The Silk Road website which has been called an “eBay for drugs” was intended to permit any kind of anonymous transaction between buyers and sellers of illegal goods or activities.
Silk Road used bitcoin, an electronic currency untethered to any government, to help keep the deals secret, prosecutors said. In addition to the drugs, according to a federal complaint, Silk Road facilitated deals on computer hacking, forgeries, even hitmen.
Twelve months later, Nicolas Christin, the study’s author, said in an interview that a major increase in volume to “somewhere between $30 million and $45 million” would not surprise him.
Buyers and sellers conducted all transactions with bitcoins (BTC), a cryptocurrency that provides a certain degree of anonymity.
Silk Road held buyers’ bitcoins in escrow until the order had been received and a hedging mechanism allowed sellers to opt for the value of bitcoins held in escrow to be fixed to their value in US$ at the time of the sale to mitigate against Bitcoin’s volatility.
Any changes in the price of bitcoins during transit were covered by Dread Pirate Roberts.
The criminal complaint published when Ulbricht was arrested included information the FBI gained from a system image of the Silk Road server collected on 23 July 2013.
It noted that, “From February 6, 2011 to July 23, 2013 there were approximately 1,229,465 transactions completed on the site.”
The value of the transactions over this period were equivalent to “roughly $1.2 billion in revenue and $79.8 million in commissions” and involved 146,946 buyers and 3,877 vendors.
Silk Road had collected 9.5 million Bitcoin in revenue out of 11.75 million Bitcoin in circulation.
According to information users provided upon registering, 30 percent were from the United States, 27 percent chose to be “undeclared,” and beyond that, in descending order of prevalence: the United Kingdom, Australia, Germany, Canada, Sweden, France, Russia, Italy, and the Netherlands.
During the 60-day period from 24 May to 23 July, there were 1,217,218 messages sent over Silk Road’s private messaging system.
By relying on Bitcoin and an encrypted Internet network, Silk Road created an anonymous bazaar where drugs could be bought from the comfort of home. No more drives to seedy parts of town, no more face-to-face encounters with shady dealers. Instead, transactions would be conducted through the mail, and, in what many academics regard as the linchpin to the business-model innovation, Dread Pirate Roberts devised a system to ensure that nobody got fleeced.
The site acted as an intermediary, hosting the online market and holding money in escrow until buyers confirmed that products had arrived. D.P.R. would then release the payment to the seller, keeping 8 to 15 percent of the transaction.
“He had basically commoditized security,” says Nicolas Christin, an assistant research professor at Carnegie Mellon University who has studied Silk Road. “It was a system that allowed people to buy drugs without fear that they would be ripped off.”
Within months of its start in January 2011, the site was thriving. Sellers posted photographs and descriptions of their products, like “10 x 10mg OxyContin” and “5G Pure Cocaine Cristal.” A guide offered tips for newcomers. Vacuum-sealed packages were recommended for anyone mailing narcotics to avoid detection by “canine or electronic sniffers,” and post office boxes were urged for buyers. Reviews were posted, just like on eBay.
“Perfect stealth and perfect dope to match,” gushed a customer of a merchant known as “gotsitall,” who sold what was billed as high-quality heroin. “Got product in less than 24 hours! Thanks again.”
A small staff was hired to respond to users and settle disputes. These employees, none of whom knew the identity of Dread Pirate Roberts, were paid between $1,000 and $2,000 a week in Bitcoins.
Ross Ulbricht, alleged to have called himself Dread Pirate Roberts, was arrested by the Federal Bureau of Investigation in October and has been charged with a murder-for-hire scheme and narcotics-trafficking, acquired and protected the estimated millions he made in commissions operating Silk Road. The researchers say Silk Road, at the time of Mr. Ulbricht’s arrest, had sales of $1.2 billion, generating $80 million in commissions. A huge run-up in the value of bitcoin in the last month has exponentially increased those amounts.
How did Silk Road Work?
Making small talk with your pot dealer sucks. Buying cocaine, what if you could buy and sell drugs online like books or light bulbs? Now you can: Welcome to Silk Road.
Silk Road and Bitcoins was like black market eCommerce revolution.
U.S. Postal Service delivered an ordinary envelope to Mark’s door. Inside was a tiny plastic bag containing 10 tabs of LSD. “If you had opened it, unless you were looking for it, you wouldn’t have even noticed,” Mark told us in a phone interview.
Mark, a software developer, had ordered the 100 micrograms of acid through a listing on the online marketplace Silk Road. He found a seller with lots of good feedback who seemed to know what they were talking about, added the acid to his digital shopping cart and hit “check out.” He entered his address and paid the seller 50 Bitcoins — untraceable digital currency — worth around $150. Four days later, the drugs (sent from Canada) arrived at his house.
“It kind of felt like I was in the future,” Mark said.
Silk Road, a digital black market that sits just below most internet users’ purview, does resemble something from a cyberpunk novel. Through a combination of anonymity technology and a sophisticated user-feedback system, Silk Road made buying and selling illegal drugs as easy as buying used electronics and seemingly as safe. It’s Amazon if Amazon sold mind-altering chemicals.
Here is just a small selection of the 340 items available for purchase on Silk Road by anyone, right now: a gram of Afghani hash; 1/8 ounce of “sour 13″ weed; 14 grams of ecstasy; .1 gram tar heroin. A listing for “Avatar” LSD includes a picture of blotter paper with big blue faces from the James Cameron movie on it.
The sellers were located all over the world, a large portion from the United States and Canada.
But even Silk Road had limits: You won’t find any weapons-grade plutonium, for example. Its terms of service ban the sale of “anything who’s purpose is to harm or defraud, such as stolen credit cards, assassinations, and weapons of mass destruction.”
‘It’s Amazon — if Amazon sold mind-altering chemicals.’
Getting to Silk Road is tricky. The URL seems made to be forgotten. But don’t point your browser there yet. It’s only accessible through the anonymizing network, TOR, which requires a bit of technical skill to configure.
Once you were there, it was hard to believe that Silk Road isn’t simply a scam. Such brazenness is usually displayed only by those fake “online pharmacies” that dupe the dumb and flaccid. There’s no sly, Craigslist-style code names here. But while scammers do use the site, most of the listings are legit.
Mark’s acid worked as advertised. “It was quite enjoyable, to be honest,” he said. We spoke to one Connecticut engineer who enjoyed sampling some “silver haze” pot purchased off Silk Road. “It was legit,” he said. “It was better than anything I’ve seen.”
Edgarnumbers is selling these 2C-B “blue bees” tablets. Price: 1.15 bitcoins ($10) per tablet.
Silk Road cuts down on scams with a reputation-based trading system familiar to anyone who’s used Amazon or eBay. The user Bloomingcolor appears to be an especially trusted vendor, specializing in psychedelics.
One happy customer wrote on his profile: “Excellent quality. Packing, and communication. Arrived exactly as described.” They gave the transaction five points out of five.
“Our community is amazing,” Silk Road’s anonymous administrator, known on forums as “Silk Road,” told us in an e-mail. “They are generally bright, honest and fair people, very understanding, and willing to cooperate with each other.”
Sellers felt comfortable openly selling hard-core drugs because the real identities of those involved in Silk Road transactions are utterly obscured.
To ID Silk Road’s users with computer forensics, they’d have nowhere to look. TOR masks a user’s tracks on the site.
As for transactions, Silk Road doesn’t accept credit cards, PayPal or any other form of payment that can be traced or blocked. The only money good here is Bitcoins.
Bitcoins have been called a “crypto-currency,” the online equivalent of a brown paper bag of cash. Bitcoins are a peer-to-peer currency, not issued by banks or governments, but created and regulated by a network of other bitcoin holders’ computers. (The name “Bitcoin” is derived from the pioneering file-sharing technology Bittorrent.) They are purportedly untraceable and have been championed by cyberpunks, libertarians and anarchists who dream of a distributed digital economy outside the law, one where money flows across borders as free as bits.
If you wanted to purchase something on Silk Road, you needed first to buy some Bitcoins using a service like Mt. Gox Bitcoin Exchange. Then, create an account on Silk Road, you had to deposit some bitcoins, and start buying drugs.
One bitcoin worth about $8.67, though the exchange rate fluctuates wildly every day. Right now you could buy an 1/8 ounce of pot on Silk Road for 7.63 Bitcoins. That’s probably more than you would pay on the street, but most Silk Road users seem happy to pay a premium for convenience.
‘It kind of felt like I was in the future.’
Silk Road had represented the most complete implementation of the Bitcoin vision. Many of its users come from Bitcoin’s Utopian geek community and see Silk Road as more than just a place to buy drugs.
Silk Road’s administrator cites the anarcho-libertarian philosophy of Agorism. “The state is the primary source of violence, oppression, theft and all forms of coercion,” Silk Road wrote to us. “Stop funding the state with your tax dollars and direct your productive energies into the black market.”
Mark, the LSD buyer, had similar views. “I’m a libertarian anarchist and I believe that anything that’s not violent should not be criminalized,” he said.
1UP of Canada is offering 1/8 ounce of “the infamous Jack Herer.” He writes: “This is just classic stuff, well grown, well cured, well smoked.” Price: 7.42 bitcoins ($64)
Silk Road and Bitcoins was like black market eCommerce revolution.
However, the researchers added, they believe the F.B.I. has seized only about 22 percent of the commissions they have identified, and that they themselves have only been able to trace about a third of the total.
Ross Ulbricht was arrested Oct. 1 in San Francisco on charges that he ran the most “sophisticated and extensive criminal marketplace on the Internet” – a place where drug dealers and customers could make transactions beyond the eyes of law enforcement.
Ross Ulbricht is still battling the government for 144,336 bitcoins seized from his computers.