The Silk Road Marketplace, known for being the first modern darknet market, was a hidden site on the Tor network that allowed users to buy and sell products (mostly illegal drugs) anonymously by transacting in bitcoin. Ulbricht ran the site under the pseudonym Dread Pirate Roberts.
Ulbricht was a proponent of libertarian economic policy and personal freedoms, believing that Bitcoin, then in the early days of cryptocurrency, could facilitate the trade of goods without oversight. Further, like many libertarians, Ulbricht felt that drug use should be a personal choice, and that legalizing its use would lead to a better product, while protecting users thanks to better quality.
After an investigation by multiple government agencies, Ulbricht was arrested in 2013 by the FBI and was later convicted of multiple offenses, including: continuing a criminal enterprise, conspiracy to distribute narcotics, conspiracy to commit money laundering, and computer hacking.
He was sentenced to double life imprisonment plus 40 years without the possibility of parole and fined $183 million dollars in restitution. He is currently incarcerated at the United States Penitentiary in Tucson.
The Silk Road Marketplace and Ulbricht’s role (and subsequent prison sentence) is inextricably linked with Bitcoin’s history. The case had deep implications for the cryptocurrency ecosystem, including increased scrutiny of digital assets’ use in criminal activities and the stained public perception of crypto.
“Silk Road was supposed to be about giving people the freedom to make their own choices, to pursue their own happiness, however they individually saw fit. [It] turned out to be a naive and costly idea that I deeply regret,” Ulbricht said in a statement to the court.
Ross Ulbricht was born in 1984 and grew up in Austin, Texas. He attended the University of Dallas on a full scholarship and earned a bachelor’s degree in physics. He went on to earn a master’s degree from Pennsylvania State University in materials science and engineering.
While at Pennsylvania State, Ulbricht became interested in the works of free-market economist Ludwig von Mises, who believed that citizens must have economic freedom to be morally and politically free. Ulbricht was also a supporter of Ron Paul, a US politician known for his libertarian views. He joined the school’s College Libertarians Group and participated in debates.
After college, he worked briefly as a day trader and started a video game company, but both ventures failed. His neighbor asked Ulbricht to work with him on a business called Good Wagon Books, which bought used books to sell online. Ulbricht built the business’s website, which taught him about inventory management, a crucial component of his Silk Road online marketplace.
Role in the cryptocurrency community
Ulbricht discovered Bitcoin in 2010. He was attracted to the idea of being able to transact without the oversight of a central bank, a concept he felt adhered to his libertarian beliefs.
He wished to create a website where users could buy and sell products anonymously, with no trail leading back to purchases. He studied the technology behind crypto for a while devising a business model and go-to-market plan for his marketplace.
Good Wagon Books folded after a mishap in their warehouse, which provided Ulbricht an ideal opportunity to act on his idea for a marketplace.
Silk Road Marketplace
The Silk Road launched in January 2011 and first sale was 10 psychedelic mushrooms that Ulbricht grew himself.
The marketplace grew quickly, with over a thousand registered users in the first two months. Ulbricht anonymously oversaw operations for the site using the name Dread Pirate Roberts in reference to a character from The Princess Bride.
Silk Road was run on the Tor network, an open-source, volunteer-operated, privacy network that routes traffic through intermediary servers, therefore obscuring IP addresses. All transactions were conducted in bitcoin due to its purported anonymity.
During its short lifetime, the marketplace had over 100,000 buyers and an estimated $200 million in sales, 70% of which were illegal drugs. The site also sold legal goods and services such as art, books, cigarettes, erotica, and clothes.
In its terms of service, the site prohibited the sale of products whose purpose was to “harm or defraud,” including child abuse material, stolen credit cards, weapons, and assassinations.
Arrest and trial
Multiple US agencies, including the FBI, DEA, and IRS, worked on the Silk Road case to identify Ulbricht, other site administrators, and vendors who were distributing illegal drugs.
A break in the case came when an IRS investigator connected the username “altoid” in an announcement for the Silk Road website to a deleted post on another forum under the same username that asked for programming help. The post contained an email address which included Ulbricht’s actual name.
Ubricht was arrested at the Glen Park branch of the San Francisco Public Library in October 2013, with federal agents acting quickly to grab his laptop before any software or files could be deleted. The website was quickly shut down and 144,000 bitcoin were seized.
In February 2014, Ulbricht was charged with multiple accounts involving criminal enterprise (a charge that targets large-scale drug traffickers), distribution of narcotics, money laundering, and computer hacking. The following year he was convicted on all accounts and given a sentence of life in prison without the possibility of parole.
Impact on the Bitcoin community
The Silk Road Marketplace is a significant event in Bitcoin’s history as one of the first high-profile incidents of criminal conduct with the currency. Its demise clouded public perception of cryptocurrencies as being used primarily for illicit activity and led to politicians talking about restrictions around its use. It is still a subject of debate as to whether bitcoin is an effective currency for crime, or if it is easier for law enforcement to track funds due to the public nature of a blockchain ledger.
However, proponents point to Silk Road as the first example of bitcoin being used effectively as a currency in a global marketplace. By the time it was shut down, approximately 80% of all bitcoin in existence had gone through Silk Road at some point.
Ulbricht gave a phone interview from prison at the Bitcoin 2021 conference, looking back at the marketplace and its mixed legacy. “I thought with Bitcoin, I could try and do something that actually makes a difference… Back then, I was impatient. I rushed ahead with my first idea, which was Silk Road… That’s a 26-year-old who thinks he has to save the world before someone beats him to it. I had no idea Silk Road would work, but now we all know it caught on. It was used to sell drugs, and now I’m in prison.”
Ross Ulbricht essentials
- Ross Ulbricht was the creator and operator of Silk Road Marketplace, the first modern darknet market, where all transactions were made in bitcoin.
- While Silk Road is the first example of bitcoin being used effectively as a currency in a global marketplace, it generated public distrust by tying crypto to criminal activity.
- Ulbricht was convicted of multiple crimes and given a sentence of life in prison without the possibility of parole.