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The Effect of the Silk Road Shutdown on the Bitcoin

The Dread Pirate Roberts, owner of the Silk Road (the most brazen drug trafficking site in the world), was recently caught and forced to shut down his global scale drug operation, which relied on bitcoin as it’s choice currency because of the level of anonymity the cryptocurrency gives. But, has this left a positive effect on the bitcoin economy?

How the Dread Pirate Roberts was Caught

Before the Silk Road shut down, Dread Pirate Roberts raked in over $80 million, yet lived in a small apartment in San Francisco with roommates. He was a very mysterious man, but in the end seemed to be extremely un-cautious and was caught by the US government, revealed to be named Ross William Ulbricht.

On October 1st, 2013, Ulbricht went to the local library with a computer and was just able to log in when at 3:15pm he was captured by six to eight FBI agents who took him away and seized his laptop.

Ulbricht always thought that the Silk Road was about freedom and anonymity, so it was kind of ironic when he was caught. However, before he was caught, his business was quite successful, raking in $80 million in commissions off of an approximate $1.2 billion of purchases on the website, which translates to around 9.5 million bitcoins.

The US government had been watching the Silk Road for a while, but had been unable to track down the creator until recent investigations. Not too long ago, during a “routine border search,” Customs on the Canadian-US border found a package of nine counterfeit IDs, each with a different name, but the same picture of Ross Ulbricht. This package was addressed to his San Francisco address, making it almost too easy for the cops to catch him.

The Silk Road’s main web server was found in foreign country with a Mutual Legal Assistance Treaty with the US, and under the terms of that treaty, the government asked for an image of the server's hard drives, which was made on July 23 and then turned over to the FBI.

A few days later, a group of agents from Homeland Security were knocking on Ulbricht’s door. Ulbricht claimed that “Hypothetically,” anyone could visit a site named “Silk Road” on “Tor” and order any drugs or fake IDs they wanted, and that anyone could frame him like this.

On October 1st, 2013, the Silk Road met its demise. The feds arrested Ulbricht, seized the Silk Road domain name, and grabbed all the Bitcoins the site held. If the feds are right, however, Ulbricht was actually making rookie mistakes from the start, including shipping IDs to his own address, advertising the market when no one else knew about it, and talking about the Silk Road before anyone else. It didn’t take a rocket scientist to find him, just took a lot of solid detective work, and a search engine.

Effect of the Silk Road on Bitcoins

The Silk Road was the number one spot to buy drugs online. Although there are still smaller markets out there on Tor and even the regular web, they will never be as large as the Silk Road was before it met its doom.

The reason that the Silk Road shutting down could have a large effect on bitcoins lies in the fact that bitcoin was the only currency accepted on the Silk Road, so if a customer wanted to buy, he needed to get bitcoin. This could be from Mt. Gox, his friend, or a miner rig, but no matter what, the Silk Road increased the demand of bitcoin. People who have never used a cryptocurrency in their life were buying bitcoin just to use on the Silk Road, and it’s easy to think that the Silk Road really kickstarted bitcoin for your average joe, although it did give bitcoin a lot of bad media coverage.

“It’s a watershed moment for Bitcoin,” Marco Santori, the chairman of the regulatory-affairs committee of the Bitcoin Foundation, a nonprofit advocacy group, says. “Bitcoin’s P.R. problem, with which it has struggled for the last year or so, is being addressed in a very direct way.” Because Bitcoin doesn’t have a central authority, besides from the semi-authority of its author, there is no one to speak against the media claims of bitcoin’s only using being “for people to buy illegal drugs online or for nerds to share with each other for fun.”

In August of 2013, Marco Santori and other bitcoin enthusiasts met with high-level staffers from the F.D.I.C., the I.R.S., the Federal Reserve, the F.B.I., the Drug Enforcement Administration, and the Department of Homeland Security to assure the federal officials’ fears and doubts about Bitcoin’s nature and use were nothing to be afraid of.

“It’s estimated that Silk Road was responsible for a large amount of Bitcoin traffic, so the shutdown of Silk Road was similar to a stock crash in the Bitcoin space,” said Ashley Fulks, the president of Bitcoin Ventures, a Canadian company that has created a virtual-currency gift card. She relates the demise of the Silk Road to a stock market crash because a large demand for bitcoin has gone away now that drug junkies can no longer use it for buying illegal substances.

As a result of the Silk Road being killed, the worth of bitcoin has gone down. After its downfall, the price of bitcoin went from a solid $135 to around $75 on BTC-E, which was eventually bounced back up to $135 after people bought their share of cheap coins.

Conclusion

So, now that the Silk Road is closed, the future of bitcoin is foggy. Although there are still plenty of legitimate uses for cryptocurrencies, a large portion of the bitcoin demand has gone away, and the price of coins has dropped. It has been shown that there are still plenty of bitcoin enthusiasts who won’t stop using the coin because of the slow price re-increase, but what will happen next?

Bitcoin


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