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The Silk Road to the FBI is Paved with Bitcoin

Post by BeyondTrust Research Team October 3, 2013

The FBI has seized control of one of the online black market’s most prominent marketplaces, Silk Road.

Silk Road was an online marketplace used by miscreants who bought and sold illegal merchandise, such as drugs, weapons, and other illicit materials. It was not accessible without the use of routing software known as Tor (the onion router). Tor is a network of systems that work together to create a way for people to nearly anonymously access various parts of the Internet. When using the Tor network, users are capable of accessing other computers on the Tor network with the assurance that it is very difficult to identify who is who on the network. This is ideal for the trade of illegal materials that occurred on Silk Road, which greatly benefits from the anonymous nature of Tor.

The alleged founder of Silk Road, Ross William Ulbricht, who went by the online pseudonym “Dread Pirate Roberts” (DPR), was arrested by the FBI at the same time as they seized control of the online marketplace. Along with the website seizure and arrest, Bitcoin funds were seized that amount to $3.6 million. Bitcoin is an unregulated currency used online for both legal and illegal purposes, touting anonymity of transactions to its users. Hence, this was a natural choice for users of the Silk Road marketplace. Because of the FBI seizure of Bitcoin funds, the exchange rate for Bitcoin and official currencies has dropped tremendously, over 20% in 3 hours (from $139.00/bitcoin to $109.71/bitcoin), and has continued to fluctuate.

So what’s this mean for the average Internet user?

The FBI monitors and is actively engaged in stopping online hubs that facilitate illegal activities, even when they are advertised as being secure and anonymous. People participating in these illegal online activities will likely increase precautions they take, so they do not also become the target of three letter agencies. New markets will likely emerge to take the place of Silk Road, and the government will attempt to thwart them, as well.

Additionally, the Bitcoin market is still extremely volatile and should not be relied upon for as a dependable currency. There have been multiple cases in the past where Bitcoin value has fluctuated greatly. This is not the first case, and it won’t be the last. Accepting Bitcoin as a method of payment is risky, at best.

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