It was stated by Silk Road's supporters that the platform made use of technology to build markets that were necessarily independent from the corrupt practices of governments and large institutions. According to the detractors, the market was an adversary of the state because it allowed for the selling of illegal narcotics, which contributed to the loss of a great number of lives.
A mixed legacy, since the website popularized the alternative currency, but also generated a stigma surrounding digital currencies that persists even to this day. However, for Bitcoiners, the marketplace was the first example of bitcoin being used as an actual currency. What precisely was Silk Road, and why did it play such a significant part in the development of bitcoin?
Who traveled along the Silk Road?
Ross Ulbricht is responsible for both the creation and operation of The Silk Road. His libertarian mindset, which had its origins in the principles of Austrian economists such as Ludwig von Mises, served as the inspiration for the creation of the marketplace in 2011. Ulbricht was of the opinion that governments, by their very nature, resort to the use of force to restrict the sovereignty of their citizens; he claimed that this ideology was exemplified in the United States' War on Drugs.
Ulbricht was of the opinion that the United States' War on Substances was an even greater contributor to violent crime than the illegal drugs themselves, costing American taxpayers billions of dollars.
In his Linkedin profile, Ulbricht makes a passing reference to Silk Road and explains his reasoning behind creating it. He writes that he wanted to create an economic simulation that would show the governed how to live in a world without what he calls "the use of excessive force." This was Ulbricht's motivation for creating Silk Road.
It is essential to be aware that the Silk Road expressly prohibited the selling of goods or services "whose objective is to hurt or defraud," such as pornographic material aimed at children, weapons-grade plutonium, or credit cards that had been fraudulently obtained. However, reports from the United States government indicated that hacking services might be accessed through the website.
The Silk Road's presentation of its illicit goods and services in a professional manner was one of the most intriguing aspects of the website. The drug trade is notorious for its association with violence as well as the sale of counterfeit drugs; however, the Silk Road allowed dealers to sell their products through the mail and provided buyers with a way to determine whether or not the product they purchased was coming from a legitimate seller. The Silk Road utilized a seller review system that was comparable to that of other online marketplaces such as eBay or Amazon.com. Some people were enthusiastic about this, but others, like as Senator Chuck Shumer from New York, were appalled by the platform's apparent lack of a barrier to the purchase of illegal substances.
The website known as Silk Road was taken offline in October of 2013. At this point in time, the website had over 100,000 members and every day saw thousands of transactions that totaled tens of millions of dollars being traded. Soon after his arrest, Ross Ulbricht was tried for seven separate offenses, and he was subsequently sentenced to life in jail without the possibility of parole.
Bitcoin and the Dark Web's Silk Road
The idea that buyers and sellers should conceal their identities was essential to the operation of the Silk Road. Tor, a piece of software, and bitcoin, a cryptocurrency, were the two technologies that were responsible for maintaining customers' anonymity on the market.
Users would enter the black web through a browser called Tor. Once there, their IP addresses and other digital locators, such as cookies and fingerprints, would be concealed from any third-party monitoring.
While it was essential to conceal one's digital address, this did not solve the challenge of conducting business in an anonymous manner. It is still possible for a person's identity to be uncovered by using major centralized payment processors such as Visa or Mastercard. These companies collaborate with the authorities in order to identify people who are engaging in unlawful activities. Bitcoin was able to play a significant part in this regard.
During this time period, bitcoin was still in its infancy as a kind of digital currency, and very few people were aware of the forensic accountability that the blockchain offers. As a result, bitcoin was used as a medium of exchange on the Silk Road marketplace. For the purpose of making purchases on Silk Road, tens of thousands of users would regularly trade millions of dollars' worth of bitcoin.
When the website known as Silk Road was taken offline, 70,000 bitcoins, which are now worth $1.3 billion, were taken from it. In a report obtained by Vocative, the quantity of drug transactions that took place on Silk Road was broken down as follows: On the Silk Road, the entire value of transactions involving marijuana was more over $46 million, while sales of heroin amounted to approximately $8.9 million, and sales of cocaine totaled $17.4 million.
Effects Caused By The Silk Road
The events surrounding Silk Road will continue to have repercussions for bitcoin and the wider cryptocurrency environment.
Silk Road was the first illustration of bitcoin's ability to be used as a real money; it was the first site to demonstrate bitcoin's potential as a genuine financial facilitator of exchange between individual parties. Since 2011, Silk Road has generated around 9.5 million bitcoin in revenue, which is an astounding figure considering there were only 11.75 million bitcoin in existence at the time. To put it another way, when Silk Road was shut down, it was responsible for the transfer of 80 percent of all bitcoins in circulation. The price of bitcoin dropped from $140 to $110 within just two hours of the public announcement of Ulbricht's arrest becoming available.
Silk Road continues to be cited as an example by detractors of cryptocurrencies to support their contention that bitcoin's primary function is to serve as a facilitator of criminal activity. This is most clearly illustrated by the stringent laws that the state of New York has enacted, particularly the BitLicense, which went into effect in 2014, not long after Ulbricht was sentenced to prison. Senator Chuck Schumer singled out Bitcoin for its application on the marketplace known as Silk Road, saying that "[Bitcoin is] An online form of money laundering used to obscure the source of the money, and to disguise who is both selling and buying the drug." This reputation has proven to be an enduring one, as evidenced by the fact that Lee Reiners, a professor at Duke University and a former regulator for the Federal Reserve, argued as recently as 2021 that bitcoin and other cryptocurrencies ought to be prohibited because of their use in facilitating crime.
Bitcoin optimists, such as Tim Draper, obviously have a strong and emphatic disagreement with this point of view. They contend that the immutable record that bitcoin uses makes it significantly simpler for the authorities to monitor illegal conduct that is carried out via bitcoin. For instance, the hackers who stole $4.5 billion from Bitfinex, Ilya Lichtenstein and Heather Morgan, also known as the "crocodile of Wall Street," were exposed to government officials while they were attempting to launder the stolen bitcoin due to the blockchain transaction history associated with their accounts. In addition, a multitude of new cryptocurrencies are marketing themselves as anonymous alternatives to bitcoin, alleging that the first cryptocurrency's privacy features are insufficient.
A lot of people who are into bitcoin think of Ross as a hero for the community, and they are actively campaigning for him to be released through a movement called "Free Ross," which is run by Lyn Ulbricht's mother. Since Ulbricht was convicted of drug trafficking, Lyn Ulbricht claims that there has been a shift in the national outlook on drugs. The use of marijuana, the drug that is most commonly found for sale on the Silk Road, is becoming accepted in contemporary Western culture. Recently, the Vice President of the United States, Joe Biden, made an announcement that all federal marijuana convictions would be annulled by the government. He also urged legislatures to reassess the federal attitude on marijuana.
People who live on the periphery of a society are frequently the ones who are the first to adopt new ideas and technologies. A significant number of the people who created video for YouTube in the early 2000s, such as Jeffrey Starr and Lucas Cruikshank, identified as members of the LGBTQ community. In the well-known novel "Things Fall Apart" by Chinua Achebe, the first members of the Igbo Tribe to convert to the novel concept of Christianity were the tribe's misanthropes who were dissatisfied with the tribe's culture and society. In a similar vein, the first people to popularize bitcoin were drug dealers and users, who are unquestionably on the margins of our society. This is true whether you look at it positively or negatively.
This is a post that Jacob Kozhipatt has contributed as a guest. All of the opinions expressed here are completely the authors', and in no way do they represent BTC Inc. or Bitcoin Magazine's positions.