The Unintended Consequences Of The Shutdown Of Silk Road

from the yes,-it's-gone,-but-now-what dept

The closing down of Silk Road by the feds was almost certainly inevitable. In fact, especially in light of the details suggesting how sloppy Ross Ulbricht was at times, it's somewhat amazing it lasted as long as it did. That said, in the past few days I've seen a couple of articles that are highlighting the unintended consequences of the closure. First up is Conor Friedersdorf over at The Atlantic, discussing how the closure of Silk Road almost certainly makes the world less safe. In some ways, this reminds me of similar discussions about targeting marketplaces vs. targeting users (such as Craigslist). While many people have a gut reaction that it makes sense to go after the marketplace/platform, the reality is that it's the users that drive it, and those users will continue to do the same illegal acts as before, but most likely in a less safe manner.

Friedersdorf highlights how, assuming everything in the NY complaint is accurate, Silk Road functioned as a fairly safe and efficient market for buying what generally appeared to be high quality illegal drugs for personal use in a much safer and more trusted manner than going out on the street to do the same. And, on top of that, it appears that many of the sellers were from overseas where the drug trade might be even more dangerous:

On many thousands of occasions, drug dealers in foreign countries decided that, rather than using armed truck drivers, bribed customs agents, desperate drug mules, thuggish regional distributors, and street level drug dealers who used guns to defend their territory, they’d just mail drugs directly to their far away customers. Of course, folks at the beginning of the supply chain were still often violent drug cartels who one hates to see profit. But from the perspective of the many innocents who suffer from the black market supply chains involved in traditional drug sales, narcotics via mail order would seem to be a vast improvement.

The FBI summed up its case against The Silk Road by writing that “the site has sought to make conducting illegal transactions on the Internet as easy and frictionless as shopping online at mainstream e-commerce websites.” Insofar as it trafficked in violence-for-hire and hacked bank accounts, that was a bad thing — society has an interest in as much friction as possible in the market for hit men! But compared to the epidemic violence that has characterized the drug trade for the entirety of the War on Drugs, and that shows no signs of abating in the foreseeable future, a frictionless drug trade starts to seem like a relative utopia.

The “friction” is often dead teenagers on urban streets.

Of course you could make an argument that Friedersdorf's argument is almost as much a condemnation of the overall War on Drugs as it is on Silk Road itself. In fact, you could argue that the "success" of Silk Road highlights how a legal and regulated market for such drugs would likely be quite efficient and safe. That's not a "defense" of Silk Road or a suggestion that what Ulbricht did was morally correct. However, it's just a statement of reality. The War on Drugs has a very large number of victims, and many of them are totally unrelated to drug addicts, but rather come with the infrastructure necessary to run a massive illegal business.

That brings us to the second article. Someone who worked for a competing online black market called Atlantis, which had closed just a few weeks earlier, has written up a fascinating post mortem of Silk Road, in which he (or she) notes that we're about to see a lot of similar black markets now that the market leader has been cleared out by the feds.

As if there wasn’t enough suitors ready to rise to the challenge of being the next DPR, to make it easier there is already a functioning open-source project know as BitWasp which can simply be downloaded and installed on an onion web server and the next SilkRoad is (almost) ready to go. Below is a short description of the project from its facebook page where they make no secret of the fact the project aims to aid the development of future anonymous marketplaces flowing in the case of busts like just happened Silk Road.

“BitWasp Marketplace is a light weight, completely open source, anonymous bitcoin marketplace specifically built for use in conjunction with Tor or I2P via the hidden services such as .onion websites and eepsites (for I2P).

The goal of this project is to do the following:

1. Lower the barrier of entry and needed skill-set to operate a website like silkroad. This will increase the number of silkroad styled sites on the internet, and this increase will lead to a stronger pressure on governments to change their draconian drug law policies into something more practical and respecting of individual liberty.

Just like open source forum software revolutionized the ability for individuals to freely share ideas within niche communities, Bitwasp will revolutionize the ability for individuals to sell and buy materials and digital files within online communities.

2. Plans by the many, not by the few. This is essential because, as with nature, competition will select for the best, most secure, and most revolutionary marketplaces. Silkroad is great; but I suspect many minds working on many sites with various add-ons and extensions will lead to many better marketplaces in the long run.”

In other words, just like the court shutting down Napster over a decade ago resulted in a whole series of alternative file sharing networks, some that were much more underground and harder to stop, it seems likely that something similar is about to happen with black markets. In fact, the former Atlantis employee notes that the combination of Ulbricht's carelessness and the fact that it took nearly two and a half years to track him down likely means that others will rush into the space, believing they can do it "right" to protect themselves.

The closing of Silk Road and the arrest of Ulbricht is an interesting story, no doubt, but it seems like just the very first chapter in the world of black markets.

Filed Under: copycats, drug dealing, safety, security, shutdown
Companies: silk road

DOJ Hasn't Actually Found Silk Road Founder's Bitcoin Yet

from the they're-still-out-there dept

With the DOJ tracking down and arresting the alleged founder/owner of Silk Road, Ross Ulbricht, it was noted that it had also seized 26,000 or so Bitcoins. However, in the criminal complaint against Ulbricht, it suggested that his commissions were in the range of $80 million -- or about 600,000 Bitcoins. You might notice the disconnect between the 26,000 Bitcoins seized and the supposed 600,000 Ulbright made. It now comes out that those 26,000 Bitcoins aren't even Ulbricht's. Instead, they're actually from Silk Road's users. In other words, these were Bitcoins stored with user accounts on Silk Road. Ulbricht's actual wallet is separate from that, and was apparently encrypted, so it would appear that the FBI does not have them, nor does it have any way of getting at them just yet. And given that some courts have argued you can't be forced to give up your encryption, as it's a 5th Amendment violation, those Bitcoins could remain hidden -- though, I could see the court ordering him to pay the dollar equivalent in restitution (though still not sure that would force him to decrypt the Bitcoins).

The other amusing bit in all of this is that the FBI's Bitcoin wallet has been identified and renamed as "Silkroad Seized Coins" allowing users to send the FBI tiny amounts of Bitcoin with public messages attached, some of which are fairly amusing -- and many of which are critical of the government and the takedown of Silk Road. Personally, I like the one that reads: "This page shows how Bitcoin is more transparent than the US government."

Kash Hill, over at Forbes (the link above) who highlighted this story, also asked the FBI about what they're going to do with all that Bitcoin. Apparently, the plan is to hold onto it for now, and then "liquidate it" after any trial is concluded, though the FBI's spokesperson admits that "this is kind of new to us." Does that mean that someday soon folks will be able to buy some Bitcoin at a government auction?

Filed Under: bitcoin, bitcoin wallet, doj, fbi, ross ulbricht
Companies: silk road

Second Silk Road Indictment Details Ulbright's Attempt To Have Former Silk Road Employee Killed

from the breaking-bad dept

So a lot of attention has been paid to the criminal complaint filed in NY against Ross Ulbricht, the alleged creator and owner of Silk Road. One of the more fascinating parts is the supposed plan to hire a hit man to kill a Silk Road user who was trying to extort Ulbricht, threatening him with revealing a large list of Silk Road users. However, as Ken White pointed out, it seemed slightly odd that the complaint describes a the murder-for-hire, but doesn't charge Ulbricht with that murder-for-hire. Now, Parker Higgins alerts us to the news that there's a separate indictment against Ulbright, filed in Maryland for a different attempted contract killing, and it's pretty crazy too.

As you may recall, in the NY complaint (yes, the NY document that has been revealed is the complaint, while the Maryland one is the indictment -- and the two things are different), when Ulbricht allegedly tried to hire someone to do the contract killing on the guy trying to extort him, he complained that the quoted price ($150k to $300k) was "too high" because he'd done it before for only $80k. You might have assumed he was simply bluffing for the sake of negotiations, but, it sounds like (shockingly), Ulbricht was actually being honest. The Maryland indictment focuses almost exclusively on the attempt to pay $80,000 to have a former employee of Silk Road killed.

You should read the whole thing yourself (embedded below), but an undercover agent had reached out to Ulbright (after a few months of communication) seeking to move a large amount of drugs, and complaining that Silk Road buyers only wanted to buy small amounts. Ulbright helped connect the federal agent to a buyer, with the help of a Silk Road employee. The indictment is a bit confusing, but it appears that that same employee received the drugs (though it's unclear if that employee was also the "vendor" who acted as the buyer). Either way, soon after that, Ulbricht contacted the undercover agent, claiming (1) that the same employee had been arrested and (2) that the employee had stolen a bunch of money. He then asked the undercover agent for help in having the employee "beat up" and "then forced to send the bitcoins he stole back."

The next day, Ulbright upped the ante, asking instead of beating up the guy, to have him killed, saying he was worried that since he was arrested, the employee would provide info to law enforcement. From there, the undercover agent and Ulbright negotiated and settled on a deal and a plan for first torturing the employee to get him to give back the stolen money, and then to kill him. The following reports read like out of a movie script:

On or about January 31, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" communicated with the UC via the Internet, to further discuss the murder of the Employee, and asked about the "status" of the Employee and whether the assassins "can handle it." The UC replied that "they are pros" and that "as soon as 40 lands the guys will go out[.]"

On or about February 4, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" caused approximately $40,000 to be wired from Technocash Limited in Australia to a bank account at Capital One Bank in Washington, D.C., as payment for the murder of the Employee.

On or about February 5, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a communicated with the UC via the Internet, to discuss the murder of the Employee. ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" wrote that he wanted "proof of death," and instructed the UC to "ask for a video, if they can't do that, then pictures" of the Employee's death. ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" also stated that "they should probably just give him the note, let him use his computer to send the coins back, and then kill him[.]" ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR," further explained that "im more concerned about silencing him than getting that money and "considering his arrest, I have to assume he will sing."

On or about February 8, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" communicated with the UC via the Internet, to discuss the murder of the Employee. The UC stated that the assassins were in place, but waiting for the Employee to be alone because the Employee lived with a daughter and wife. The UC further advised that once the Employee was alone, "they will go in and torture him to get your money[.]" and "after that is done, then they get him out of the house and then take he somewhere where they can kill him[.]" ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" replied, "just let me know when it's done. [W]e are still a go."

On or about February 12, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" communicated with the UC via the Internet, to discuss the murder of the Employee. The UC stated that the Employee "is still alive but being tortured" for the stolen money, and that the assassins "are good; they should break him." ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" replied, that "shouldn't be hard[.]"

On or about February 16, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" communicated with the UC Via the Internet, to discuss the murder of the Employee. Via the Internet, the UC transmitted staged photographs of the Employee being tortured to ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR." After seeing the photographs, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" stated that he was "a little disturbed, but I'm ok," and that "I'm new to this kind of thing is all[.]" ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" added that "I don't think I've done the wrong thing[.]" and "I'm sure I will call on you again at some point, though I hope I won't have to[.]"

On or about February 19, 2013, the UC sent an email to ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" stating that "[the Employee] is dead[,] they killed him this weekend[,] don't have details yet, and I'm waiting for a photo[.]"

On or about February 21, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" communicated with the UC via the Internet, to discuss the murder of the Employee. The UC told ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" that the Employee "died of asphyxiation/heart rupture" while being tortured. Via the Internet, the UC transmitted a staged photograph that purported to depict the Employee's dead body. After receiving the photograph, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" stated that "I'm pissed I had to kill him but what's done is done[.]" and that "I just can't believe he was so stupid[,] . . . I just wish more people had some integrity[.]"

On or about February 28, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" communicated with the UC Via the Internet, to discuss the murder of the Employee. The UC told ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" that the Employee's body was completely destroyed to eliminate evidence and asked to make sure the second $40,000 payment for the murder of the Employee was sent.

On or about March 1, 2013, ROSS WILLIAM ULBRICHT, a/k/a "Dread Pirate Roberts," a/k/a "DPR" caused approximately $40,000 to be wired from Technocash Limited in Australia to a bank account at Capital One Bank in Washington, D.C. as payment for the murder of the Employee.

You have to imagine screenwriters in Hollywood are already busy at work turning this into a movie. That said, if the feds faked that employee's death all the way back in February, and then were able to keep it quiet all this time, it's fairly amazing how long they've been tracking Ulbricht -- and doubly amazing that he didn't leave the country (especially after Homeland Security officials showed up at his apartment in July).

Filed Under: murder-for-hire, ross ulbricht, silk road
Companies: silk road

FBI's Case Against Silk Road Boss Is A Fascinating Read

from the for-you-breaking-bad-junkies dept

It's been known for quite some time that the feds were desperately trying to hunt down the folks behind Silk Road, the somewhat infamous "dark web" e-commerce site, accessible only via Tor, which was famous mainly for selling drugs in a slightly anonymous fashion. Of course, when the news came out recently that the FBI had used malware to reveal Tor Browser users, many believed that this was part of an attempt to track down Silk Road, and that seems increasingly likely after the FBI announced this morning that it has arrested Silk Road's owner, Ross William Ulbricht, who went by the moniker "Dread Pirate Roberts" online. Turns out that Ulbricht was based in San Francisco and was arrested at the public library, of all places.

The case against him (pdf) is interesting, because beyond just going after him for helping to distribute illegal drugs, they claim that he solicited a Silk Road user in a murder-for-hire request (though he's not charged with that), to potentially go after a different Silk Road user who was threatening to reveal the identities of people on the site (the user claimed to have hacked a large vendor's account, and demanded $500,000 to not reveal names). They also go after him (of course) with a CFAA violation claim and a money laundering claim. Of course, we've seen the DOJ inflate and pile on charges against people in the past, so it will be worth watching to see what details come out of this -- but soliciting a murder, if true, seems like a fairly big deal.

In addition, the complaint against him claims that Silk Road generated 9.5 million Bitcoins in revenue, leading to 600,000 Bitcoins in commissions (or roughly $1.2 billion in sales and $79.8 million in commissions). Of course, that seems noticeably higher than previous research had suggested. It also notes that the FBI itself made over 100 purchases on Silk Road -- including ecstasy, cocaine, heroin, LSD and others. Apparently, they wanted a lot of evidence. And, in case you were wondering, the FBI informs us that their orders "have typically shown high purity levels of the drug the item was advertised to be on Silk Road."

While the details in the complaint seem pretty thorough, there are some tidbits that stand out as questionable. The complaint clearly states that Bitcoin and Tor are both legal and have legitimate purposes, but it also says that Silk Road's use of proxies to "hide the identities of those that run Silk Road... reflect his awareness of the illegal nature of the Silk Road enterprise." I don't quite see how wanting to be anonymous automatically suggests that you're engaged in illegal behavior. Later in the complaint, the FBI agent spends an awful lot of time talking about how Ulbricht was interested in the Mises Institute, the well-known libertarian think tank. I'm not sure what that has to do with anything. The FBI notes that Dread Pirate Roberts' defense of Silk Road included quoting Ludwig von Mises and Murray Rothbard (two economists closely associated with the Mises Institute), but lots of people follow the Mises Institute, so that seems like a stretch.

Another questionable tidbit: the FBI notes that Ulbricht posted a question to Stack Overflow using his real name, but "less than one minute later, Ulbricht changed his username at Stack Overflow from 'Ross Ulbricht' to 'frosty.'" and then the FBI agent noted "I know that criminals seeking to hide their identity online will often use pseudononymous usernames to conceal their identity." Later, after Ulbricht changes the email on the account to frosty@frosty.com -- an invalid email address -- the FBI agent similarly notes that "criminals seeking to hide their identity online will often use fictitious e-mail addresses." Well, yes, but the same is true of people with perfectly legitimate reasons to be anonymous, or those who don't want spam. While there does appear to be plenty of actual evidence, the use of these tidbits seems highly questionable.

The whole extortion/murder for hire story is a bit crazy. As noted above, one user contacted Dread Pirate Roberts, claiming to have hacked another vendor and obtained the details of users, which he'd release if not given $500,000 to pay off another drug supplier. Ulbricht asked the guy who was threatening him, a user who went by the name FriendlyChemist, to put him in touch with that supplier. After FriendlyChemist did so, Ulbricht used the opportunity to try to get that supplier to sell drugs via Silk Road. There was a further discussion, and when FriendlyChemist started getting anxious, the complaint says Ulbricht asked FriendlyChemist's supplier how much "would be an adequate amount" in order to "put a bounty on his head." After being quoted a price of $150,000 to $300,000 (rate dependent on "clean" or "not clean") Ulbricht allegedly complained that the price was high, and noted that he'd previously hired someone to kill someone for $80,000. They eventually agreed to a price of $150,000 (16710 Bitcoins), and Ulbricht was told that the job was done: "Your problem has been taken care of. . . . Rest easy though, because he won't be blackmailing anyone again. Ever." Apparently a photo was supplied. The FBI notes that while this supposedly happened in Canada, Canadian law enforcement says that it didn't happen.

The complaint also notes that Ulbricht has a LinkedIn page which includes a bit of a rant about "using economic theory as a means to abolish the use of coercion and aggression amongst mankind." It also notes "I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force." Not sure how one squares that with trying to hire someone to commit murder, but we'll let others debate that.

It appears that while Ulbricht was mostly careful to cover his tracks, he wasn't always that careful. The complaint notes that Silk Road was first advertised on different forums by a user named "altoid," in a manner that indicated altoid was connected with the site. Months later, altoid also posted elsewhere that he was looking to hire an "IT pro in the Bitcoin community" for "a venture backed Bitcoin startup company" -- but then told interested people to contact him at his actual gmail address: rossulbricht@gmail.com. And, voila, the FBI had a name. Also, later, when Homeland Security officials intercepted a package that contained a bunch of fake IDs for Ulbricht, they showed up at his home in July. While he generally refused to answer questions, he did tell them that "'hypothetically' anyone could go onto a website named 'Silk Road' on 'Tor' and purchase any drugs or fake identity documents...." There was also the above mentioned Stack Overflow account, which (briefly) used his real name and email address, which indicated that he was working on a Tor hidden service, and posted some code that (in a modified form) was also found on Silk Road.

All in all, there does seem to be a fairly compelling case built against Ulbricht based on this (though, again, we've seen in previous DOJ cases where things aren't always as they seem). At a first glance, they have a lot of evidence on him. However, some questions do remain. At the beginning of the post, we mentioned the whole thing where the FBI was using malware to identify Tor users... but, of course, that doesn't show up anywhere in the complaint. Instead, the big "breakthrough" was when a "random border search" by DHS turned up those fake identities intended for Ulbricht. However, as Parker Higgins notes, it seems like this could be a case of "parallel construction" whereby the hacking revealed those details, and DHS was then tipped off to check packages sent to Ulbricht, seeking to create "parallel construction" of evidence, in order to launder the fact that the FBI had hacked its way into identifying Tor users. After all, we'd just reported on how the FBI was actively trying to avoid revealing its hacking/malware powers to technologically sophisticated individuals.

Either way, we're sure that there will be plenty more news on this case.

Filed Under: bitcoin, cfaa, doj, fbi, murder for hire, ross ulbricht, silk road
Companies: silk road

Silk Road: Illicit Goods Plus Anonymity Equals... A Fairly Small Business

from the but-the-customers-are-happy dept

The anonymous marketplace Silk Road got some attention about a year ago when Gawker did a big expose on the site, which can only be accessed via the TOR network, and which requires Bitcoin for all purchases. That bit of publicity also resulted in Senator Chuck Schumer demanding something be done about the site, while also suggesting that Bitcoin itself was a form of money laundering. While there are a bunch of similar sites, the "publicity" has established Silk Road as the most well known such site.

Nicolas Christin, from Carnegie Mellon, recently released a fascinating research paper analyzing the Silk Road marketplace. Christin also recently appeared on Jerry Brito's Surprisingly Free podcast, which is where I first heard about the report.

There are a bunch of interesting things in the report itself, but a few key points that seemed especially interesting. The market is surprisingly stable. You might think with a very (but certainly not totally) anonymous marketplace, that seems to focus mostly on illegal products, using a really volatile currency, that the market itself would be pretty volatile as well. But the data does not suggest that at all. Also, you might expect a number of scammers to use the site, but (like plenty of regular online marketplaces), Silk Road has a rating system, and the research found that there was tremendous customer satisfaction:

On a site like Silk Road, where, as shown above, most of the goods sold are illicit, one would expect a certain amount of deception to occur. Indeed, a buyer choosing, for instance, to purchase heroin from an anonymous seller would have very little recourse if the goods promised are not delivered. Surprisingly, though, most transactions on Silk Road seem to generate excellent feedback from buyers. Table 3 provides a breakdown of the feedback ratings from 187,825 feedback instances we collected. 97.8% of feedback posted was positive (4 or 5 on a scale of 1 to 5). In contrast, only 1.4% of feedback was negative (1 or 2 on the same scale).

Also, it will come as little to no surprise that the vast majority of products for sale are not what most people would consider legal. Drugs seem to represent an overwhelming percentage of items for sale, though there are also things like "books" for sale. Finally, it doesn't appear that the "business" is really that big. For all the talk and publicity around it, you might think it was a decently sized operation, but there's little to support that. When Christin began his research back in November last year, there were only 220 sellers. By the time he finished in July, it was 564. So the number is growing, but it's still not a huge number. Christin also made some reasonable assumptions and estimates to suggest that approximately $1.9 million worth of transactions happened on Silk Road in a month. Translating the commissions, he believes that the site's operators likely brought in approximately $143,000 per month in commissions. At first glance that may sound like a lot but, assuming rather significant costs to operating and maintaining the site while keeping everything as secret as possible, there really isn't that much left for "staff," though no one has any idea how big a "team" there is involved in the operation. It's possible it's just one person, of course, in which case, the money is probably pretty good (and growing).

The report also notes various ways that such a site might be disrupted... and you have to imagine that law enforcement has been working on doing exactly that. It won't surprise me at all to find out that the operators of the site eventually do get tracked down, but I doubt that will stop these kinds of marketplaces from existing.

Filed Under: bitcoin, chuck schumer, tor
Companies: silk road