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