Silk Road Market
The Silk Road market, named after the legendary ancient trade route between the Eastern and Western hemispheres, represented the first major Bitcoin market with significant privacy and anti-censorship guarantees. The market was created by the Dread Pirate Roberts, or DPR, also known as Ross Ulbricht in February of 2011 after six months of development. The Tor anonymity service and Bitcoin were used exclusively in order to provide the highest degree of privacy possible.
The Open Market
Ross Ulbricht originally conceived the service as a way to promote his ideological views of free trade and free expression, his nom de plume inspired by a protagonist in the film The Princess Bride who operated outside of the law and whose identity was a fluid construct.
The service quickly found a great degree of traction, with controlled substances taking the lions share of all transactions. To profit from the site and promote high quality vendors, the right to advertise sales was restricted to a limited slots, sold at auction determine settlement. As the site grew, merchant slot pricing adjusted to a fixed amount.
Popular items on the Silk Road were all manner of controlled substances, as well as independently constructed identification cards. Less popular but still present were books, artistic works, creative services, and clothing. Laissez faire did not reign unchecked: trade in items judged to be potentially harmful to others such as immoral pornography, identity theft assistance, contracts for violence, and weapons were barred from the service.
To facilitate trusted trade, the service featured site escrow, user reviews and a popular discussion forum where a wide variety of topics were discussed. The service at times struggled to stay operational in the face of denial of service attacks, and Bitcoin's extreme volatility carried risks to merchants forced to protect their profits against wild swings in currency exchange rates. The Silk Road staff fought against these issues by providing hedged exchange rates for merchants and improving their software to protect against service attacks, but at times simply resorting to paying off denial of service attackers.
Most Silk Road exchanges used standard post office deliveries to deliver their products. Loose restrictions on mail identification requirements meant that vendors could easily send a package to thousands of customers without revealing their identity. Despite the relative privacy for vendors, mail intercepts and tracking were used a number of times to make arrests, both through cross referencing frequent package senders and through controlled substance detections combined with delivery sting operations.
Rise and Fall
In June of 2011, the popular website Gawker featured the service in an exposé on the relative ease in purchasing controlled substances the service provided. This story represented and fed the rising prominence of both Bitcoin and the growing Silk Road service.
In the following years, the profile of the site and its founder DPR, soared along with Bitcoin, to a crescendo of activity. DPR devoted great efforts to laying out his ideological mission for the service, and interested reporters clamored to interview and publish his dramatic credos. DPR espoused the philosophy of the Agora, a societal organization based on voluntary cooperation and peaceful coexistence. His service as he saw it was a representation of this ideal, a peaceful rejection of the forceful and arbitrary rule of government.
Along with the attention of the press, came the attention of the U.S. regulatory apparatus. Shortly after the Gawker article brought a spotlight to the Silk Road in the press, Democratic New York Senator Chuck Schumer started a campaign to disrupt and end the service's operation. The eye of the U.S. Justice system turned on the service, and the FBI eventually gained control of the Silk Road server files in July of 2013. The server location is unknown, but Iceland, Latvia, and Romania have been suggested as likely locations for the hosting provider.
Using the server information, the FBI began to narrow down its search for DPR, who preserved his privacy through a operational security practice of only using Tor to administrate the site. Finding DPR proved tricky, but others on the administration staff failed to protect their identities, and the FBI assumed their personas to assist in their ongoing investigation. Eventually, the FBI narrowed down their search to the San Francisco resident Ross Ulbricht. Ulbricht lived modestly in a shared apartment, no evidence as to his vast dark-net market wealth apparent, however the FBI's research strongly pointed to his identity as DPR.
FBI agents shadowed Ulbricht and found his routine of traveling to the San Francisco public library to use his laptop to communicate with other service administrators. To catch him in the act and prevent his automatic encryption of files through locking his computer, in October of 2013 the FBI arranged through their turned asset to lure Ross Ulbricht into the public library by contriving a matter to discuss regarding site administration. When he arrived, opened his laptop, and connected with the FBI asset, agents standing by violently pounced and brought him to the ground before he could protect the privacy of his computer.
The wheels of the U.S. legal system then moved swiftly. FBI agents secured over one hundred and seventy thousand bitcoins from the site and Ulbricht's possession, worth about thirty two million dollars. Federal prosecutors would later exhibit data showing fifteen million dollars in yearly revenue for Silk Road merchants. FBI testified to over one million transactions conducted through the service.
In June of 2014 the U.S. Marshals Service, who had taken control of the seized Bitcoins, decided to auction off a large swath of coins taken directly from Silk Road servers. The auction totaling almost thirty thousand bitcoins, worth around eighteen million dollars, was won entirely by a single bidder for their use in a Bitcoin startup by venture capitalist Tim Draper.
In February of 2015 Ross Ulbricht stood convicted in a New York federal court on charged of violating money service regulations, as well as controlled substance regulations. The judge, given a range of sentencing options from thirty years to life in prison, chose the most severe option: life in prison without the possibility of parole, the next most severe sentence after the death penalty. Ulbricht never admitted to operating the service for its duration, he claimed he merely started the project and left it in the hands of Mt. Gox operator Mark Karpelès. The government's case rested on documentation they claimed originated from Ulbricht's personal files: a dated diary of administrating the service and chat logs from its operation. Ulbricht's legal defense had disputed this evidence, contending it was in fact planted by FBI agents acting beyond the law.
In March of 2015, two federal agents from the Silk Road investigation were arrested. DEA agent Carl Mark Force IV and Secret Service agent Shaun Bridges both stood accused of diverting funds from the Silk Road to their personal possession. Carl Force pled guilty and received a six and a half year sentence. Bridges also pled guilty, receiving a six year sentence. Although clear evidence of government wrongdoing was shown in these cases, no opportunity was afforded to Ulbricht to address the impact of these abuses on his case in court.
The U.S. continued its campaign against the Silk Road administration, hunting down additional operational staff from documents seized from Ulbricht's computer. One instrumental staff member, Variety Jones, was claimed to be Canadian expatriate Thomas Clark. In December of 2015, Thomas was arrested in Thailand on charges of assisting in the Silk Road project.
Merchants were also targeted. In March of 2015 Silk Road merchant Nod, identified as U.S. citizen and Washington state resident Steven Sadler, pled guilty to violating controlled substances and was sentenced to five years in prison. In May of 2015 Silk Road merchant SuperTrips, identified as Dutch citizen Cornelis Jan Slomp, pled guilty to violating controlled substance regulations and was sentenced in a U.S. Federal Chicago court to ten years in prison.