Silk Road and Bitcoins

A typical sales page from the original Silk Road, now rebuilt; the site sells illegal drugs, weapons, and more.

Just one month after the FBI seized and shut down Silk Road – the Internet site known as the of drugs, weapons and worse – it’s back. Yup, in the annals of criminal history, this one has to be up there in the chutzpah department; it’s like the powers behind the site are totally thumbing their collective noses at U.S. federal authorities.

Are Bitcoins and Silk Road Founders Aligned?

Even more shocking, new allegations tie Silk Road’s founder Ross William Ulbricht – aka Dread Pirate Roberts until his FBI takedown last month – to the still publicly unidentified original creator of Bitcoins, the digital currency exclusively used to pay for illegal goods and services on the old – and now new – site.

The allegations came to light after two Israeli scientists – one a cryptographer – readied a soon-to-be-published paper that claims that the FBI seizure in fact only got their hands on approximately 22 percent of the $80 million in commissions Ulbricht’s site had garnered from sales of an estimated $1.2 billion; sales on everything ranging from assault weapons to illegal narcotics of any kind and even for hit men services for hire.

Dorit Ron and Adi Shamir are the two researchers who have brought these allegations to light, adding that they themselves have only been able to trace one-third of the total commissions the site pulled in.

But the story gets even more fascinating; the two scientists have also been looking for a possible connection between Ulbricht and “Satoshi Nakamoto”, the shrouded and never-seen creator of the Bitcoin digital currency exclusively used on the illegal site, largely due to its relative untraceability, since it is not tied in to any central banking system. Bitcoins’ value is entirely determined by market demand, and lately, that demand has been curiously skyrocketing, with one Bitcoin being valued at over $800 and climbing recently. What does it all add up to?

Connecting the Dots

The two Israelis have been able to trace some paths back and have made some connections between Silk Road and Bitcoins that are more than just business usage. They’ve been able to do so because although the actual marketplace participants may present anonymously, the transactions themselves are totally public. After getting their hands on a complete listing of all the Bitcoin transactions made this year, the pair created their own graph so they could track statistically how users interacted on the Silk Road site.

In doing this extensive research, the scientists uncovered a single transfer log that followed Bitcoins deposited into an account now known to be Ulbricht’s. That deposit stemmed from another account, created in January 2009, which placed the latter at early Bitcoin network time; it had all only gone public a year prior. And while the Israelis say they can’t definitively prove that that early Bitcoin account was “Nakamoto’s”, there is good reason to believe it very possibly could indicate an “investment” of sorts in the first Silk Road site. Does this point to a dark connection between Silk Road and Bitcoins?

It might. Another compelling piece of data uncovered by the Israelis was a 1,000 Bitcoin transfer made in March of this year. At the time of transfer, that amount would have translated to about $60,000; but with the current insane value surge in the cryptocurrency, it’s now about $847,000 worth.

“Such a single large transfer does not represent the typical behavior of a buyer who opens an account on Silk Road in order to purchase some narcotics (such buyers are expected to make an initial deposit of tens or hundreds of dollars, and to top the account off whenever they buy additional merchandise). It could represent either large-scale activity on Silk Road, or some form of investment or partnership, but this is pure speculation,” note the researchers.

Even more damning is the fact that the unidentified depositor once had some 77,600 Bitcoins – apparently obtained through “mining” operations; that amount would now equal about $64 million in U.S. currency.

“The short path we found suggests (but does not prove) the existence of a surprising link between the two mysterious figures of the Bitcoin community, Satoshi Nakamoto and DPR,” wrote Ron and Shamir. “DPR” refers to Ulbrict’s Silk Road code name, Dread Pirate Roberts.

In some ways, it turns out that Bitcoins’ perennial claim that it exists beyond the long arm of the law has proved to be correct. The scientists say the cryptographic design and veiled movement of the currency makes it much more difficult for law enforcement to seize it than, say, a drug dealer’s stash of thousands hidden in a house. The duo also speculate that there could have been a second – as yet undiscovered – computer belonging to the Silk Road founder that the FBI has not yet been able to track down.

So far, the feds, not surprisingly, have no comment on any of it. And if we know anything about anything, someone is in a production meeting in Hollywood right now, casting “The Long and Winding Silk Road” for a new cable series.

Silk Road 2.0: How Were They Able To Get a Revised Site Up So Soon After Shut Down?

How could a high-profile, illegal website seized by the Feds be up and running again one month later? Apparently, where there’s a will, there’s a way. A few billion bucks at stake doesn’t hurt either.

It took barely a moment, it seems, for an anonymous formerly active Silk Road user to email former top users about the intention to get the site alive again. A forum called the “Vendor Roundtable” was formed, and on it, the framework for recreating the illicit site began.

The forum’s admin even put up a “Help Wanted” ad for a “communication specialist” – someone who would oversee and coordinate the various pieces parts of the rebuilding process.  “You will be assigned work to perform based on what needs to be done,” read the cryptic ad; no mention of what kind of money was involved, apparently.

And so, last week, voilà! Silk Road 2.0 appeared; the only difference was in its absence, some competitive sites had cropped up to fill the void, all run on the secretive Thor server. Like its predecessor, the new Silk Road is a cornucopia of illegal goods and services, from heroin to hit men.

“Silk Road was something that had popularity,” an anonymous and shrouded user told CNNMoney in a TV interview where even his voice was disguised. “That made it easy for people to continue down that path. As long as you can convince the bulk of the biggest buyers and sellers to move over to the new platform, it doesn’t matter what it’s called.”

Word on the street is that in this revised version, information security will be much more closely guarded and will even be “baked” into codes. The FBI did crack the last site, so whether or not they can do so on Silk Road 2.0, remains to be seen. FBI Special Agent Christopher Tarbel – who helped crack the initial site – did say that Silk Road in its original format was possibly the largest and most sophisticated criminal marketplace on the Internet today.