The alleged operator of the Bitcoin-based online marketplace Silk Road was arrested in San Francisco yesterday on money-laundering and narcotics-trafficking charges. You can see a copy of the complaint against Ross W. Ulbricht here, and the allegations make for “Whoah!” reading.
They go way, way beyond what you might guess. In addition to the predictable charges above, there’s an allegation of a murder-for-hire plot. No, scratch that. The FBI says there wasn’t just a plot, but an actual murder. The complaint alleges that Ulbricht paid to kill a blackmailer who claimed to have an extensive list of Silk Road sellers and buyers. That, believe it or not, isn’t part of the criminal charges, because (a) the murder would have been committed in Canada and (b) Canadian authorities don’t seem to have a record of the victim.
Whether or not there turns out to have been a murder, the part about blackmail is central to any broader discussion of Bitcoin or other virtual currencies. Think about it for a second. The accusation that someone was able to get a list of Bitcoin users at all undermines Bitcoin’s very reason for existence. It highlights how using an ostensibly untraceable currency makes for a lovely invitation to blackmailers.
And to governments. Anyone who imagines that Bitcoin is somehow a refuge from government surveillance has to get a chill reading that in a space of about five and a half months there were “146,946 unique buyer accounts and 3,877 unique seller accounts.” Identify some of those seller accounts and guess what — you’re well on your way to identifying the buyer accounts.
Some excellent work from Forbes, detailed in “How We Got Busted Buying Drugs on Silk Road’s Black Market,” gives you a pretty good idea of where this leads. When Forbes asked researcher Sarah Meiklejohn whether the Silk Road transactions could be tracked, she was not only able to link the Forbes account to the Silk Road marketplace, but also to create a list of every transaction Forbes made. It’s almost as if having your credit card number let someone know everyone you’ve done business with.
I’ve written skeptically about Bitcoin before, but as with all bubbles a key question is just what will make it burst. U.S. seizures of accounts belonging to Mt. Gox, the best-known Bitcoin marketplace, don’t seem to have ended it. Frankly, though, it’s hard to be sure of just what’s going on with Mt. Gox, which has repeatedly halted U.S. dollar withdrawals, and where prices have inexplicably sat above other Bitcoin markets. On Bitstamp, another Bitcoin exchange, prices plummeted after news of the arrest came out. (As this post was being written, they’ve recovered somewhat; trying to guess the reasons for those gyrations is as pointless as trying to predict the ripples a flat stone will make in the stream.)
Some folks might argue that Silk Road is not the only use of Bitcoin. Fine. But exactly what would you want to use Bitcoins for? Other than speculating in Bitcoins?
A quick summary is worthwhile here. Bitcoin invites scrutiny from authorities. It lets third parties gather public data to trace the parties you do business with. It is subject to an unreliable market that doesn’t seem to set consistent or reliable values. The only point left in its defense might be that you don’t like central banks or national currency. If so, for those left holding a bunch of Bitcoins, this can turn out to be a very expensive protest.