The dark web marketplace Silk Road became infamous as a platform for trading illicit goods with a high degree of anonymity, enabled by the use of bitcoin as the marketplace’s exclusive payment method.
This article will examine Silk Road, how it worked, and its impact on the Bitcoin industry.
What Is Silk Road?
Silk Road was an illicit online marketplace operating on the dark web that facilitated transactions using bitcoin (BTC).
Ross Ulbricht founded the platform in 2011, which functioned as a marketplace for purchasing and selling illegal goods such as drugs and fake IDs.
The name Silk Road was inspired by the history of trade routes connecting Asia, Europe, and the Middle East. Despite being shut down by law enforcement in 2013, Silk Road helped other darknet markets emerge, creating a thriving economy of illicit marketplaces on the dark web.
How Did Silk Road Work?
Silk Road operated on the dark web and was accessed using the Tor browser, which ensured anonymity through IP address concealment and encryption technology by enabling users to access websites on the dark web.
During its operation, users searched for Silk Road on Tor and were directed to a signup screen requiring a username and password for access.
Once logged in, vendors and customers utilized Silk Road to conduct transactions peer-to-peer using bitcoin. Purchased items were then shipped to alternative addresses, such as PO boxes, to evade detection.
Silk Road gave users access to illicit goods and services, including hacking services, banned energy drinks, digital goods such as pirated software, and forgeries such as fake licenses. While legal goods like books and art were also sold on the site, drugs made up the majority of sales, accounting for 70% of products by 2013.
Like mainstream e-commerce platforms, Silk Road users could also rate and leave reviews for products and vendors, building trust and reliability within the marketplace.
The Rise and Fall of Silk Road
Ross Ulbricht established Silk Road in 2011, adopting the alias “Dread Pirate Roberts.”
Ulbricht’s vision for Silk Road was a platform that would facilitate anonymous online commerce and safeguard users’ identities and freedoms while trading illicit goods. The marketplace took off, and it attracted over 100,000 users.
In 2013, the FBI intervened and shut down the Silk Road website. Led by US Senator Charles Schumer, a joint effort by the DEA and Department of Justice led to a thorough investigation that resulted in the Silk Road case, which led to its closure.
Ulbricht was then arrested and charged with offenses including money laundering, computer hacking, conspiracy to traffic narcotics, and soliciting murder to protect Silk Road’s secrets.
During its two years of operation, Silk Road accumulated about $1.2 billion in revenue, with commissions totaling $80 million. The FBI seized the crypto Silk Road users’ wallets, capturing over 144,000 BTC valued at $28 million then.
Before his sentencing, Ulbricht wrote to the judge, saying that he believed Silk Road gave individuals the freedom to choose. Despite his defense, Ulbricht received five sentences, including two life terms without parole and a $183 million fine.
How Did Silk Road Impact Bitcoin?
Following Ulbricht’s arrest, Bitcoin dropped from $140 to $110 in two hours but recovered to $130 an hour later.
The FBI noted that the action against Ulbricht didn’t constitute that Bitcoin was illegal. The arrest showed that Bitcoin wasn’t a good means for criminals to obscure their transactions since the blockchain records all transactions. Hence, they can still be tracked despite lacking a bank account or name attached to the address. This might have contributed to bringing some disassociation between Bitcoin and criminal activities.
While the Silk Road saga tarnished Bitcoin’s reputation in the media, it also brought significant exposure to cryptocurrencies.
It showed Bitcoin’s functionality in real-world scenarios through its ability to sustain and transfer value across a global marketplace without the need for traditional financial institutions.
Does Silk Road Still Exist?
The original Silk Road on the dark web is no longer operational. However, it acted as a blueprint for other darknet marketplaces that emerged later, many of which still use Tor for anonymization and Bitcoin (or privacy coins) for transactions.
Although it was closed, a significant portion of the Silk Road crypto proceeds are still unaccounted for. In 2020, Bitcoin transactions valued at approximately $1 billion were identified from a Bitcoin address linked to Silk Road. It was later disclosed that the U.S. Government executed these transfers as part of a civil forfeiture action. The Bitcoin in question was reportedly stolen by “Individual X” through hacking the Silk Road.
The Bottom Line
Silk Road served as a blueprint for dark web marketplaces that would later come up and dominate illegal trade on the darknet. Criminals have continuously adapted and found new avenues to offer their products, ranging from drugs and weapons to user data coveted by hackers for large-scale cyberattacks.
The platforms that came after have mostly been discovered and shut down by law enforcement agencies. However, their resilience has shown the ongoing challenge of addressing cybercrime in this digital age.
