Bitcoin Exchanges Questioned Over Silkroad Ties

Just a few days ago, the scrutiny of Bitcoin was raised by US authorities. A number of Bitcoin exchanges have received subpoenas relating to possible ties to Silkroad.

Based on a report by the Wall Street Journal, the authorities suspect that quite a few Bitcoin exchanges might have potential ties with Silkroad, the defunct online drug market. The Tor network was used by Silkroad so that purchases in the Silkroad marketplace would remain virtually untraceable. Thus, the closing down of Silkroad led to the seizure of more than $28 million worth of Bitcoins. There were more than a million users on Silkroad who were buying items, ranging from drugs and fake passports to marijuana, from the Silkroad marketplace. For currency, only Bitcoin was being accepted by Silkroad, so such products could be purchased anonymously. As a result, there have been several arguments over the fact that the overall acceptance of Bitcoins has been tainted by this association.

This winter, federal prosecutors from Manhattan had sent out subpoenas to a number of Bitcoin exchanges, including Mt. Gox, which is now closed. According to sources of the Wall Street Journal, the subpoenas compelled the exchanges to provide their logs and materials of customer transaction associated with solicitation of investors. The investigation is still in an early stage according to those sources and there were no conclusions yet on whether the exchanges were associated with Silkroad.

In February, a bunch of Bitcoin exchanges as well as other companies involved in the distribution of the virtual currency had also received subpoenas. It is still unclear where the investigation being discussed was related to these subpoenas. The US Attorney’s office had issued those subpoenas as well. However, the focus of those subpoenas was on the Denial-of-service attacks being handled by exchanges like Mt. Gox and others, which led to the suspension of withdrawals of these businesses.

Mt. Gox was once among the largest and most Bitcoin exchanges. However, in February it was discovered that almost seven hundred and fifty thousand customers had been robbed of $500 million worth of Bitcoins. The company was left with no choice but to file for bankruptcy and suspend withdrawals. According to the attorneys of the Mt. Gox, the CEO of the Tokyo-based exchange, Mark Karpeles is not willing to come down to the United States to appear in court to answer questions regarding this abrupt closure.

It was back in 2011, when Eric Holder, the Attorney General, was tipped off about the role being played by Bitcoin in an online marketplace where illegal merchandise was being sold to anonymous buyers. This is what led seizure of Bitcoins from Silkroad. The US authorities recently also accused and charged Charles Shrem of BitInstant with money laundering, and he is scheduled to go on trial in September. As of now, it is uncertain where this investigation might be headed.