Bitcoin and Silk Road, from 2015
He was contrite at his sentencing, though not before. The lank 20-vear-old whom federal agents dragged stone-faced out of a public library in San Francisco on the first of October, 2013, was inwardly all defiance, bursting with delusions of grandeur. A revolutionary, he believed he was changing the world. By May 2015, how-ever, facing decades of prison time, Ross Ulbricht had come to believe that his utopian project – “a website”, as he wrote in his journal, “where people could buy anything anonymously, with no trail whatsoever that could lead back to them” – was a naive and costly idea. It had ruined his life and destroyed his future. But first it had made him a multimillionaire, a technology pioneer and a living legend of drug culture.
For most of his life, Ulbricht was nobody’s idea of a criminal mastermind. He grew up in Austin, Texas, an idealistic Eagle Scout and bright student who loved draw-ing, skateboarding and surfing. Rule breaking came naturally. But despite heavy drug use in high school, he managed to land multiple merit scholarships as a physics major at the University of Texas, Dallas. He cut an odd figure on campus – a sort of hippie athlete with a bright scientific mind. He had a swimmer’s build, strong legs and shoulders and a fondness for climbing trees. When outside, he went around barefoot; half the time he didn’t wear shoes in class, either. Nevertheless, he soon established himself as one of the smartest guys in the pro-gramme. He seemed to have a bright future as a research scientist. In one instance, he was the lead author on a paper showing a technique to double photocurrent and significantly increase solar cell efficiency. Classmates remember his devouring intellect. He was interested in everything.
It was in graduate school that a shift took place in the geometry of his vision. Even while doing research in materials science at Pennsylvania State University, whose programme was ranked eighth in the nation, he was educating himself in monetary theory, economics and political philosophy. (In these studies he was walking in the footsteps of distinguished, albeit fictional, men. A dual education in physics and philosophy is the approach Ayn Rand prescribed for her heroes in Atlas Shrugged.)
Ulbricht had been a seeker his whole adult life, had been searching – through drugs, through science, through Eastern philosophy – for a unified theory of human action, a guiding principle for his life. The effect upon him of exposure to the ideals of classical liberalism was incalculable.
Ulbricht began to dream of a world in which every man and woman is a kind of unflagged vessel in international waters, sailing where they please, answering to no external authority. His love for science was gradually supplanted by a growing attraction to commerce. And so, back in Austin after earning his master’s degree, having abandoned his plan to seek a doctorate, he taught himself to code and set about creating an unregulated online marketplace called Silk Road. He tucked it away in a hidden part of the Internet, the dark web, making it accessible only through special software that masked users’ identities. Eventually, to interact with Silk Road users, he adopted the name Dread Pirate Roberts, taken from The Princess Bride. Eighteenth-century pirates had New Providence in the Bahamas for a home base; Ross Ulbricht would have a rogue nation of his own.
Silk Road opened its doors in January 2011. To get things started, Ulbricht cultivated psilocybin mushrooms and sold them to the site’s first customers. His marketplace, which incorporated all the familiar features of online retail, from star ratings to customer reviews, was a sensation practically overnight. By the time Ulbricht’s 10 pounds of shrooms were gone, other vendors had set up shop. Soon there was a full-fledged community of users, buying and selling heroin, cocaine, methamphetamines, marijuana and other controlled substances with the casualness and, usually, the confidence of shoppers on eBay and Amazon. It was a drug operation run like a tech company, complete with engineers and administrators. By October it was clear, as Monica Barrett, a professor at the National Drug Research Institute of Cur-tin University in Australia, wrote in the academic journal Addiction, that Silk Road had “revolutionized how the Internet can be used to source drugs.”
What made the market possible – and so made it possible for a handsome, bighearted young Texan, a “softy” by his own admission, to lead an international narcotics organisation – was Bitcoin, a kind of hard-to-trace digital cash with a built-in, peer-to-peer payment network, allowing it to be sent anywhere in the world. over the Internet, without involving banks or credit card companies. A public ledger maintains an accurate record of all transactions without revealing anyone’s identity. Bitcoin was the only form of money accepted on Silk Road; as a result, Ross Ulbricht may be the second-most important figure in Bitcoin’s history after Satoshi Nakamoto, the digital currency’s pseudonymous creator.
For two years after their invention, bitcoins were practically worthless, viewed as Internet funny money by all but the most diehard crypto-geeks and anti-establish-ment types. Early on, Bitcoin services were few and far between, and few merchants accepted digital currency as payment, making it a poor competitor to banking services and credit card companies. It was like an automobile in the days of horseback travel. Just as the first cars in many ways couldn’t compete with horses – having, as yet, no system of highways, petrol stations or auto mechanics to support them – so Bitcoin at first was hard-pressed to demonstrate its superiority over cash, credit cards, wire transfers and PayPal.
But in the black market – by definition underserved by traditional finance – Bitcoin could gain a foothold, even thrive. Silk Road opened the floodgates to broad acceptance of digital currency in black market com-merce. And as customers began flocking to Silk Road, their need for bitcoins drove up the market price. Price charts for the only existing Bitcoin exchange at the time show a dramatic correlation: on January 28, the day before Ulbricht announced Silk Road to the Bitcoin community, the price stood at $0.43; by January 31 it had spiked to more than twice that, and on February 9 it broke one dollar, a sustained and unprecedented rise that lasted for days. After April 16, the price never again fell below a dollar. Ulbricht was smart enough to know that from this illicit foundation digital currency could one day prove its value in the wider world.
He didn’t have long to wait. Other people, seeing how well Bitcoin worked, began to take an interest. The savviest among them realised it’s a triple threat to established markets, functioning as a store of value, like precious metal; as a method of online payment, like credit cards or Day-Pal and as a global transaction network, like Western Union or MoneyGram – but with much lower fees. Soon there were Bitcoin exchanges all over the world. People were calling it digital gold, talking about its potential utility in poorer countries, how it could help the 2.5 billion people on the planet who have no bank account.
By the fall of 2013, when Ulbricht was arrested – the result of a massive and sustained investigation by an alphabet soup of federal agencies – Bitcoin had become the payment method of choice in the underground economy. Silk Road had nearly one million registered users and a fortune in digital currency had passed through it.
Copycat markets had sprung up. Thousands oflegitimate businesses were accepting it, too, and only days before Ulbricht’s arrest a New York brokerage firm had opened a private Bitcoin fund for mainstream investors. Within weeks, the price of a single bitcoin soared above $1,100. The price bubble eventually popped, but even so, the crypto-anarchist strain in the Bitcoin community was gradually giving way to more conventional wisdom. The ‘Nap-ster of meth’ was no longer needed in order for Bitcoin to proliferate.
Like sons rejecting a Mafioso father, lat-ter-day Bitcoin advocates have often sought to distance themselves from Ross Ulbricht and his notorious website. But in this willful distancing lies an implicit debt. Bitcoin entrepreneurs today build atop the success of Silk Road. And yet the perception is that Ross Ulbricht’s arrest was a watershed for Bitcoin, the signal event dividing digital currency’s murky past from its bright and beckoning future.
It’s a future being financed by Silicon Valley venture capitalists and billionaire angel investors, like Richard Branson, to the tune of more than $83o million. Branson himself has invested in at least two major Bitcoin startups – a merchant payment processor called BitPay, and the world’s most popular Bitcoin wallet provider, Blockchain, whose headquarters is now in London – and both companies have raised more than $30 million apiece. Consequently, it’s a future in which Wall Street may play a greater role than any of the early pioneers. Goldman Sachs and the New York Stock Exchange both invested in Bitcoin startups this year.
Barclays has signed a deal with a Bitcoin exchange in Sweden to explore how it could use Bitcoin technology for traditional banking processes. Nasdaq, for its part, is experimenting with it as a means of automating transactions on its market for stock in private companies. A report co-authored by Santander this past June estimated that the technology could reduce banks’ infrastructure costs by up to $2o billion a year by providing near-instantaneous clearing and settlement of irreversible transactions (and a tamper-proof historical record of them), while eliminating the need for central authorities.
Bitcoin, if it endures, may change beyond recognition, mutating to serve purposes even its creator could not have foreseen. We have gone in a few short years from US senators condemning Silk Road and digital currency to a presidential candidate, Rand Paul – the son of the man whom Ross Ulbricht heard speak at Penn State and whose campaign T-shirt he regularly wore to class – accepting Bitcoin donations in his run for office. It has been discussed positively by public figures as different as Bill Gates and Ben Bernanke, and it’s being treated as a haven asset amid the Greek-debt crisis. Ulbricht made this possible, in the same way that Neil Armstrong was able to set foot on the moon because a German scientist named Wernher von Braun first developed rockets for the Nazis.
None of these developments, however, stopped a federal judge this past May from sentencing Ulbricht to life in prison. It was a sentence beyond even the prosecution’s request. Evidently unwilling to see him as a misguided idealist or a tech entrepreneur, she treated him only as a digital drug lord.
As yet, Ross Ulbricht has no narcocorrido – a Mexican folk ballad immortalising legends of the drug trade – but long before his trial he was already a folk hero to thousands of people, members of a generation shaped by economic collapse and WikiLeaks, by drone warfare and the surveillance state.
A powder keg of a generation. And Dread Pirate Roberts does have a song, if not a true narcocorrido. A YouTube performer who wears a Guy Fawkes mask, hiding his iden-tity, recorded a pop lament called ‘End of Silk Road’, sung to the tune of Boyz II Men’s ‘End of the Road’:
When I can’t sleep at night
‘Cause my screen glows so bright
I just wanna buy
All these drugs on your site
Last November, the feds graduated from taking down Silk Road to taking on the dark web itself. A massive blitzkrieg action, coordinated between law enforcement agencies worldwide, resulted in the closure of 414 websites, 17 arrests across as many countries and the seizure of more than a million dollars worth of bitcoins as well as large amounts of cash and drugs.
The fallout continues: a 29-year-old Welshman pleaded guilty in June to possessing and selling drugs on Silk Road 2.0, an exact replica of the site that succeeded the original within weeks of its takedown. And despite Operation Onymous, as the November enforcement action was called, which brought down Silk Road 2.0 and arrested its chief administrator – who, like Ulbricht, had been living in San Francisco – dozens of illicit marketplaces are still operating on the dark web.
For law enforcement, they represent a new front in a forever war. But they make up a smaller and smaller part of the Bitcoin community’s consciousness. The headlines are a reminder mainly of Bitcoin’s early days – and of the fact that it is often the outlaws who move society forward.
The story of Bitcoin began not in the unobjectionable light of day but in the shad-ows, among cryptographers, hackers, Free Staters, ex-cons and drug dealers, teenage futurists and entrepreneurs, heterodox thinkers all, dissenters from consensual reality, grudge-holders against big government and big banks, people committed to stoking the fires of creative destruc-tion: Hephaestus fires – able to melt down and forge anew. It is because of them that any of us have heard the word Bitcoin. For a long time, Bitcoin was their world. We’ve just moved into it.