In the 19th century, China & the countries of the Mediterranean conducted some very important international trade, which primarily consisted of silk. Apart from the trade, the road served also as a splendid cultural bridge that linked the cultures of China, India, Persia, Arabia, Greece and Rome. The road, or the Silk Route, as the eminent German geographer, Ferdinand von Richthofen chose to name it, served as an exchange path for major Chinese inventions and the religions of the West for well over 1600 years.
However, the Silk Road of the 21st century bears little resemblance to the original Silk Route. The new Silk Road was an online virtual world for peddlers and buyers specialized in illegal dealings with drugs.
There is always a huge demand for illegal drugs. Although in the 1980s and 1990s, various chat rooms and Usenet groups that used markets such as the Hive to trade illegal drugs, Silk Road was unique. Prior to Silk Road, a majority of these online markets existed in plain sight and used PayPal and Western Union along with digital currencies such as e-gold, Liberty Reserve and Pecunix. They thrived on the expectation that they would be inconspicuous to law enforcement in the vast landscape of cyberspace. Although these flawed markets were able to scrape off tiny pieces of the pie, none had really exploited the vast market of illegal drugs.
The emergence of Silk Road changed all that. Leveraging the anonymizing power of the Tor browser, Pretty Good Privacy – an encryption program and the peer-to-peer crypto-currency Bitcoin, Silk Road very quickly became the safest place to buy drugs online. Modeled after the website Amazon.com, an easy-to-use commerce giant, Silk Road was the brainchild of Ross William Ulbricht.
Before starting with Silk Road, Ulbricht studied physics at Dallas, at the University of Texas and worked as a peer-review research scientist. He also served as the CEO of Good Wagon Books, a small online used bookstore. He would occasionally use psychotropic drugs in his spare time, before he decided he wanted to change the world.
On January 27, 2011, Ulbricht unveiled his masterpiece to the world. He did this anonymously, using a brief post on Shroomery.org – a psychedelic mushroom site, where he posed as a casual anonymous netizen Altoid, who had simply stumbled across a new website, Silk Road. He wanted feedback.
Since the immediate response was mainly skepticism, Ulbricht began to think his initial marketing ploy had failed. His next post on Silk Road, very similar, appeared two days later, on the BitCoinTalk.org. Here readers showed much more interest.
However, the initial Shroomery post was actually a wild success, as the zooming popularity of Silk Road among Shroomery users over the next few months showed. Word spread from person to person that Silk Road was a safe place to buy drugs online. By May 2011, thousands of users were either selling or buying an endless variety of drugs on the Silk Road. From February 2012 onwards, Ross William Ulbricht masqueraded as the Dread Pirate Roberts.
Apart from the hundreds of kilos of illegal drugs of all varieties being sold and bought online, there were hundreds upon thousands of buyers of other goods, laundering nearly a million US dollars. The other goods included criminal services such as contact lists for anonymous bank accounts, counterfeit bills, firearms and ammunition, stolen credit cards and still worse, hitmen.
On Silk Road, hackers were offering full access to social network sites such as Twitter and Facebook. They were offering all sorts of digital goods, pirated software and media, hacked accounts for Amazon and Netflix along with nearly all types of hack tools. Forgeries were also on offer, such as for fake licenses, utility bills, passports, credit card statements and Social Security numbers.
Users of Silk Road were protected from the law by the Onion Router or TOR, which concealed the address of computers hosting the websites or using them on the network, making them practically impossible to locate. All payment was through bitcoins, the digital currency designed to be as anonymous as cash. Silk Road also used tumbler to further frustrate the tracking of bitcoin transaction through the blockchain.
So far, the knowledge about how to access the website had spread only by word of mouth. Users were cautious, as everyone wanted to remain safe. Since only the very security-aware people could gain access to the website, there were no guides present. The authorities failed to prevent Silk Road from dealing with drugs, as the e-commerce site is accessible via TOR. This system protects users against analysis of the traffic using a network of onion routers or relays, which are run by volunteers. That allows outbound traffic to be anonymous and the user can create hidden services.
TOR is not illegal and anyone can join the hidden services anonymously, simply by downloading the free software. The home page of Silk Road shows crude photos of the products, listed by categories. For example, users can find drugs in two classes – opioids and prescription. Once you place an order, only the intended recipient can read the encrypted delivery address. Silk Road takes a small percentage of the fee in return.
However, all this changed in June 2011, when US blogger Adrian Chen unmasked the site and the rest of the world became aware of Silk Road.
Before the revelation, Silk Road had a few thousand users. Chen’s article opened the floodgates making that number jump several orders of magnitude. The overwhelming number of visitors often brought down the site’s servers. Moreover, it also attracted scammers who wanted to prey on newbies not adequately equipped with the knowledge of protecting their money and anonymity.
Doing business with Bitcoin was risky as it was still volatile. Because of the Silk Road rush, between June and November 2011, the value of the digital currency plummeted from $31 to $2. That made it difficult for sellers to make money. Further adding to the woes were the security difficulties facing the largest Bitcoin exchange on the Web.
Dread Pirate Roberts stepped in to help sellers against the volatility of Bitcoin. In May 2011, he introduced a hedge escrow option for buyers and sellers. For as long as Silk Road survived, immediately on a purchase, bitcoins were converted into US dollars and held in escrow. As the transaction was finalized, this money was changed back into bitcoins. This process helped both sides significantly from any currency volatility.
Curious new users were making orders in droves, turning Silk Road into an extraordinarily successful enterprise. Even Bitcoin crept towards stability as it took off at an upward trajectory. The popularity of the site, only a month after Chen’s article, led Roberts to begin charging 10 bitcoins for becoming a member. As time went on, the price escalated.
All this extraordinary activity made authorities sit up and take notice. Just after the Chen article, US Senators Joe Machin and Charles Schumer wrote to the Attorney General and the Drug Enforcement Administration to act immediately for shutting down the network of Silk Route.
Law enforcement agencies had their first break in October 2011. Altoid, the original advertiser of Silk Road, posted an ad on BitcoinTalk. He was looking for an IT pro in the Bitcoin community. In his ad, he revealed is Google email account along with other identifying information for interested parties to contact. The email account linked Altoid to Ross William Ulbricht. However, the identity of Dread Pirate Robert still eluded them.
Additionally, not everyone loved Dread Pirate Roberts. Ulbricht soon found out that the assassination market of the Deep Web was full of frauds. By November 2012, Silk Road had so many users that it was in uncharted territory. Too many frauds were happening. In August 2012, Robert hired a new UNIX administrator to help him with the additional technical skills it takes to set up an operation the size of Silk Road. Many wondered if Robert had been careless in hiring someone he did not know or trust. For all one knew, the guy could be an undercover cop.
The frauds started with Tony76, one of the biggest vendors on Silk Road. Initially Tony76 had rave reviews about his ecstasy that had a high-quality trademark. However, soon packages were late and Tony76 was not responding to messages from his clients. The total amount stolen from the clients ranged from $50,000 to $100,000. No one heard from Tony76 again.
By August 2012, Nicolas Christin conducted a study on behalf of Carnegie Mellon, estimating that the illegal drugs market was doing about $22 in sales every six months. By 2013, he had to revise his estimate to $30-$40 million. Sales revenues were estimated at 9.5 million bitcoins of which, Silk Road earned a commission of 600,000 bitcoins. By July 2013, registered user accounts numbered 957,079 and the site was earning revenue of $2 billion. Daily transactions numbered about 1,367, averaging $976.
The first major cyber-attack on the Silk Road took place on November 8, 2012. As announced by Robert, the hacker had merely changed some product images, and then added a quick buy option along with a bitcoin address. He then removed shipping options, which made it impossible to place a legitimate order for about a week. At the same time, several top vendors of Silk Road had their accounts drained of all their money within a single day.
Despite major frauds happening, Silk Road was near unstoppable. The next Tony76 style fraud happened in February 2013, when the Australian MDMA vendor, EnterTheMatrix cheated customers of tens of thousands of dollars. Users shrugged it off as the cost of business and continued.
According to the FBI claim, in January 2013, Roberts had paid $80,000 for torturing and murdering a vendor whom he believed as stealing from Silk Road. Later the FBI revealed that the man Robert had paid for the hit was actually a US federal agent and the torture and murder was staged.
In March 2013, a second confrontation took place between Dread Pirate Roberts and a Silk Road user by the name of FriendlyChemist. He claimed to own a long list of real names and addresses of vendors on Silk Road. Unless Robert paid him $500,000, he would disclose these names. Robert again had to hire a hitman named redandwhite, also anonymously, over the Deep Web. Although Robert paid the assassin $150,000 to murder FriendlyChemist, whom he knew resided in Canada, there were no murders matching the description of the hit at the time.
By July 2013, hostile attacks and probing from law enforcement agencies were on the increase. This made Roberts spend money for his protection and for defending Silk Road. He ordered nine fake IDs to build up extra servers to improve the security of his site. Although he ordered them over Silk Road, law enforcement agencies intercepted them at the Canadian-American border.
On July 4, 2013, Dread Pirate Roberts granted an interview to Forbes, where he told the interviewer, Andy Greenberg that Silk Road had been sold and that he was not the original owner. That stunned users of Silk Road and they refused to believe Robert’s new claim. Around August 2013, law enforcement agencies busted Freedom Hosting, one of the most important and popular service in existence in Deep Web outside of Silk Road. Very few details are available about the incident, but the fall of Freedom Hosting shook the entire anonymous web.
Silk Road users preferred using TorMail, and Freedom Hosting servers hosted this as a client. Once the FBI gained possession of the TorMail servers, they gathered data on Silk Road users. Although Robert claimed he never used TorMail, nearly all his sellers and advisors did, and many had not bothered to take the basic precautions of encrypting their messages.
On September 29, 2013, Knfkewm, one of the most knowledgeable and oldest members of the Silk Road community, bade farewell for no apparent reason. Three days later, the FBI seized the Silk Road. The date was October 2, 2013.
According to the criminal complaint, starting from February 6, 2011 and up to July 23, 2013, Silk Road users had completed 1,229,465 transactions. This involved 3,877 vendor accounts and 146, 946 buyer accounts. The total revenue generated in bitcoins numbered 9,519,664, equivalent to $1.2 billion. Of this, $79.8 million went to Silk Road as commission.
Police arrested Ulbricht from the San Francisco Public Library. Agents swooped down upon him as soon as he had opened his laptop and entered his credentials. They confiscated nearly $3.6 million in bitcoins from Ulbricht. Despite the arrest and the end of the most famous black market on the Deep Web, others are attempting to fill the massive vacuum left by Dread Pirate Roberts.