This is an opinion piece by Jacob Kozhipatt, YouTuber and writer.
For the uninitiated, The Silk Road was a darknet market where users bought and sold all kinds of goods, including those considered illegal – most often drugs.
Proponents have argued that the Silk Road leveraged technology to create markets necessarily separate from corrupt governments and big banks. For critics, the market was an enemy of the state, which facilitated the sale of illegal substances that decimated countless lives.
For Bitcoiners, however, the marketplace was the first example of bitcoin being used as real currency – a mixed legacy as the website popularized the alternative currency, but also created a stigma surrounding digital currencies that endures to this day. today. So what exactly was Silk Road, and why did it play such a big role for bitcoin?
What Was The Silk Road?
The Silk Road was created and led by Ross Ulbricht. He created the market in 2011 as a manifestation of his libertarian philosophy, rooted in the ideas of Austrian economists like Ludwig von Mises. Ulbricht believed that governments inherently use force to impede an individual’s sovereignty—a sentiment he believed manifested in the US Drug War.
Ulbricht believed that America’s war on drugs was costing American taxpayers billions of dollars and was a bigger instigator of violence than drugs themselves.
Ulbricht alluded to Silk Road and his motivation for creating it on his Linkedin profile, writing that he sought to create an economic simulation that would show the governed firsthand how to live in a world without, which he describes as ” use of excessive force”. .”
It is important to note that the Silk Road explicitly prohibited the sale of products or services, “whose purpose is to harm or defraud”, for example, child pornography, weapons-grade plutonium or stolen credit cards. . The US government, however, reported that hacking services were available on the website.
An intriguing aspect of Silk Road was the professionalism with which it presented its illicit substances/services. While the drug trade is notorious for violence and the sale of fake drugs, the Silk Road allowed dealers to sell their products through the mail and let buyers know if the product they purchased was from from a legit seller, as the Silk Road used a seller review. system similar to other e-commerce sites like Ebay or Amazon. While some were fans of it, others, like New York Senator Chuck Shumer, were outraged by the seemingly causal nature of buying drugs through the platform.
In October 2013, Silk Road was closed. At that time, the website had over 100,000 users and carried out thousands of transactions, amounting to tens of millions of dollars traded, every day. Ross Ulbricht was quickly convicted of seven crimes and sentenced to life in prison, without the possibility of parole.
Bitcoin and the Silk Road
At the heart of Silk Road was the concept of buyers and sellers hiding their identities. Two technologies have served as agents of market anonymity: the software Tor and the cryptocurrency bitcoin.
Users would use a Tor browser to access the dark web, where their IP addresses, among other digital locators, would be hidden from third-party surveillance.
While it was important to hide one’s digital address, it didn’t solve the problem of anonymous transactions. A person’s identity can still be discovered through traditional centralized payment processors, like Visa and Mastercard, both of which work with the government to identify users engaged in illegal activity. This is where bitcoin played an important role.
At that time, bitcoin was still a nascent technology and few knew about the forensic liability provided by blockchain. Thus, bitcoin served as a medium of exchange on the Silk Road. Tens of thousands of users would exchange millions of dollars in bitcoins to purchase items on Silk Road.
When Silk Road was shut down, 70,000 bitcoins (currently worth $1.3 billion) were seized from the website. A Vocative report detailed the volume of drug sales that had taken place on Silk Road: Marijuana transactions totaled more than $46 million on Silk Road, while heroin sales were worth approximately $8.9 million; cocaine amounted to $17.4 million.
Impact of the Silk Road
The Silk Road story has lasting effects on bitcoin and the broader cryptocurrency landscape.
Silk Road was the first example of bitcoin’s ability to be used as real money – a true financial facilitator of exchange between individual parties. Silk Road has collected revenue of approximately 9.5 million bitcoins since 2011, a jaw-dropping amount as only 11.75 million bitcoins existed at the time. In other words, 80% of all bitcoin in existence passed through Silk Road when it closed. Within two hours of news of Ulbricht’s arrest, the price of bitcoin rose from $140 to $110.
To this day, Silk Road is often used as an argument by cryptocurrency critics to show that bitcoin is primarily used as an enabler of crime. This is best demonstrated by New York’s strict regulations, particularly the BitLicense, which was implemented in 2014, shortly after Ulbricht’s conviction. Senator Schumer specifically called out Bitcoin for its use on Silk Road stating, “[Bitcoin is] A form of online money laundering used to disguise the source of the money and to conceal who is selling and buying the drugs. This reputation has proven enduring, as Professor Duke and former Federal Reserve regulator Lee Reiners argued in 2021 that bitcoin and other cryptocurrencies should be banned for their use in facilitating crime.
Clearly, Bitcoin bulls like Tim Draper vehemently disagree with this outlook. They argue that bitcoin’s immutable ledger actually makes it easier for the government to track criminal activity carried out through bitcoin. For example, $4.5 billion Bitfinex hackers Ilya Lichtenstein and Heather Morgan aka the “Wall Street Crocodile” were reported to government officials as they attempted to launder their stolen bitcoin due to their blockchain transaction history. Additionally, many new cryptocurrencies market anonymous alternatives to bitcoin themselves, arguing that the privacy components of the first cryptocurrency are insufficient.
Many bitcoin enthusiasts consider Ross a hero of the movement and are actively campaigning for his release in a movement called “Free Ross”, led by Ulbricht’s mother, Lyn. Lyn Ulbricht mentions that the national perspective on drugs has changed since Ulbricht’s conviction. Marijuana, the most popular drug sold on the Silk Road, is more normalized in modern Western society. US President Joe Biden recently announced that all federal marijuana convictions would be overturned by the government and urged legislatures to reconsider the federal perspective on marijuana.
It is often the people on the margins of a society who are the first to adopt new ideas and technologies. Many early 2000s YouTube content creators, like Jeffrey Starr or Lucas Cruikshank, were members of the LGBTQ community. In Chinua Achebe’s famous novel, “Things Fall Apart”, the first members of the Igbo tribe to convert to the then new idea of Christianity were the tribe’s disgruntled misanthropes. Likewise, the first people to popularize bitcoin were, for better or worse, drug dealers and consumers who are unquestionably on the fringes of our society.
This is a guest post by Jacob Kozhipatt. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.