By Nicholas Bostick
Managing Editor
The realm of pirates and smugglers has found a new place to hide. Two anonymity-centered computer applications, designed to protect, have inadvertently opened the gates to a pirate’s cove of illegal activity on the Internet. And a man with local ties was allegedly pulling the strings.
University of Texas at Dallas physics graduate Ross Ulbricht was arrested Oct. 1 for his alleged connection to the website Silk Road and the online handle (DPR) “Dread Pirate Roberts.”
Silk Road was created in 2011 by an unknown person, or persons, as an anonymous online marketplace. Users could buy or sell anything using Bitcoins, an “anonymous, decentralized form of electronic currency, existing entirely on the Internet,” according to the FBI’s criminal complaint against Ulbricht. Bitcoins were introduced in 2009 as an “electronic cash system that’s fully peer-to-peer, with no trusted third party,” according to a paper published by Bitcoin creator Satoshi Nakamoto in 2008.
The FBI confiscated 26,000 Bitcoins from Silk Road’s main Bitcoin “wallet,” a digital storage space designed to contain and encrypt a user’s stash of Bitcoins, according to the criminal complaint. The number of Bitcoins was equal to approximately $3.6 million at the time of seizure and is the largest seizure of Bitcoins in history. Another 600,000 Bitcoins, equal to approximately $80 million, five percent of all existing Bitcoins, were also found in Ulbricht’s personal Bitcoin wallet. As of press date, the exchange rate of one Bitcoin is $144, according to preev.com.
The price of Bitcoins, however, is subject to constant fluctuation. Unlike currencies issued by a governmental body, Bitcoin has no system for curtailing sudden drops in prices, nor is it affected by tariffs or other taxes. “I can’t see where our government would just allow it to continue,” Brookhaven economics professor Inske Zandvliet said. “I think they [the government] would be very worried about it.”
Ulbricht allegedly acquired the Bitcoins through the commission on Silk Road’s 9.5 million Bitcoins in total sales, as stated in the FBI’s complaint. An article on Forbes.com adds that the FBI has been unsuccessful in seizing the Bitcoins from Ulbricht’s Bitcoin wallet due to the wallet’s encryption configuration and their being stored separately from Silk Road’s assests.
The FBI also found Silk Road’s primary server in Ulbricht’s San Francisco apartment, according to an article by The Washington Post.
As of Sept. 23, Silk Road had “nearly 13,000 listings for controlled substances” and offered more than 1,000 hacking tools and services, according to the criminal complaint against Ulbricht. “We don’t allow the sale of anything that’s main purpose is to harm innocent people, or that it was necessary to harm innocent people to bring it to market,” DPR said in an interview with Andy Greenberg for Forbes magazine. ”Hitmen aren’t allowed, and neither is child pornography.”
In Fisher, Ind., an incident was reported in which a 14-year-old boy purchased pure MDMA, known by the street name ecstasy, from Silk Road. The boy’s mother became suspicious after her son began anxiously checking the mailbox, and she intercepted the package. The mother notified the police and turned in her son. The boy confessed to ordering a second package from Silk Road, which police intercepted. The boy was charged with attempted possession of a controlled substance and booked into the Hamilton County Juvenile Detention Center, as reported by ABC affiliate RTV6’s website www. theindychannel.com.
The site was only accessible through the easily downloaded anonymity software called Tor, which connects computers to a “network of virtual tunnels that allows people and groups to improve their privacy and security on the Internet,” according to torproject.org.
“Tor is a lot like a VPN, which stands for ‘Virtual Private Network,’” Brookhaven computer science professor Charles Cadenhead said. Traffic going through a VPN will eventually end up in a public part of the Internet. However, Tor allows users to connect servers to the Tor network as a “hidden service.”
Hidden services can be run by anyone and allow websites like Silk Road to be accessed only through a Tor client. “Within a VPN or within Tor, the data is encrypted,” Cadenhead said.
FBI agents infiltrated Silk Road in April 2012 when an undercover agent, posing as a drug smuggler, allegedly contacted Ulbricht, who was acting as DPR. The criminal complaint states that the agent asked DPR for help finding a buyer for a large amount of cocaine in Dec. 2012. By Jan. 17, 2013, the agent received a message from DPR congratulating the agent on the sale of one kilogram of cocaine.
By the end of Jan. 2013, DPR contacted the agent and asked him to arrange an assault on a Silk Road employee who had been arrested and had allegedly stolen Bitcoins from Silk Road users, according to Ulbricht’s criminal complaint. DPR sent the agent another message asking, “Can you change the order to execute rather than torture?”
The agent agreed to the request for the payment of approximately $80,000 in Bitcoins, with half to be delivered before the hit. The FBI doctored photos to show the employee being tortured and later appearing dead and sent them to DPR as confirmation. The full payment in Bitcoins was received on March 1, 2013, according to the criminal complaint.
Three days after the FBI arrested Ulbricht and shut down Silk Road, bloomberg.com posted an article about another site similar to Silk Road called Sheep Marketplace. Other sites, such as Atlantis and Black Market Reloaded, also offer similar services.
“From what I understand, it was an original idea to combine Bitcoin and Tor to create an anonymous market,” DPR said in the interview with Greenberg. DPR’s statement is in reference to Silk Road’s anonymous founder’s original vision for the site.
Tor and Bitcoins are not inherently illegal in their own right. For example, Tor project founder Jason Appelbaum has conducted numerous classes on using Tor in Middle Eastern countries. Bitcoins are accepted as currency at websites and businesses all over the world, according to usebitcoins.info.
Ulbricht is currently being held at Glenn Dyer Jail in downtown Oakland, Calif. He will be extradited to New York City to face charges in the coming weeks. Ulbricht has denied his connection to Silk Road, according to the San Francisco Magazine. When asked if he was worried for the future, Ulbricht said, “not excessively.”
