One of the biggest allures, and criticisms, of cryptocurrencies is their anonymity. Bitcoin transfers are publicly available, but only linked to an account number and not a person.
But bitcoin isn’t actually that anonymous after all. Experts call it “pseudonymous,” comparable to writing a book under a pen name. Users are anonymous so long as there’s no connection between their identity and an account number. Obscuring that connection is not so easy. If you buy bitcoins in an online exchange office, you leave a bank or credit card receipt. If you pay in an online shop with bitcoins, you enter a delivery address. There’s a trail to almost every transaction.
Ross Ulbricht can spend the next decades thinking about the distinction between anonymous and pseudonymous while he’s serving a life sentence in prison. In 2011, he created a digital marketplace where customers could order anything from heroin to fake IDs. But relying on the anonymity of bitcoin and the dark side of the internet eventually led to Ulbricht’s downfall.
Ross Ulbricht passport photo via Wikipedia. Public domain, 2012.
Parallels could easily be drawn between Ulbricht’s story and that of Star Wars’ Anakin Skywalker. Just as a hopeful Skywalker eventually is seduced by power and the dark side of the Force, becoming Darth Vader, an ambitious Ulbricht eventually became “Dread Pirate Roberts,” attempting to build his illegal empire in the dark corners of the internet.
After completing a graduate degree in materials science and engineering at Penn State, Ulbricht, returned to Austin, Texas. He wanted to be an entrepreneur. He tried various endeavors before landing in the world of e-commerce with a successful online used-book store. The site grew, stocking 50,000 secondhand books, employing five part-time workers, and bringing in $10,000 in sales per month. Everything could have gone on beautifully and petit bourgeois, but the dark side of the Force was calling Ulbricht.
Silk Road was an illegal trading venture that had a cash flow of at least $213 million.
In addition to his entrepreneurial spirit, Ross Ulbricht saw himself as a Libertarian, and the political philosophy of libertarianism views any intervention by the state — such as taxes — as coercion. Ulbricht and his spiritual brothers stood for property, self-administration, and self-realization. He believed the state should have no other task than to ensure its citizens these rights.
Cryptocurrency automatically holds great appeal for libertarians because of the lack of regulation. No state can print bitcoins, take it away from its owners, or levy taxes on it. Bitcoin is as free as libertarians themselves want to be. One of Ulbricht’s diary entries reads: “I had the idea of creating a website where people could buy everything anonymously without leaving any trace that could be traced back to them.” That idea eventually became Silk Road, a major Darknet marketplace for drugs and guns that went live in 2011.
The Dark Side of the Web
Ulbricht’s “eBay for drugs” was available on the Darknet, but what exactly is the Darknet? Physically, the Darknet is no different from the internet.
Anyone running a website or online shop needs a server, with software installed, connected to the internet. Each computer connected to the internet is automatically labeled with a unique identifiable number, the internet Protocol, or IP, address. The whole thing is about as anonymous as a home address publicly listed in a city register.
On the Darknet, however, users download and use a software called Tor, which uses a complex intermediary server architecture to hide both the IP address of the server and that of the users surfing on it. Using a Tor browser, people can access the internet anonymously. They can visit traditional websites like Facebook without leaving a digital footprint. Or they can go to a site on the Darkweb. These sites can’t use normal domain names, such as “.com” or “.io”; they use a single identifier called “.onion.” There is even Facebook on the Darkweb at https://facebookcorewwwi.onion. It gives access to people living in countries where Facebook is prohibited. Some countries, like Turkey, feel so threatened by this, they prohibit any anonymization service and have made attempts to block the use of Tor altogether.
Who uses TOR? Credit: Stefano.desabbata via Wikimedia/CC BY-SA 4.0
While the Darknet offers protection to activists and others experiencing human rights violations, its inherent anonymity naturally has attracted criminal behavior as well — like Ross Ulbricht. After all, with the Darknet, authorities can’t locate Silk Road’s server or the buyers and sellers who use the marketplace.
Silk Road’s logistics were ingenious. Many purchases went through the good old U.S. Postal Service, which offered recipients plausible deniability. Using a government entity like the USPS was probably particularly gratifying to a Libertarian like Ulbricht, who believed the state should provide the infrastructure for its citizens. For his business, it delivered.
Customers could order anything from heroin to fake IDs through the site.
Through the introduction of product and sales reviews on Silk Road, customer confidence levels increased, and so did sales. The drug MDMA (known as ecstasy) became particularly popular on Silk Road because it was rarely available in pure form and could be deadly with impurities. Reliable providers of quality MDMA received high ratings, which led to increased sales. The system of trade was as normal as Amazon — and as lucrative as well.
Evidence entered into the record of Ross Ulbricht’s Federal trial, depicting a flowchart of Silk Road’s payment system. Source: Wikimedia/Public domain, 2015.
Criminal Empire: Now Hiring
Silk Road was growing rapidly, and Ulbricht needed employees, which weren’t so easy to find for an illegal business. Job advertisements in the newspaper weren’t an option So, Ulbricht began his search more internally.
Curtis Green, a 47-year-old Mormon with chronic pain and knowledge of analgesic opiates, had begun moderating a forum on Silk Road where customers exchanged views on medical topics. Ulbricht offered him the job of customer service manager. Ulbricht knew Green’s identity, but kept his own hidden. They communicated only through a chat feature on Tor. Green would eventually play a role in Ulbricht’s great fall.
Two years after its inception, Silk Road had one million registered customers. Since business was conducted in bitcoins and the exchange rate to the U.S. dollar experienced extreme fluctuation, it was difficult to quantify how much revenue the platform generated. But it’s assumed to be hundreds of millions of dollars. For every sale, Silk Road received a percentage in commission. But Ulbricht wanted more: an empire of libertarian freedom. He posted his plan to open a bitcoin exchange on Silk Road that would be a “washing machine” for illegally earned bitcoins.
The combination of Tor and bitcoin was brutal for the authorities. For two years they could do nothing more than watch the criminal activity take place. Had Ulbricht stumbled upon the perfect crime?
No Perfect Crime
It turns out, there are no perfect crimes because there are no perfect people.
As early as 2013, it became clear that the use of bitcoin would not necessarily protect against detection. Journalists bought marijuana as part of an experiment and asked Sarah Meiklejohn, a computer scientist at the University of California in San Diego, if she could trace the transactions. They gave her the bitcoin account numbers from buying the cryptocurrency at an exchange office, which they then exchanged for hemp products. Meiklejohn’s search began with the advantage of having account numbers, but it’s not an unrealistic one. Any government agency can obtain account numbers with a court order.
Meikeljohn dug into the public transaction data of the bitcoin protocol and was able to find all transactions ever made with those account numbers. It didn’t reveal the home address of the user, yet, but it was the beginning of a trail. And it exposed the vulnerable reality of bitcoin’s perceived anonymity.
The FBI finally got a lead on Silk Road — but not through bitcoin: through Tor. A Silk Road customer posted on a Reddit forum that something was wrong with Tor’s configuration and was showing the actual physical IP address of the server. Before Ulbricht could correct the error, the FBI had tracked down the IP address and found it on a map. Silk Road’s Server was located in Iceland. The FBI took a trip to the data center Ulbricht had rented and copied the server’s hard disk without Ulbricht suspecting a thing. The FBI didn’t know who owned the server yet, so they let Silk Road keep running unchecked.
Cops and Robbers
Months before Ulbricht was arrested, the Silk Road case took some unexpectedly absurd turns. For months, an agent of the Drug Enforcement Administration (DEA) had been chatting with Ulbricht under the alias of a drug cartel employee and Silk Road salesperson. Curtis Green, Silk Road’s customer service manager, had been arrested in a subsequent raid and Ulbricht panicked. He asked the undercover DEA agent to kill Curtis Green for money.
The agent struck a deal with Green to stage the murder and record it on video to gain Ulbricht’s trust. And, just like that, Ulbricht turned from a personal-freedom-loving entrepreneur into a murderer.
The hard drive copy from Iceland showed the FBI how Silk Road worked, but they still couldn’t determine the identity of the operator. Unbeknownst to them, the operator’s name had been dormant in the investigation files of the IRS for two years.
And, just like that, Ulbricht turned from a personal-freedom-loving entrepreneur into a murderer.
The original tax officer had discovered Silk Road in 2011 and researched who was the first to talk about it in online forums, assuming that person could be, or know, the inventor. He found the first entry and searched for further entries from that username, eventually tracking one down that gave an email address: email@example.com.
The FBI tracked down Ulbricht and began surveillance. They could see that every time he opened his computer, Dread Pirate Roberts also logged onto Silk Road.
The Evidence and the Arrest
At the same time, an undercover agent had become an employee of Silk Road. He worked without direct contact and under the pseudonym “cirrus,” eventually becoming Ulbricht’s confidante. FBI, DEA, and IRS wanted to catch Ulbricht out in the open, and they had learned that he often worked from a public library.
On October 1, 2013, “cirrus” sat in front of the library on a park bench and chatted with Ulbricht online. He asked the Texan to log into the Silk Road administration tool to fix a small problem, in order to ensure he was both logged in and preoccupied. A few minutes later, two plain-clothed agents showed up in the library near Ulbricht and began a loud argument.
Ulbricht was startled and looked up from his laptop just as one agent pushed the Samsung 700z to the other. The evidence was secure; the chat window for “cirrus” was still open.
Despite all the evidence, Ulbricht claimed he’s not the Dread Pirate Roberts. He says he started Silk Road as a social experiment and then passed it on to someone else. The clues are only digital and thus (in contrast to the bitcoin transactions) easy to manipulate.
Trial and Life Sentence
The Silk Road story is full of riddles and plot holes and questions about privacy rights.
Ulbricht insisted at trial that the FBI violated his privacy and that copying his server was unlawful data theft. The judge rejected the appeal. Then, privacy activists became involved, threatening the judge and publishing her address on the Darknet. They wanted to show the vulnerability that comes with an invasion of privacy. The judge ordered for the release of data on the users who had posted about her on the Darknet, showing how circular the battle for privacy can become.
Through all the drama that surrounded the case, it was almost possible to forget that Silk Road was an illegal trading venture that had a cash flow of at least $213 million.
At the end of the trial, Ulbricht was found guilty and sentenced to life imprisonment. But that wasn’t the end. The agent who faked the execution of Curtis Green had apparently used his position to relieve Silk Road of money himself, essentially cheating the criminal. As for Green, he has been released from prison and is writing a book about his experience working for Silk Road.
Lynn Ulbricht, Ross Ulbricht’s mother, was shocked by her son’s trial and sentencing. With friends, she founded the website FreeRoss.org to try to repeal the trial, claiming “The trial was a mockery full of corrupt police officers and embezzled evidence.”
Through this case, the FBI seized 144,000 bitcoins on the Icelandic server. To this day, most of it is still lying dormant with the authorities, which makes the FBI the second largest owner of bitcoins.
Because the FBI got its hands on Ulbricht’s laptop, they traced 700,000 bitcoins in thousands and thousands of transactions from their original accounts. It is not known how many traders the FBI was able to arrest with that information.
Even in a bitcoin universe, it is difficult to remain unrecognized forever. Authorities and hackers are in a race to conceal and uncover. Every action on the internet leaves a trace. At some point, every criminal will make a mistake.
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