The history of Silk Road

One of the biggest allures, and criticisms, of cryptocurrencies is their anonymity. The story of Silk Road, the famous drug marketplace, is the best evidence of that statement.

How a 29-year-old idealist built a global drug bazaar and became a murderous kingpin.

More than five years have passed since the Silk Road online trading platform was closed and its creator, Ross Ulbricht, was arrested. The history of Silk Road makes one think about the impact of cryptology and darknet on the community, as well as anonymity and privacy.

Bitcoin anonymity is one of the most attractive and critical features of digital currency. Everyone can see the transactions in its blockchain, but there is no user name, only the wallet address.

But Bitcoin is not absolutely anonymous. It’s called pseudo anonymity. Users are anonymous as long as there is no clear link between their identity and wallet address. Sometimes it can be difficult to prevent that kind of connection. For example, when buying things at an online store for bitcoins, the user is forced to enter his address. Each his transaction leaves a trace.

Ross Ulbricht, who is serving a life sentence, has enough time to reflect on the difference between anonymity and pseudonymity. In 2011 he created an online marketplace where users could buy anything from drugs to fake documents. Ulbricht relied on the anonymity of cryptocurrencies and darknet, which led to his arrest.

Libertarian businessman

After grad school, Ulbricht returned to his home in Austin, Texas. He wanted to become an entrepreneur and tried his hand at various industries until he started online trading. Ulbricht started a second-hand book store. The business developed and in December 2010 Ulbricht earned $10 000. The entrepreneur even hired five part-time employees. Ulbricht could have continued to develop the place, but he was attracted by the “dark force”.

Silk Road was an online commerce platform for selling illegal goods. Ulbricht led it under the name Dread Pirate Roberts.

Ulbricht considered himself a libertarian. This political philosophy sees any state interference (e.g. taxes) as a form of coercion. Ulbricht believed in ownership, self-governance and self-realization. He believed that the state should have no purpose other than to grant citizens these rights.

Cryptocurrencies attract libertarians because of the lack of regulation. One of the entries in Ross Ulbricht’s diary reads: “I had the idea of creating a website where people could buy everything anonymously, leaving no trace that would allow them to be found.” The idea eventually turned into Silk Road, the largest darknet marketplace.

The dark side of the Internet

Ulbricht’s “eBay for drugs” was available on the darknet. Physically, it’s not much different from the usual Internet. Anyone who owns a website or an online store needs a server with software installed. Each computer connected to the Internet automatically receives a unique identification number or IP address. In this case, the anonymity is at the same level as the home address of the person who is registered in the city registry.

The darknet can be accessed using the Tor browser. You can also use it anonymously on the Internet. People visit popular sites such as Facebook, leaving no traces online. They can also access the darknet. It does not use familiar domains like “.com” or “.io”. Local sites use a pseudo domain: .onion.

Darknet provides protection to activists and others who face human rights abuses. But its anonymity also attracts perpetrators. Because of their work on the darknet, authorities could not calculate the location of the Silk Road server, as well as the buyers and sellers of the site.

Silk Road’s first successes

Silk Road logistics worked brilliantly. The U.S. Postal Service was used for delivery, which provided parcel recipients with a plausible deniability.

With the introduction of product and vendor feedback, Silk Road’s level of trust increased significantly. The drug MDMA (also known as ecstasy) was particularly popular. It is difficult to obtain it in its pure form, and with admixtures in the form of pills it can be deadly. Reliable MDMA suppliers received high ratings, and this increased sales.

Silk Road grew rapidly, adding to Ulbricht’s difficulties. He needed employees for the site to work properly: it’s hard to find employees for a site that sells drugs and weapons.

Soon he was able to find a partner. It was Curtis Green, a 47-year-old Mormon with chronic pain and certain knowledge of opiates. He moderated the Silk Road forum, where users shared their opinions on medications. Ulbricht offered him the position of customer service manager. Ulbricht knew the real identity of Green, but kept it a secret. They only communicated through the Tor chat feature. In the future, Green will play an important role in Ulbricht arrest.

Two years after its launch, Silk Road was used by 1 million customers. Since the site was funded in bitcoins, it was difficult to calculate its income. The cryptocurrency is known for high volatility, so Ulbricht’s earnings were unstable. It was assumed that his income was up to hundreds of millions of dollars.

Silk Road took fees from every deal. But Ulbricht dreamed of more: he wanted to create an empire of freedom for libertarians. He even published a plan to open a Bitcoin exchange on Silk Road that would allow him to launder illegally earned coins.

The combination of Bitcoin and Tor was too difficult for the authorities. For two years, they could only monitor the site. It seemed that Ulbricht had invented the perfect crime.

There’s no such thing as the perfect crime

In 2013 it became clear that the use of Bitcoin does not always protect a person from detection. For the experiment, journalists bought marijuana and asked University of California scientist Sarah Maklejon to track the transaction.

They gave her Bitcoin wallet addresses. That information didn’t help Maklejon much. Any government agency can get the crypto address in court. Maklejon took a look at the transactions recorded in the Bitcoin blockchain and was able to find all the transactions ever made by the accounts. Of course, she wasn’t able to identify the owners, but that was the first step toward revealing Bitcoin’s pseudo anonymity.

FBI was making progress, too. The bureau had simply been watching Silk Road for a long time, and one day its staff discovered a vulnerability, but not in Bitcoin — in Tor. One of Silk Road’s clients found a configuration error in Tor. The system showed the actual IP address of the location of the site server.

The client shared this bug in the Reddit forum. Ulbricht immediately started fixing the bug, but he couldn’t stop FBI. The bureau staff found out that Silk Road server is in Iceland.

But the arrest of server and the termination of website did not end the case. Ulbricht copied all the data and moved it to another server. FBI agents also copied the information and began to understand the specifics of the service. They did not know who the server belonged to and allowed Ulbricht to continue working.

Hunting for Dread Pirate Roberts

A few months before Ulbricht’s arrest, several absurd twists occurred in the Silk Road case. First, a member of the U.S. Drug Enforcement Administration (DEA) communicated with Ulbricht for several months, pretending to be a member of a drug cartel and a salesman on Silk Road. These conversations were followed by the arrest of Curtis Greene. Ulbricht panicked and took the rash step of asking a DEA agent to kill Greene for money.

The agent made a deal with Greene. They did a fake murder and videotaped the whole thing to gain the trust of Dread Pirate Roberts. That’s how Ulbricht became a killer. But even with the data the FBI couldn’t identify the site owner. Soon things changed.

An IRS employee was looking for who first reported Silk Road on the forums. This man could be the creator of the site or know him personally. He was able to find the first entry about Silk Road. He then started looking through the other posts of this member, and eventually found his email — rossulbricht@gmail.com.

The FBI put Ulbricht under surveillance. They quickly noticed that every time Ulbricht opens his laptop, “Terrible Pirate Roberts” is online on Silk Road.

Ulbricht’s arrest

At the same time, the undercover agent became an employee of Silk Road. He worked under the alias “cirrus.” Eventually, he managed to become Ulbricht’s confidant. FBI, DEA and IRS wanted Ulbricht in a public place. They soon learned that Ulbricht often works in a public library.

On October 1, 2013, the detention plan was activated. A man sitting on a bench in front of the cirrus library asked Ulbricht to go to the Silk Road administration panel to solve a small problem.

A few minutes later, two government agents appeared near Ulbricht. He was shocked, and they took advantage of it. One of the agents pushed Ulbricht’s laptop quickly to the other. The evidence was incontrovertible — there was a chat room on the computer with cirrus.

Court and life imprisonment

The history of Silk Road is full of mysteries and privacy issues. In court, Ulbricht insisted that the FBI had violated his privacy. In his opinion, copying data from the server was an information theft. But the judge dismissed the appeal. Then the privacy advocates intervened. They threatened the judge and published her address in a darknet. In response, she ordered the activists’ data to be published.

Ulbricht was found guilty and sentenced to life imprisonment. But that wasn’t the end of it. The agent who staged Curtis Greene’s murder apparently took the money he had received from Ulbricht. Curtis Greene himself is on the loose and already writing a book about working at Silk Road.

Ross Ulbricht’s mother, Lynn, is shocked by the trial and sentencing. She and her friends have launched freeross.org to cancel it.

FBI has seized 144 000 BTC. Most of them are still in the hands of authorities. That makes the FBI the second-largest BTC owner in the network. With Ulbricht’s laptop in the hands of the bureau, they tracked hundreds of thousands of transactions with 700 000 BTC. No one knows how many online merchants the FBI was able to arrest because of this information.

Even in the crypto world, it’s hard to remain anonymous forever. Every action on the Internet leaves a trail, and in the end every criminal makes a mistake. But Bitcoin itself could be very useful for everyone for legal deeds. Earn BTC with our Bitcoin cloud mining platform Hashmart.io!

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Andrey Costello

Andrey Costello

Bitcoin-maximalist. Optimistic family man and miner with six years of age. I write about complicated things from the future for people of our days.