Unstructured Finance

Breaking bad, the Bitcoin addition

October 2, 2013

It wasn’t too long ago that Ross William Ulbricht was writing his master’s thesis for a degree in chemical engineering. Now the 29-year-old San Franciscan is looking at spending many years in jail after being arrested by federal authorities on a variety of drug trafficking charges.

The purported founder of Silk Road, the notorious drug trafficking website, was arrested Tuesday by the FBI and appeared in a San Francisco federal court on Wednesday.  A bail hearing was set for Friday. Silk Road, an online marketplace where more than 900,000 registered users bought and sold everything from cocaine to heroin to molly (aka the new ecstasy craze) was shut down after roughly three years in operation.

Reuters reporter Emily Flitter spoke to Ulbricht’s parents in Austin, Texas, and the couple not suprisingly seemed shocked by the allegations against their son. Said Ulbricht’s mother, Lyn Lacava: “I know he never meant to hurt anyone.”

How Ulbricht made the transition from a Penn State student with a masters in material science to the alleged mastermind behind a platform for international drug trafficking isn’t clear. Presumably that story will come out as the case against Ulbricht winds it way through the courts.

But the Silk Road story isn’t a totally a new one.

In media reports the past year about the growing popularity of Bitcoin with the Silicon Valley set, Silk Road often emerged as the darker side of digital currencies and websites that permit customers to conduct business in anonymity. Users of Silk Road could only make payments in bitcoin and hid behind pseudonyms, all part of the design to conceal their identities. Ulbricht’s alias was Dread Pirate Roberts which he simply shortened overtime to DPR.

Federal authorities allege that during its brief history, Silk Road generated $1.2 billion in sales or 9.5 million in bitcoins.

This year the Feds, often working in tandem with law enforcement authorities from around the globe, have begun cracking down on websites that allowl customers to engage in illegal activity and use digital currencies like bitcoin to make payments. In May, federal authorities moved against Liberty Reserve, a digital currency exchange that used its own self-branded electronic money. Authorities claimed in that action, that Liberty Reserve helping criminals around the world launder more than $6 billion in illicit funds linked to everything from child pornography to software for hacking into banks.

It’s not known just how many Liberty Reserves or Silk Roads are out there, but expect the crackdown to continue. Also expect for cyber criminals and drug traffickers to keep migrating to new places to conduct business once another is shut down.

Here is the criminal complaint laying out the government’s case against Ulbricht and Silk Road.


UlbrichtCriminalComplaint (Text)

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