht, who's now charged with facilitating the sale of drugs through the mail, asked, "Anybody know someone that works for UPS, FedEX, or DHL?"

...

On YouTube, Ulbricht ("ohyeaross") liked videos by Ron Paul, along with clips called "The Market for Security" and "How to Get Away With Stealing." (Of Paul, Ulbricht once told his Penn State Univeristy paper, "There's a lot to learn from him and his message of what it means to be a U.S. citizen and what it means to be a free individual.") Most recently, he followed the Vice channel.

The immediate result has been a quick and brutal dump in the USD-equivalent value of the BitCoin currency itself as can be seen on the chart below:

And a chart showing the move in proportion:

That the US government would crack down on BitCoin and all affiliated services should not be surprising and is happening just as we warned it would back in March when we first charted the initial ramp of BitCoin. This move was especially inevitable considering none other than the ECB "warned" in November of 2012 against virtual currency Ponzi schemes (though it has no problem with fiat equivalents).

So is this the end of the crypto currency? It is unclear, but judging by the sudden lack of publicly available BitCoin pricing data, ostensibly to prevent a chaotic selloff or merely a result of the onslaught in trading volume, the end may be nigh for this monetary alternative.

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XenoFrog's picture

I'd feel bad for all the people who tried to get "in early" on this scam but most of those people then turned around and tried to scam others into it as well.

Xibalba's picture

fuckers.  If they can't tax it they seize it.  If they can't control it, they seize it.  If you look around, this isn't exactly a free country.

XenoFrog's picture

Dang guvmn't tryin to take my drugs and child porn! hurr

AlaricBalth's picture

Freak out time over at 4chan/b

>yfw the FBI shut Silkroad down during the Government shutdown
>yfw the hoster tried to murder someone and got caught
>yfw he has 3 federal charges attempted murder, money laundering and drug trafficking 
>yfw the NSA and FBI have all of your information if you have ever used Silkroad once
>yfw American distributers are committing suicide
>yfw all of us buyers are fucked too

XenoFrog's picture

It's going to be a very tense few weeks as all those US Silkroad customers/dealers worry about getting vanned.

dryam's picture

Who could have seen this coming?

XenoFrog's picture

No one. No one could have possibly seen this coming. No sir.

 

Well, except for all those people smart enough to not get sucked into the bitcoin scam.

Non Passaran's picture

Smart people such as yourself... Sure.
Like I said above I bought @117 and now the price is back to @122.
You're a genius, thank you!

XenoFrog's picture

MTGOX has 39 minutes of lag. It's already below 100 on most of the other exchanges. Enjoy catching the knife.

 

 

LynRobison's picture

With your numerous postings here regarding BitCoin, I want to make sure that I am getting the message on what you are saying. Are you saying the following?

  • BitCoin is bad.
  • People who use BitCoin are stupid, and are doing illegal, unethical, and immoral things.
  • USD is good.
  • People who use the USD are smart, and only do legal, ethical, and moral things.

If that is what you are saying, I think I see a few holes in your logic.

fonestar's picture

I wish I had some dry powder to catch this virtual knife but I just blew it on some vintage JM bars.

Harlequin001's picture

Some people just never learn do they...

XenoFrog's picture

I've never said that USD is good. Personally I think Gold/Silver are a much better place to put your money.

 

Thanks for setting up the strawman though.

Bunga Bunga's picture

 .... where a government can seize it much more easily.

merizobeach's picture

You've appeared so many times in this thread, I suddenly have this off-topic question: is that your brutally ugly face in your picture, or a family member's?

gwiss's picture

You are strangely knowledgeable about this XenoFrog.  I've been on this forum for a while, and truthfully, have not seen you before.  Especially have not seen you posting like a crazy thing except for this one particular issue.

Hmmmm... who are you exactly.....

malikai's picture

Obviously he/she/it is here to help save you from venturing into that dark land with the dragons.

Redhotfill's picture

She cares.....   SHE IS FROM THE GOVT AND HERE TO "HELP YOU"

 

http://www.youtube.com/watch?v=xhYJS80MgYA

phyuckyiu's picture

Xeno = Cheesepope Hasbara Troll. We need to get rid of untraceable money and Men For DA CHILLLRENS, Baby Moses will cry for the CHILLRENS!

Bay of Pigs's picture

Not sure what Xeno is (doesn't really matter), except that he clearly is a useless dickhead, sock puppet and troll.

 

Oh yeah, and Fuck You Bernanke!

phyuckyiu's picture

It turns out Xeno loves a few fingers in her snatch, just like all the other feminist sluts:

http://www.spamvault.de/ipb/index.php?s=ea346098a10809eaa8dc1066d4537b72...

XenoFrog's picture

I'm a guy and i'm not a feminist. Sorry to break your heart.

Harlequin001's picture

Thought so, full marks for consistency though, most of us saw this one flying like a sack of cold puke right from the start...

Never ceases to amaze me how the lesser intelligent seem to think it worthwhile to insult a username. WTF...

Guess I'll just have to take my bitcoins and turn them into some jewelry or something. Oh wait...

XenoFrog's picture

I'm a longtime ZH reader and gold/silver bug. Exposing the idiocy of bitcoins is a side hobby.

 

Also it makes me laugh when you guys call me a zionist/Fed/NEA/FBI/Israeli/GOP/DNC/bot.

 

 

stacking12321's picture

sorry to break it to you, but the only idiocy you're exposing is your own!

XenoFrog's picture

Sounds like you bought in at $150 and need to vent. Sorry things didn't swing your way.

Bunga Bunga's picture

Next Bitcoin run will go to $1,500. Who cares if it's $150 or $50 now?

stacking12321's picture

again, you are wrong. what's it like to live life being wrong all the time?

i have not yet at this point bought any bitcoins, but i probably will in the future, and i'm glad they exist as an option.

XenoFrog's picture

Check your reg dates. I've been a ZH'er longer than you have. Prove your legitimacy...

malikai's picture

Interesting, I'm not seeing much lag on my socket to gox.

And my little trader's been a busy boy today..

mick_richfield's picture

1. BitCoin is indeed stupid, especially in light of recent revelations about NSA semi-backdoors inserted into encryption software.

2. There is indeed an alternative to statist fiat currency.  But it's a lot older than paper money, not a lot newer.

3. No person, and no group of people, including the US 'Government' have the right to interfere in any voluntary exchange between two parties.

4. Likewise they have no right to mandate the use of their currency nor to outlaw others.

5. Everyone has the right to buy, sell, and consume whatever drugs they want, no matter how self-destructive someone else thinks it is.  If the State interferes, then it is the State that commits a crime.

6. You're being kind of a jerk, XF.

fonestar's picture

What the hell does the NSA revalations have to do with Bitcoin?  Totally unrelated, if you do not code or network (and thus have no fucking clue) please feel free to not comment.

mick_richfield's picture

The way it's relevant, fonestar, is that it shows that the NSA has been inserting backdoors on a level we never thought to examine, and few people are capable of examining.

To me, it greatly raises the believability of the claim that BC is an NSA product.  "A cryptocurrency imbued with a false sense of anonymity."

NotApplicable's picture

They caught DPR by doing a package search at the Canadian border. They took out Silk Road by making its ISP "an offer that they couldn't refuse," then they downloaded the entire website.

While the world is filled with digital back doors, these aren't two of them.

BigJim's picture

I can't believe he hosted it from the US. Surely that was just asking to get taken down by the Feds.

NihilistZero's picture

I can't believe he LIVED in the United States.  Makes me wonder if this isn't some sort of PsyOp...  If you're going to create the Silk Road and reap huge Bitcoin profits I'd expect you to be kicking it in Brazil, Singapore, Hong Kong, almost anywhere but the US.  Could be the dude was that arrogant though...  I never try tio under estimate even the smartest person's capability for abject stupidity.

EscapeKey's picture

The NSA revelations were in regards to the RNGs. SHA-2 itself, upon which bitcoin is based, is not breached.

malikai's picture

Never let facts get in the way..

mick_richfield's picture

SHA-256 was designed by the NSA. 

No backdoors in the math have been reported by experts in the field.

The USG can control experts in the field.

You think the NSA  designed and released an unbreached--and unbreachable--algorithm into the wild.  OK -- you can bet your life on that if you like.  I won't bet mine.

EscapeKey's picture

There are lots of security experts, who don't work for the NSA. Bruce Schneier, for instance, isn't a big fan of SHA-2, but concedes it almost certainly hasn't yet been cracked.

I don't know why people automatically assign god-like status to people as soon as they work for the NSA.

XenoFrog's picture

It wanting people to invest in real things rather than scams makes me a jerk, I wear the badge proudly. The bitcoiners are a scurge to ZH and if you think MTGOX isn't being run by the FBI you're dumber than the people who buy into bitcoin at 150.

fallout11's picture

Since they seized the computer they also now have a nice list of all the transactions, and probably the Bitcoin crypto hashes for them. Bitcoin purchases are not anonymous, they in fact are forever memorialized in the block chain, which means that one mistake(made by you or the person you do "business" with) and your transaction is indelibly tied to you forever via absolute mathematically-provable cryptography -- the very same cryptography that makes Bitcoin work in the first place. Only a fool would trust in such a system.
Once anyone in the block chain is compromised/seized, all transactions that ever passed through them are discoverable. What a blackmail opportunity.

fonestar's picture

Idiots like yourself come out everytime Bitcoin is in the news proclaiming "the end of Bitcoin".  Bitcoin is still trading $116 right now.  The market believes one Bitcoin is at least as valuable as a barrel of oil.  Further, this story is about the seizure of one single website on the deep web and has nothing to do with Bitcoin other than the fact that most people who visit it are transacting in Bitcoin.

nope-1004's picture

Ok, Fone.  He's a bit compulsive.  But you also gotta see that any competing currency to the USD is going to get slammed, seized, manipulated, trashed..... all is fair in reserve status and war.

You are looking at the glass as half full.  And I know you love Bitcoin, as I do too, and you said it will be worth $500 one day.  It is going to be repeatedly slammed with negative publicity by the MSM, because this is an all-out global currency war we're in.

To that end, I'd prefer to hold physical myself.  Not sure in the end it will save me either, but Bitcoin is especially vulnerable.

 

fonestar's picture

Yeah, but a website being seized doesn't affect the long-term outlook on Bitcoin.

Ranger4564's picture

You can say that again.

mick_richfield's picture

Yeah, but a website being seized doesn't affect the long-term outlook on Bitcoin.

goddammit, fonestar!  do i have to do everything for you?

ElvisDog's picture

Uh, yes it does. If this were a world where the rule of law meant anything, then what you wrote might be accurate, but as the previous poster wrote bitcoin is competition for the U.S. dollar, and the Feds don't give a shit about the rule of law where such things are concerned. Anyone who trades in or advocates bitcoin is a target. They'll find some excuse to get you, or if they can't they'll just get you anyway.

dark pools of soros's picture

wonderful sheep mentality - you sir are a pillar of liberty

 

anyway, anything that has a rush sale will eat up the liquidty and slam the bots on the exchanges, so with btc.  As such, the dip will be bought, and back to normal.

 

the latest DPR was a loose cannon, so this isn't a surprise.    The folks on this site are some fogheaded scare-de-cats