Silk Road was a darknet marketplace that operated from 2011 through 2013 and hosted anonymous sales of products using bitcoin as a medium of exchange.
History of the Silk Road
Libertarian idealist Ross Ulbricht grew up in Texas and received a degree in physics from the University of Texas at Dallas before earning a master’s degree in materials science and engineering. Not long after graduating, he began developing an idea for an untraceable marketplace where individuals could transact whatever they wished—outside of the usual rules of such online platforms (and the government). He was inspired by libertarian economic theory.
Ulbricht called his original concept “Underground Brokers” but eventually renamed it Silk Road, a nod to the trade route(s) connecting Asia and Europe beginning in the first and second centuries B.C.E. The website was located on the darknet—accessible through a network called Tor—and required bitcoin as the only means of transaction.
The site launched in the first months of 2011, and its first listings were illicit drugs (specifically, psychedelics and marijuana). Eventually, the site would host sales of heroin, cocaine, other illicit drugs, explosives, and software used for computer hacking. In order to ensure people discovered it, Ulbricht posted on various websites for those interested in mind-altering substances and cryptocurrencies. He even provided step-by-step instructions on how to operate Tor and Bitcoin.
By April 2011, Silk Road boasted 1000 registered users. However, its popularity skyrocketed after an article was published on June 1, 2011, at 4:20pm (perhaps a coincidence, or else an editor with a sense of humor) on the website Gawker. In it, reporter Adrian Chen detailed the inner workings of Silk Road, its obscure .onion URL, and even posted screenshots of the site and its listings for marijuana, ecstasy, opiates, and more.
Soon, Ulbricht began collaborating with a coder named Variety Jones, who helped secure and grow the site, and they suggested Ulbricht change his name from “Admin” to “Dread Pirate Roberts” as an homage to the mystical character in The Princess Bride. As his identity solidified and word spread, activity on the site exploded. By March 2012, sales reached $500,000 per week. However, the increased attention from the broader population coincided with increased attention from politicians and regulators. Unrest both among the Silk Road community and the administrators was brewing, as well, and the site was hit multiple times by hackers and extortionists. Ulbricht and his team created a spin-off site for the sale of guns, which proved more problematic. Furthermore, as more pressure mounted, there are speculations that Ulbricht hired people to murder those who wronged him. Although business boomed, Silk Road’s foundation began to crack under the weight of its success.
Ultimately, a coordinated effort among multiple U.S. government agencies including the Department of Justice, the Drug Enforcement Agency, and the Department of Homeland Security brought down Silk Road—and with it—Ross Ulbricht. After the authorities discovered the IP address of Silk Road’s server located in Iceland, they accessed the encrypted files with the password provided by their Icelandic partners: trytocrackthisNSA. Agents were able to identify Ulbricht by delving into the original posts he made describing Silk Road and how to access it.
The FBI shut down Silk Road in 2013. Two years later, after a contentious trial, Ross Ulbricht was found guilty of multiple crimes including distributing narcotics, conspiring to commit money laundering, and engaging in a continuing criminal enterprise. He was sentenced to life in prison without parole. Two of the law enforcement agents on the case were also sent to prison after misconduct during the case. One of these men went undercover as a confidant of Ross Ulbricht, but it was later discovered that he offered information to Ulbricht in exchange for bitcoin. The other was found to have stolen bitcoin directly from Silk Road’s coffers. Each profited by about $800,000 for their crimes and were sentenced to around 6 years in prison.
How Silk Road worked
Silk Road was a simple website that worked like Amazon or any other online marketplace. Its founding principle was to provide a platform to transact freely, anonymously, and without the rule of law dictating which products could be sold. For anonymity, Silk Road relied on Tor as a privacy network and Bitcoin as a payment rail.
Tor is open-source software that routes internet traffic in a way that allows each end-user to hide their identity and location. It relies on a system called “onion routing,” which uses layers of encryption that can be peeled away (like an onion) by network nodes. It was originally developed by the U.S. Naval Research Laboratory (NRL) for American intelligence purposes. Meanwhile, Bitcoin provides a way for users to transact without revealing their identity. With that said, the cryptocurrency is pseudonymous and not anonymous, since a Bitcoin wallet’s activity is easily searchable on the blockchain ledger.
In addition to these foundations, Silk Road also used an escrow system and ratings to ensure the legitimacy of transactions through its website. Although this changed over time, in general, when a buyer made a purchase, their payment would be kept by Silk Road until the seller delivered the requested product. Once this occurred, the buyer could rate the seller (thus creating an economy of reputation) and the funds would be released. Silk Road—and its founder—made a profit by charging a fee for this service.
Legacy of Silk Road
Although it only existed for two years, Silk Road will forever be one of the most famous moments in crypto history. For better or worse, it solidified Bitcoin as a network that could support “free” and anonymous activity, no matter how legal. Some laud the materialized use-case that Ross Ulbricht brought to cryptocurrencies. Many others feel the harm he did was unconscionable. No matter the individual’s perception, Silk Road remains the prototype—and epitome—of the modern black market.
The legacy of Silk Road continues through its cryptocurrency holdings. When the FBI confiscated Ulbricht’s computer, they seized his 144,000 bitcoin. They have made further seizures connected with Silk Road since then, which includes 50,000 BTC in 2022. The crypto community has paid close attention to the U.S. government’s BTC dealings in the years since the 2013. On-chain analysis has revealed when Silk Road-connected funds are transferred across the blockchain, and headlines are made when the U.S. government’s wallet sends BTC to an exchange or sells the assets. These moves have historically been big enough to affect the price of BTC, although the magnitude of the swing has decreased over time.
So, even though Satoshi’s original plan for Bitcoin was to free the public from reliance on financial and governmental institutions, one of the biggest holders of the asset they created is one such government. All thanks to Silk Road.
Silk road Essentials
Silk Road was a darknet marketplace active from 2011-2013 and created by American Ross Ulbricht. It primarily hosted the sale of illicit drugs and other illegal fare.
The website relied on the Tor network and payments using bitcoin to maintain anonymity, privacy, and protection from authorities.
Silk Road was brought down by American law enforcement in 2013, but its legacy lives on as a prototype for darknet marketplaces and because of large pools of BTC controlled by the U.S. government.