On Oct. 4, Forbes reported that the FBI has been attempting to gain access to the personal Bitcoin wallet of Ross Ulbricht, a.k.a. “Dread Pirate Roberts,” after he was arrested on Oct. 1 and Silk Road, the Internet drug marketplace he founded, was shut down on Oct. 2. Under civil forfeiture statutes, agents of the state are permitted to steal the proceeds of illegal actions.
A Bitcoin wallet is a digital file which contains encrypted information. The password, known as the “private key,” must be known in order to open the file and send the currency to another Bitcoin address. Ulbricht's wallet is believed to hold about 600,000 Bitcoins, worth roughly $72 million at current exchange rates. The total number of Bitcoins in existence as of this writing is only 11,767,950, making Ulbricht the owner of over 5% of all Bitcoins.
Austin Petersen describes the situation as follows: “The [FBI] is in a position equivalent to having seized a safe belonging to a suspect with no idea of the combination – and no hope of forcing it open any other way.”
Kashmir Hill of Forbes asked an FBI spokesperson what would become of the coins. She responded, “We will download the Bitcoin and store them. We will hold them until the judicial process is over. This is kind of new to us. We will probably just liquidate them.” This may or may not be possible, depending on two possibilities. If Ulbricht had given his wallet file and password to someone else, then the Bitcoins may already be out of the hands of the U.S. government. Failing this, it would be possible for a large number of Bitcoin users to agree to fork the blockchain and treat these 600,000 Bitcoins (as well as the 27,000 already stolen by the FBI) as though they do not exist.
Silk Road had been in operation since 2011, and had grown to a size of 957,000 users transacting a total of 9.5 million Bitcoins, the equivalent of over $1 billion. Ulbricht is alleged to have made more than $20,000 per day from running the site.