On Oct. 2, U.S. law enforcement agencies shut down “Silk Road,” an anonymous Internet marketplace on the Tor encrypted network. They arrested its alleged owner, Ross William Ulbricht, 29, in San Francisco on Oct. 1, and seized 26,000 Bitcoins from him, the largest Bitcoin seizure in history. The Bitcoins had a market value at the time of $3.2 million.
According to the criminal complaint filed by the FBI against Ulbricht, also known as “Dread Pirate Roberts,” he is being charged with narcotics trafficking conspiracy, computer hacking conspiracy, and money laundering conspiracy. He is also accused of hiring a hitman to kill a problematic user of Silk Road known as “FriendlyChemist” who threatened to reveal the real identities of thousands of Silk Road users in March 2013. There is no record of the hit being carried out, however, so there is no charge of accessory to murder in the criminal complaint. (Interestingly enough, the terms of service for using Silk Road forbade the sale of murder-for-hire services.)
A key piece of evidence used to connect Ulbricht to his activities at Silk Road was a post he made at Stack Overflow, a help site for computer coders, in March 2012. He asked, “How can I connect a Tor hidden service using curl in php?,” while using his real name. He quickly changed his username, but the damage had been done. According to the complaint, “Based on forensic analysis of the Silk Road Web Server, I know that the computer code...includes a customized PHP strip based on 'curl' that is functionally very similar to the computer code described in Ulbricht's posting on Stack Overflow, and includes several lines of code that are identical to lines of code quoted in the posting.”
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.
Bitcoin markets dropped sharply in reaction to the news. On BTC-e, the exchange rate between Bitcoins and USD dropped from 124 to a low of 75 in a period of two hours, and on MtGox, the exchange rate dropped from 139 to a low of 110 in the same period of time. The exchange rates have come up significantly from their lows as of this writing, but have not returned to their former levels.