Federal authorities revealed in court documents released Friday that they seized nearly $29 million in virtual currency from the operator of an underground website the FBI describes as “a sprawling black market bazaar.”
Ross Ulbricht, a currency trader in San Francisco, was arrested Oct. 1 for allegedly creating and operating the Silk Road website. He was charged with narcotics trafficking, money laundering, computer hacking, and soliciting a murder-for-hire.
Mr. Ulbricht denied he was the Silk Road operator using the online name Dread Pirate Roberts. According to San Francisco Magazine, he has not proclaimed his guilt or innocence. He is currently awaiting extradition to New York City.
The arrest revealed the growing presence of Bitcoin, an online virtual currency that is recognized by very few governments and is operated via a mobile app or computer program that creates a virtual “wallet” people can use to send and receive the currency. The FBI says it seized 144,336 bitcoins from Ulbricht. According to Forbes, it is the largest seizure of bitcoins to date.
According to the website bitcoin.org, the value of all bitcoins in circulation by the end of August 2013 exceeded $1.5 billion.
According to court documents, Silk Road generated $1.2 billion in sales since January 2011 and collected commissions worth $80 million. Described as “the most sophisticated and extensive criminal marketplace on the Internet today,” the operation used a handful of servers located worldwide that were networked to create anonymity among its users. Unlike normal currency, the use of bitcoins was intended to make its exchanges difficult to trace.
“The site has sought to make conducting illegal transactions on the Internet as easy and frictionless as shopping online at mainstream e-commerce websites” and “has been used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to well over [a] hundred thousand buyers,” according to court documents.
The site allowed sales listings of “illegal drugs of nearly every variety,” including heroin, cocaine, and prescription drugs. The listings also solicited the services of computer hackers, stolen credit card information, and hit men. In March, the FBI says Ulbricht solicited a Silk Road user to murder a fellow user from Canada who threatened the release of thousands of users of the service in exchange for $500,000. No murder was alleged to have taken place.
When Ulbricht was arrested in early October, the FBI seized about 30,000 bitcoins, worth about $6 million.
Silk Road dominated the use of bitcoins in the online world, and once the website was shuttered, the value of the currency crashed, according to the technology website ZDNet. Since then, its value has returned to its original levels and this week surpassed $200 million in value on several exchange markets, although analysts are uncertain how much the currency can grow.
In talking to ZDNet, David Shafer, executive director of Kogan Technologies, an Australian technology company in Melbourne, said, “since time immemorial, in all cultures and civilizations, two commodities have prevailed as preferred forms of currency when they were available: Gold and silver. These commodities have passed the test of time – remaining universally in demand across cultures for thousands of years. These are the tried and tested true forms of money, and will ultimately prevail over all present fiat currencies.”
While the purchase of bitcoins is relegated to the online world, a Bitcoin ATM is scheduled to open in Vancouver next week outside a downtown coffee shop. The machine, created by Robocoin Technologies of Nevada, will trade bitcoins for cash and also facilitate cash for bitcoin purchases. Another company, Lamassu Bitcoin Advisors of New Hampshire, announced they plan to launch their machines in 2014.