For the past two months, Wired has published a detailed account of how the FBI, DEA and other US authorities tracked and traced Ross Ulbricht, the libertarian founder and owner of the Silk Road. For those who have not heard of it, Silk Road is the notorious website that exploited the dark net to sell illegal goods and services. Primarily a site for ordering drugs, the preferred payment method was bitcoin and the preferred modus operandi was torrent.
It’s a fascinating story and demonstrates the libertarian versus statist stand off.
The libertarian versus statist movement is a very active one and, again for those who have not encountered it, is led by many bitcoin activists. The bitcoin activists claim they have invented money without government, and believe that society should be free to operate as they want. If people want to exchange drugs, paedophilia or organise terrorist activities, that is a lifestyle choice and they should be allowed to do just that. The view being that if these activities are viewed by the collective as inappropriate, then the collective will shut it down rather than the government. You can read more about this stand-off here.
Obviously, some of us would see this as an extreme view as the very fact of allowing terrorist funding, child pornography or drugs to be freely traded through the net is undesirable for many. Nevertheless, the libertarians have a view.
Ross Ulbricht was a libertarian. This is illustrated often in the Wired article:
He’d come to see taxation and government as a form of coercion, enforced by the state’s monopoly on violence. His thinking was heavily influenced by Austrian economist Ludwig von Mises, a totem of the modern American libertarian orthodoxy. According to von Mises, a citizen must have economic freedom to be politically or morally free.
Therefore, Silk Road was created as a service unconstrained by statist intervention and completely impervious to interference as it was totally anonymous. Or so he thought.
That’s the really interesting aspect of the article. It traces the investigation to find Ulbricht and what is most interesting is the developments to find him.
WARNING: SPOILER AHEAD. IF YOU WANT TO READ THE ARTICLE WITHOUT KNOWING THE HEADLINES, THEN CLICK HERE NOW.
There were two key factors in these developments that led to Ulbricht’s arrest: perseverance and arrogance.
Perseverance is best illustrated by the DEA Special Agent Carl Mark Force IV who spent over a year socially engineering access to Ulbricht through the torrent chat rooms. The weirdest part of this is that Ulbricht eventually asked Force to execute one of his employees who had been arrested by US authorities.
DPR (Ross Ulbricht) had momentarily wrestled with his decision. He had talked to Inigo about how he just wishes the best for people, and loves them in the libertarian spirit, but ultimately concluded that his AWOL employee had become too much of a liability. And so, DPR’s principled, technological stand against the war on drugs slid into murder. Like so many revolutionaries before him, the idealist became an ideologue, willing to kill for his beloved vision. This action was not revenge; it was justice—a new justice, according to the law of the Silk Road.
Interesting to see how fast libertarians can fall from being drug providers (pushers?) into murderers.
The second aspect of the article that was intriguing is the arrogance of Ulbricht.
A user posted a warning that Silk Road’s IP address was “leaking”—visible to other computers. [Ross Ulbricht] had been alerted to the problem by a user but ignored the warning. Silk Road’s success was making [Ulbricht] arrogant. He had let down his guard, confidently telling colleagues that the site would never be found.
It was the leaky IP address that gave the DEA their big break. From that IP address, they found the server and from that server, all the communications across the Silk Road community. If they had not found that server, then the case would have been thwarted.
And there’s the rub: if Ulbricht had been a more professional programmer and had less arrogance, Silk Road would probably still be running today. Tor technologies are completely anonymous and bitcoin payments cannot be traced easily.
Just to clarify on these two points.
Tor – The Onion Router – was developed by the US Navy in the 1990s with the aim of protecting U.S. intelligence communications online. After its release and subsequent enhancements since 2002, it’s become the preferred network for drugs, fraud and other illicit activities, as it allows users to browse the web almost completely anonymously. Tor achieves this by directing Internet traffic through a free, worldwide, volunteer network consisting of more than six thousand relays to conceal a user's location and usage from anyone conducting network surveillance or traffic analysis.
This is the basis of the Silk Road, and was the reason why Ulbricht believed his anonymity was bulletproof. And it would have been, if he had patched the leak of the IP address, as advised by his user.
Equally, Tor may be near anonymous but bitcoins are not.
All bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network. Bitcoin addresses are the only information used to define where bitcoins are allocated and where they are sent. These addresses are created privately by each user's wallets. However, once addresses are used, they are then associated with the history of all of the transactions they are involved with. Anyone can see the balance and all of the transactions of any address therefore and, as users usually have to reveal their identity in order to receive goods and services, Bitcoin addresses cannot remain fully anonymous. For these reasons, Bitcoin addresses should only be used once and users must be careful not to disclose their addresses by, for example, using multiple wallets for different purposes. Doing so allows the user to isolate each of their transactions in such a way that it is not possible to associate them all together. People who send you money cannot see what other Bitcoin addresses you own and what you do with them.
Nevertheless, having covered the two points above, what should concern the FBI, DEA, authorities, you and me is that if someone copied the example of the Silk Road and was not arrogant, plugged the holes that the amateur Ulbricht used, employed professional programmers, then the Dark Net libertarian dream of money without government and exchange without controls could be realised.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...