Hullabaloo in the Bitcoin Orchard

 

For the past few weeks, bitcoins have suddenly found an almost permanent spot in every newspaper. There is talk of the volatility of the bitcoin market, its either plummeting or another bitcoin exchanger has gone defunct. Then there is the extra fascinating world of the Silk Road (marketplace) and its creator, Dread Pirate Roberts. But what is this entire hullabaloo for? Since there seems to be a lack of debate on this on our campus (trust me, I have tried), one must share to amplify their will to knowledge.

Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users. Behind the scenes, Bitcoin refers to a technology and network of a peer-to-peer payment system and digital currency introduced as an open source software (a software with its source code made available and licensed which the copyright holder provides the right distribute the software to anyone and for any purpose) in 2009 by pseudonymous developer(s) Satoshi Nakamoto. Essentially, it is a digital currency that was considered to be widely used by consumers for online shopping and other electronic transactions. Certain online retailers and physical stores, mostly smaller operations, already accept the digital currency, but its adoption is not widespread.

The virtual currency relies on a network of computers that solve complex mathematical problems as part of a process that verifies and permanently records the details of every bitcoin transaction that is made. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses.

Unlike traditional currencies, where a central bank decides how much money to print based on goals like controlling inflation, no central authority governs the supply of bitcoins. It moves through a process called mining in which participants record transactions in turn for newly minted bitcoins. These bitcoins are minted by Bitcoin exchangers – like Mt. Gox in Tokyo, Japan. This exchanger recently “disappeared” leaving many bitcoin dealers flummoxed, angry and pissed off about their bitcoins gone (along with their real value money). Unlike other commodities and currencies, its value depends on people’s confidence in it. One bitcoin was priced at $1,100 at a point of time as opposed to $530 now.

But the recent scrutiny on bitcoins arises due its connection with illicit activities. Here, the hidden but supremely genius world of Silk Road comes into the picture. It’s an online marketplace run on a hidden service which ensures anonymity and security from potential monitoring of its users. Created by Dread Pirate Roberts (a character from The Princess Bride, for all those not into fairy tales), the FBI finally put a name to him: Ross William Ulbricht. Ever since his dramatic arrest from a public library in SanFran, things have not been looking up for the 29 year old physics student from Austin, Texas.

To connect to the Silk Road, users had to install a Tor system and visit many sites but what they got out of it was simple but genius – an effective marketplace to buy drugs from sellers all over the world. Earlier, internet commerce essentials as escrow were used. Once bought, the product was shipped through mail (directly from the seller to buyer). This kept Dread Pirate Roberts (DPR) clean. The only trail between him and the drugs was the money – this was soon old news after the introduction of Bitcoins. This made any attempt at tracing the link between the drugs and DPR futile. Out of each transaction, DPR earned his cut (usually 8-10%). This way, he made a pirate’s treasure. In the 2.5 years the site operated, it facilitated 1.2 million transactions worth 9.5 million Bitcoins – or about $1.2 billion in total money exchanged.

So it’s no wonder that the Drug Enforcement Administration, Internal Revenue Services, Homeland Security and FBI all joined hands to track the pirate down. After an “extensive search of the internet”, they finally managed to track him down to San Francisco and arrested him in a series of dramatic events. They say that DPR’s laptop could not and should not be shut down, or it’ll be the end of the operating system of Silk Road.

Roberts was recently charged on account of alleged murder-for-hire and narcotics trafficking violation. Soon after, there has been a revival of Silk Road 2.0 (twitter handler silkroadpirate) by fellow administrators of Silk Road 1.0. Silk Road 2.0 has stringent measures for security – learning from past mistakes. Here is an interview with the boss of Silk Road 2.0.

Is it all rainbows and butterflies? Not at all – the silk road blog here indicates that around February 14 this year Silk Road 2.0 was hacked and Bitcoins (4474.266369160003BTC) worth $2.7 million were stolen! Subsequently, the Silk Road went online again on February 19th and continues to be in operation.

Termed as the “amazon.com for drugs”, sure you can buy meth, LSD, cannabis, heroin and MDMA on the Silk Road but according to Roberts, the Silk Road is about freedom, “to grow into a force to be reckoned with that can challenge the powers that be and at last give people the option to choose freedom over tyranny”.

May the force be with this cause!

To know more about bitcoins, visit https://bitcoin.org/en/faq#what-is-bitcoin!

[The image posted on the old Silk Road as reproduced above is work in the public domain in the United States because it is a work prepared by an officer or employee of the United States Government as part of that person’s official duties under the terms of Title 17, Chapter 1, Section 105 of the US Code.]

[The featured image is reproduced under the Creative Commons License and is taken from Flickr user marsmet522 here.]

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4 thoughts on “Hullabaloo in the Bitcoin Orchard

  1. What bit coin did was to setup a parallel economy which has no control from any government. I think that this guy started off with single objective of ‘free currency’ without understanding the micro and macro impact of it. Such Disruptive ideas will have positive and negative impacts. What needs to be seen is that what these tech guys learn from this and eliminate the negatives. This is just the beginning.

    Like

  2. Pingback: Auroracoins: Vigilante meets Currency | Glasnost

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