Bringing Down the Bitcoin Bandits

By Carl Weiss

Courtesy of Flickr

For more than a thousand years, the route known as the Silk Road was the major source of trade that connected East and West.  Delivering everything from Chinese silk to spices and precious gems, this trade route used everything from camels to wooden boats to create a web of commerce that covered the known world.  Two millennia later, this concept was reborn online in a web portal of the same name.  The chief difference is that while the digital Silk Road did indeed concern itself with connecting a worldwide web of virtual traders, these entrepreneurs did not deal in frankincense and myrrh, but in a cornucopia of contraband that openly advertised everything from cannabis to cocaine and firearms to forgeries.

Allegedly operated by a 29-year old Texan, Ross Ulbricht, who went by the moniker Dread Pirate Roberts, this eBay of the underworld, plied its trade more or less in the open for some two years until the illicit empire came crashing down after the FBI arrested him on October 1 in San Francisco.   Busted in of all places a public library, the arrest was the culmination of a cyber-sleuthing operation that had taken more than a year and involved the FBI, the ATF, and US Customs.  At his arraignment, Ulbricht was charged with drug trafficking, money laundering and attempted murder.

By the following day, news of the arrest was making headlines around the world.  By Thursday of the same week, the infamous website had been shut down and a notice was posted by the authorities that notified any interested party that the site had been seized by the Feds.  Also confiscated was a digital wallet that contained thousands of Bitcoins reportedly worth more than four million dollars. During the height of the illegal enterprise, Ulbricht allegedly racked up commissions of $20,000 per day totaling more than $80 million according to authorities.  During the two years that the site operated, it was reported that nearly one million anonymous customers conducted some $1.2 billion in sales through the portal.

What was not surprising was that it was possible to conduct the sale of contraband online.  What was surprising was the sheer volume of the operation, combined with a level of sophistication that made it very hard for the authorities to follow either the customers of Silk Road or the money that traded hands.  (In fact, all transactions made on the site were conducted using Bitcoins, a so-called crypto currency that uses encryption to control transactions.)

The bitcoin logo (Photo credit: Wikipedia)

What was also surprising were the lengths to which the operator of Silk Road was allegedly prepared to go to keep the business viable. According to an article in the Guardian, “FBI indictments claimed Ulbricht had ordered two hits against people whom he thought might expose his clients, one against an "employee" of Silk Road in January 2013 and then against someone, who was in fact an undercover agent, threatening to leak the names of his clientele. In the first hit, police say Ulbricht offered $40,000 for the job, and asked for "proof of death" in the form of a video.”

Also surprised were two of the men who had rented a room in their San Francisco home to Ulbricht.  He had answered a Craigslist ad and identified himself to the other two tenants as Josh, a Texas man who had just moved back to the states from Sydney, Australia.  For a man who was purportedly raking in $20,000 per day, Ulbricht apparently spent very little since his rent was only $1,250 per month and according to his housemates, he almost never went out and made it a habit to eat in.

In fact, many people who read the headlines in the San Francisco Examiner were shocked that Ulbricht had chosen to live and operate in the open. Stranger still was the fact that while he had been running Silk Road he had even granted interviews to journalists.

Quote from the Guardian: "When you start giving interviews like the CEO of an established company, it's just wrong," says Pavel Durov, another 29-year-old technologist who recently visited San Francisco and had been following the story of the Dread Pirate.”

Indeed, the 29-year old Texan acted as though he was CEO of a Silicon Valley startup, rather than one of America’s Most Wanted.  Had he been running his far flung online enterprise from say Rio de Janeiro it would have made prosecution that much more difficult. 

This in itself is an irony of monumental scope, considering the fact that every transaction made on Silk Road was so closely guarded.  Using the same technology created by the Department of Defense to hide military communications, Silk Road was able to transmit information using a computer network called TOR. (The Onion Router)  TOR’s job was to encrypt and transmit data using a number of different servers.  This would make it not only exceedingly difficult to collect and decrypt the entire message, but it would also make it nearly impossible to track the identity and location of the network’s users.  Indeed, this was Silk Road’s unique selling proposition.  They routinely told prospective clients that no matter what they promoted on the site that neither their activities nor their identities could be traced by law enforcement.

While the FBI did not reveal their tactics on how they were able to not only identify the server locations, much less mirror Silk Road’s content in order to zero in on the bad guys, this much is certain.  In the end, the Feds used the same kind of underhanded tactics that supported the network in order to bring it down.

Of course, it also didn’t hurt that the FBI had put the strong arm on Ulbricht’s right hand man, Curtis Clark Green, who recently confessed to being a member of Silk Road.  Green was also one of the people on whom Ulbricht reportedly put out a contract.  Court documents filed against Ulbricht allege that he had become aware of an employee’s contact with federal agents and had offered $80,000 to have the employee killed.  While Green’s name was not revealed in the complaint, it is implied, since Ulbricht is currently being held at the Metropolitan Detention Center in Brooklyn, while Green was conditionally released.

The real tragedy was not that it took federal agents more than a year to shut down one of the most brazen criminal enterprises to ever hit the Internet.  The real tragedy is that less than one month after Silk Road went dark it is back in business, according to cnn.money.com

“Silk Road 2.0 emerged Wednesday alongside a number of other sites offering similar services. The new Silk Road, like the original, offers everything from prescription medication to heroin. The new Silk Road owner also took on the pseudonym of former leader Ross Ulbricht, Dread Pirate Roberts.  According to one former Silk Road user, the site was rebuilt by most of the major players who were heavily involved in day-to-day operations of the former site.”

Just like any number of other online portals, as long as there is a marketplace of willing buyers and sellers, there will always be those who are ready, willing and able to set up a venue to facilitate them.  Aside from Silk Road 2.0 there are other sites looking to fill the vacuum, including such portals as Black-market Reloaded and Sheep Marketplace.  (Quoted from cnn.money.com)

While the Feds were able to put this particular online operator of black market goods out of operation, the question is whether the act killed the snake, or simply cut it into a many-headed hydra that will come back to life bigger and badder than the original? Only time will tell.

  

In this article I have discusses how one man, Ross Ulbright was able to run an underworld website that allowed him to amass millions of dollars by providing the underworld with a means to buy and sell any illicit contraband he deemed fit to sell. This article covers all the twists and turns on how he used bitcoins to conceal the trafficking and how the FBI eventually captured him in San Francisco. If you liked this article, pass it along to your friends. If you have, a comment or other ideas leave them in the comment section. If you want to contact me, my contact information is listed below.  

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Thanks for sharing your time with me.

Since 1995, Carl Weiss has been helping clients succeed online.  He owns and operates several online marketing businesses, including Working the Web to Win and Jacksonville Video Production. He also co-hosts the weekly radio show, "Working the Web to Win," every Tuesday at 4 p.m. Eastern on BlogTalkRadio.com.

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