For an underground online marketplace for drugs, guns and other illegal services and products, the Silk Road was an implausibly grand name. The idea, though, was brilliant, and built on two technological innovations: bitcoin and the dark web.
In the early 1990s, businesses started creating web browsers such as Netscape and Internet Explorer so ordinary users could find things on the internet. People and businesses with websites wanted to make those sites easy to find, so search engines became another big business, charging websites to appear in rankings on search sites.
But not everyone wanted to be instantly “found” on the internet, including the US and other militaries. The US military developed an internet communications protocol that encrypted messages and routed traffic through sites that hid the IP address of the sender and receiver. In 2004, the military released the software as freeware as the TOR browser. Using the TOR browser, users could find their way into the darknet. On this hidden peer to peer network of the darknet, searchers could find offers for drugs and guns. However, a problem remained amid all of this anonymity: purchases somehow had to be paid for using the regular money system - from cash to bank or money transfers, and that meant a high chance of being identified.
Bitcoin seemed to offer a way around the payment problem. In February of 2011, a libertarian-minded Texan in his early 20s named Ross Ulbricht set up a darknet marketplace, and called it Silk Road. Buyers and sellers had to use bitcoin, which was around $3 per bitcoin at that time. Ulbricht’s philosophy was that governments should exercise no control over personal habits and he saw Silk Road primarily as a site to safely buy illegal drugs - safer, in theory, than the street corner. He needed some kind of inventory to get the site going, so he grew magic mushrooms in a home kit and offered them for sale on the site. By the time he'd sold the first batch, other sellers were signing up.
It was an early introduction to bitcoin for the criminal and non-criminal underworld, and shortly afterwards to those looking to lock them up. In 2011, MtGox was the only option to cash in or out of bitcoin for the earliest adopters were people trying to buy or sell illegal products or services on Silk Road. It’s entirely reasonable to think that US law enforcement knew about it straight away.
If they didn’t, a Gawker article about Silk Road in mid-2011 announced the site to the world. The headline reads: The Underground Website Where You Can Buy Any Drug Imaginable. After interviewing a couple of people who had pronounced themselves pleased with the service after buying LSD and cannabis on the site, Gawker laid out how it worked: “To purchase something on Silk Road, you first need to buy some bitcoins using a servece like MtGox Bitcoin Exchange.” (The site was helpfully hyperlinked.) Gawker then explained how to download and negotiate the TOR software. As the article admitted, all of this was at the very least a tricky procedure, and required considerable technical skill and nous to first obtain the bitcoin, and then to send it. Still, the concept was attractive enough that the site rapidly attracted hundreds of thousands of buyers and thousands of sellers. By early 2013, there were 10,000 different items for sale on the Silk Road site. Seventy percent of the inventory was drugs.
The FBI - apparently mostly through searching on Google - finally caught up with Ulbricht in October of 2013 and arrested him, seizing 144,000 bitcoins. Ulbricht was sentenced to life in prison for criminal enterprise, drug trafficking, hacking and money laundering. Investigators were discovering ways to track bitcoin, and connecting Silk Roads traffic to other exchanges. But as soon as the Silk Road closed, it re-opened with new personnel as Silk Road 2. Silk Road would not to be the last of the darknet marketplaces, and bitcoin, it turned out, was only the first of thousands of cryptocurrencies.
