THE COLLEGE HILL INDEPENDENT


Crypto Contra Central Control

Silk Road and the failed 'revolution'

by Galadriel

Illustration by Eve O'Shea

published September 24, 2018


Within the last week, the apocalyptically-named “Crypto Crash of 2018” has reached new lows. “Crypto’s 80% Plunge Is Now Worse Than the Dot-Com Crash,” reported Michael Patterson of Bloomberg on September 12, as investors in virtual “cryptocurrencies” face a flood of payouts that threaten to further destabilize a once-booming market. While 2017 saw a meteoric rise in the value of currencies like Bitcoin, Ethereum, and Ripple, the “bitcoin bubble” began to burst in January 2018. To critics, the crash has represented what was already obvious: that the decentralized, bottom-up investment in currencies detached from any material value is financially unsustainable.

While there are signs of a Bitcoin recovery that may lead to a stabilization of cryptocurrency values, controversy around the financial viability of cryptocurrencies persists. To some, however, the true worth of cryptocurrency is in the political promise that comes from its technological premise. Currencies like Bitcoin use peer-to-peer networks, which were developed as an alternative to the traditional model of information storage in computer networks. In the classic ‘ client-server’ model, information is stored on a central server from which users request information. In peer-to-peer networks, users communicate with each other directly instead of through central servers to locate and receive the information they want. In this manner, cryptocurrencies share information known as a ‘blockchain’ (essentially a digital transaction ledger where old entries can’t be erased or modified) between all users, without any central control over or storage of this information. Because the transaction ledger can be used to track ownership of cryptocurrency, but is not controlled by any central financial agency, a handful of enthusiasts see cryptocurrencies as a revolution of the state’s role in the financial system, and a way to subvert government authority more generally.

 

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Today, cryptocurrencies have made their way into the mainstream, but initially, their circulation was primarily restricted to the kinds of commodities ‘big government’  didn’t want you to buy. The first novel, practical, and widespread application of Bitcoin was an illegal online drug marketplace called Silk Road. Founded in early 2011, Silk Road was hidden in plain sight on the “Dark Web”; anyone who downloaded an anonymous browsing software called Tor could access the website. The front page listed a variety of drugs, which could be sorted by type (“opioid,” “psychedelic,” etc.) and arranged by reputation of seller. All transactions were paid for with bitcoin, which could hide the identity of the buyer and seller when used carefully. Payment was held in escrow until the buyer confirmed receipt of their order. Buyers could then rate their seller and leave comments about the quality and purity of the product. The result was an encrypted, anonymous version of eBay for drugs.

On the bottom right corner of the homepage was a link to the Silk Road forums. These were frequented by the creator of Silk Road, who went by the pseudonym Dread Pirate Roberts (a nod to 1987’s classic film The Princess Bride). Dread Pirate Roberts, or DPR, was a curiously enthusiastic character. Unlike what might be expected of a shadowy international digital drug-trade kingpin, he was garrulous and idealistic. He alternated between posting political manifestos about freedom from central authorities, juvenile jokes about drugs, and proclamations of love for Silk Road users (whom he called “comrades”) in random displays of bizarrely sweet affection.

     DPR believed deeply that the site he created, and every transaction that occurred on it, was “a conscientious objection and act of rebellion against the state.” DPR was not particularly fond of “the state,” which he saw as “a tax-eating, life-sucking, violent, sadistic, war mongering, oppressive machine.” Detailing his evolving attitude toward the state in a 1,000-word-long forum post, he shared why he started Silk Road:  “Everywhere I looked I saw the State, and the horrible withering effects it had on the human spirit... All of the sudden it was so clear: every action you take outside the scope of government control strengthens the market and weakens the state.” Silk Road was, from the outset, an ideological undertaking, a promotion of the radical freedom and anti-establishment individualism so prevalent in Silicon Valley. DPR’s democratized drug network, by freeing producers and dealers from the constraints of physical interaction, was on the path to creating the “open-ended universe, self-governing and self-designing... cybernetic ecology of minds” dreamed of by infamous techno-hippie Stewart Brand.

The post signs off, “I have no one to share my thoughts with in physical space. Security does not permit it, so thanks for listening. I hope my words can be an inspiration just as I am given so much by everyone here.” While DPR drew inspiration and purpose from running Silk Road, he was increasingly lonely and paranoid. He was beginning to form a trusted inner circle online, comprised of an anonymous security expert who acted as a technical and professional mentor to him, a paid informant advising him on law enforcement investigations, and several reliable sellers and forum users whom he hired as moderators. He could not take the risk of sharing his real identity with any of them. Offline, he could not speak honestly with anyone he knew. He lived with roommates in the Bay Area who met him off Craigslist, accepted rent in cash, and thought his name was “Josh.” His real name was Ross Ulbricht, and his story, though akin to that of other tech-moguls, presents a shift in the imagination of what the internet can provide in real terms when it is divorced from a corporatist organizational infrastructure. Out with the CEOs pulling the levers of power, and in with the people, or so the story goes.

 

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“Who knew that a softy could lead an international narcotics organization?” Ulbricht wrote as DPR on September 22nd, 2012. Silk Road had been operating for almost two years at this point, and was gaining notoriety after coverage on sites like Gawker. “Behind my wall of anonymity, I don't have to intimidate, thankfully. But yea, I love you guys. Thank you for being here. Thank you for being my comrades. Thank you for being yourselves and bringing your unique perspectives and energy. And on a personal note, thank you for giving me the best job in the world. I've never had so much fun!”

This “softy” always had strong principles, and an interest in doing good. Ulbricht’s kindness and generosity were the first traits anyone seemed to notice about him. One hundred letters testifying to his character were presented at the trial that would end his career—and the Silk Road—in 2015. People who had known him throughout his life shared anecdotes from how, as a child, he helped a blind Boy Scout in his troop finish a hike, to how he started a yoga practice with his fellow inmates as a prisoner. Before creating the Silk Road, Ulbricht got a Master’s in materials science, founded a short-lived book sales company that donated 10 percent of its proceeds to inner-city youth, and tried his hand at day trading. After growing disillusioned with science and failing at entrepreneurship, Silk Road was finally work he believed was changing the world.

But occupational stress was beginning to get to Ulbricht, and he didn’t know whom to trust. Meanwhile, the FBI was uncovering his identity and the DEA was infiltrating his inner circle. In a bizarre twist, a DEA agent on his case named Carl Force became one of Ulbricht’s trusted confidants. According to Force, after the DEA arrested one of Ulbricht’s moderators, Ulbricht believed the moderator absconded with stolen bitcoin and sensitive information, and attempted to order an assassination through his paid informant. The “paid informant” arranged to have the hit carried out: he staged a gory photo, sent “photographic evidence” to Ulbricht of the moderator’s death, and charged Ulbricht $80,000 in bitcoin for the “job.”

According to Force, Ulbricht was actually paying him as his paid informant the entire time, and the moderator’s death was staged by the DEA. Ulbricht was charged with, on top of everything else, conspiracy to murder. Message logs from the court trial show him conspiring with a member of Hells Angels shortly thereafter to order five more murders. Bizarrely, although Bitcoin transactions for the amounts discussed changed hands, none of these murders ever took place according to law enforcement, so it appears Ulbricht was being defrauded by the DEA and an anonymous party posing as Hells Angels simultaneously. Ulbricht has maintained that he was never involved in a murder-for-hire, and that he was framed. DEA agent Carl Force was arrested for corruption shortly after the case.

By October 2013, Ulbricht was arrested. The FBI had tracked him down through a simple Google search that turned up a question on StackOverflow, a Yahoo Answers-type site for computer programming, with lines of source code from Silk Road, asking for help fixing a bug. His real name was linked to the username. With overwhelming evidence that he was the creator of Silk Road, Ulbricht—who helped popularize what would be one of the most radical (if fraught) breaks from centralized financial capitalism since the invention of derivatives in the 1980s—was sent to prison for life without a possibility of parole. In February 2015, he was convicted of money laundering, computer hacking, conspiracy to traffic fraudulent identity documents, and conspiracy to traffic narcotics (but notably, not for murder-for-hire; those charges were dropped due to the confusing evidence and corruption involved). His second appeal was rejected.

 

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The naivete and arrogance that fueled the ideology of Silk Road feels eerily familiar; echoes of it resonate throughout Bay Area tech culture. It is the same nearsighted self-assuredness that empowers kid-geniuses to build our social networks and search engines in their early twenties as college dropouts, without concern for what might happen as a result. This dream of decentralized control and peer-to-peer networking is apparent in the business strategies of Airbnb and Uber, companies which broke numerous laws, and fundamentally undermined the taxi and hotel industries, by removing the necessity for those industries’ central authority. These companies often reek of macho and youthful hubris, and upend society in hugely transformative ways with a terrifying lack of regard.

While then-20-year-old Mark Zuckerberg might be characterized as politically irresponsible, other Silicon Valley entrepreneurs like Ross Ulbricht founded their startups on an explicit ideology of individualism and anti-regulatory fervor. The history of the Silk Road is inextricably tied to a political philosophy that rejects central authority in favor of unchecked ambition. The Silk Road—and the blockchain currencies it used to trade—illustrated what the techno-utopians of the 1960s thought the internet could be: a democratized space free from government supervision, a public commons. In a sense, Ulbricht’s alleged assassination attempts are merely the “dark side” of Silicon Valley’s romanticized notion of the Internet as “Wild West”—lawlessness pushed to its logical extremes.

Even though the Silk Road and Facebook, for example, share anti-government sentiments, Silk Road undermined the government's pro-central banking, anti-drug agenda, whereas “Surface Web” companies undermine citizens’ rights to privacy and exploit our obsessive and addictive tendencies in only inoffensively illegal ways. Flouting the law to gain users and profits is basically a rite of passage for any startup worth its salt, and the biggest tech giants get to break the law in a massive and entirely state-sanctioned manner when they provide user data to agencies like the NSA.

As Ulbricht’s arrest and imprisonment exemplify, there are consequences to breaking from centralized economic models and refusing to cooperate with government agencies. While more corporatist tech start ups flourish—and are even licensed by regulators to ‘self-govern’—Silk Road’s architects were prosecuted. What differentiates Ulbricht from figures like Jobs and Gates is not what they believed (they all are deeply committed to individuality and personal liberty), but how they chose to manifest their politics. Perhaps this is a simple result of US cultural norms and legal frameworks: drugs are highly stigmatized and are illegal to trade. It’s worth noting that a network of drug trading, while ultimately harmful to the producers, pales in comparison to charges of censorship, election tampering, and fearmongering of which Facebook, Twitter, and Reddit are accused. Still, as is the predictable pattern in the US legal framework, Zuckerberg remains a billionaire while Ulbricht—though certainly no victim himself—is imprisoned for life.

Bitcoin, the currency the Silk Road helped popularize, has since been incorporated fully into mainstream financial trading. While dark web transactions account for just one percent of Bitcoin transactions today, down from 30 percent in 2012, the present allure of cryptocurrency is still rooted in its history. Criminal markets can no longer claim to be the primary purpose of Bitcoin, but not because the number of overall dark web transactions has gone down. Actually, that number has increased—the dark web is thriving more than ever—but it has been drowned out by general public interest in Bitcoin investment. This interest is due in part to its romantic “Wild West” appeal, where value can be mined to indeterminate limit, and its relative accessibility. The dream of cryptocurrency now is merely a modulation of old capitalist reveries—profitability, and its attendant power—rather than any oppositional utopia the Silk Road purported to represent.

The recent collapse of cryptocurrencies encourages a new understanding of their long-term role in our financial system. Specifically, one that understands their history, and thinks about the ways in which cryptocurrencies have been nearly fully incorporated into the canonical boom and bust economic cycles which increasingly characterize our global economy. Perhaps cryptocurrencies—though nominally alternative and decentralized—represent simply another embrace of widespread insecurity in the name of elite economic freedom.

 

GALADRIEL B’20 buys her drugs irl.