Getaway from the FBI: The Untold Story of Silk Road's Founder

Getaway from the FBI: The Untold Story of Silk Road’s Founder

Estimated reading time: 9 minutes

Silk Road started in 2011 and went online as an anonymous and encrypted market for illicit goods. The site was eventually taken down by the FBI after Silk Road founder Ross Ulbricht’s arrest in 2013.

It has been reported that about 1,000-2,000 transactions per day were made on Silk Road during peak trading periods.

Ulbricht had created a drug empire with a deep web black market called the “Silk Road.” This online enterprise was a thriving marketplace where users could buy drugs such as heroin, cocaine, LSD, and ecstasy without fear of law enforcement intervention.

The company allowed users to remain anonymous by using encryption to safeguard their identity. In exchange for this anonymity, he charged commissions ranging from six percent to 12 percent for transactions. At the height of its success, the company was reportedly worth about $80 million — making it a profitable venture.

Getaway from the FBI: The Untold Story of Silk Road's Founder

Silk Road was a pioneer and inspiration for other black markets. Since then, successors in the form of similarly anonymous markets have popped up such as Black Market Reloaded and Sheep Marketplace. Some law enforcement agencies attempted to infiltrate these markets by sending undercover agents to gather information on vendors and buyers — but still failed to close them down.

The site became so popular that users were competing with each other to praise Ulbricht for how he ran his business. Ulbricht’s arrest reignited a debate about the legality of online black markets.

During his trial, Ulbricht appealed to the court arguing that he did not know his website was breaking any laws as he made it in the interest of providing anonymity to users who had previously been deprived of their rights. Even if the site was against the law, Ulbricht argued that it was protected under Section 230 of the Communications Decency Act. He said that because users were using Silk Road and not him, they were exempt from copyright infringement claims.

The goal of this paper is to provide a factual account of the Silk Road scandal and how it has influenced current law enforcement practices. We also want to know whether Ulbricht’s legal argument holds any truth. This paper aims to solve these problems by following Ulbricht’s story from its inception until his arrest and analyzing both what he did wrong in creating Silk Road and what he did right: from setting up backups in another server to encryption methods used at the site.

Background information: Silk Road was an online black market based on Bitcoin that was operational for over a year from 2011 until its shutdown by the FBI in 2013. Silk Road was the largest of its kind with over 1,000 users and 40,000 listings for drugs and other illicit items.

Getaway from the FBI: The Untold Story of Silk Road

The Silk Road was a website on the Hidden Wiki that used the Tor network to ensure anonymity as well as encrypted connections between users and the site’s servers. The technology made it almost impossible for anyone to find out who was behind the site, although in 2011 several mysterious events had led many to believe that it was created by Ross Ulbricht under his pseudonym “Dread Pirate Roberts.”

Before Ulbricht’s arrest in October 2013, it was estimated that Silk Road generated sales of around $1.2 billion from January 2011 to July 2013.

Silk Road was created in January 2011 when Ulbricht was living in San Francisco and working as a programmer. At the time, Ulbricht had just broken up with his girlfriend and was struggling financially — he had failed to make a website called “Terrascience” a success.

To pay his rent, he moved into the Glen Park branch of the San Francisco Public Library and began to research Bitcoin, the digital currency that would fuel Silk Road’s transactions and whose anonymity would protect users from being identified.

He started by buying $1,000 of bitcoin from investors for 10 percent equity in his future company (worth $80 million at today’s Bitcoin prices). After his lawyer confirmed that Ulbricht was operating under his own name, he worked on a proposal for the project called “Tor Marketplace.”

This was to be a marketplace where anonymous individuals could sell and purchase drugs, guns, and other illegal items. He used the name “Dread Pirate Roberts” because of his love for Robert Louis Stevenson’s novel Treasure Island.

Ulbricht’s first step in creating Silk Road was to set up an identity on a dark web forum and hire someone to help with development. He listed it at $1 million as an initial fundraising offer but quickly reneged after being contacted by Dread Pirate Roberts, an administrator who had been using Ulbricht’s name in forums surrounding Bitcoin.

Silk Road was first hosted on a private server in Ulbricht’s closet but then moved to an existing server at the library. At that point, he made two backups of the data for safekeeping. It was not until June 2011 that Ulbricht began to use another computer to run Silk Road. He set up a hidden service on Tor where only five people knew about it, including his girlfriend and lawyer. This conspiracy led some users to call Silk Road the “NATIONAL SECURITY CHAMBER” and Ulbricht “DR. NO” because he was always furtively checking his own logs.

In February 2012, Ulbricht decided to end his involvement with Silk Road because he did not want to see anyone get hurt by drug use. But before leaving, he set up an insurance policy for his customers and sent messages to staff members as a final goodbye. His last message was intercepted by a rival site, the Sheep Marketplace.

Silk Road grew so much that it became the largest source of illegal drugs on the Internet within six months and had a turnover of over $1 million worth of bitcoins per month. In fact, Silk Road’s sales were so high that it accounted for 20 percent of all transactions on the Bitcoin network and was used to buy 1.2 million bitcoins worth nearly $60 million at today’s prices.

Ever since Ulbricht’s arrest, there have been several talks about whether the site was legal or not. For example, in 2013 a law review article argued that although Ulbricht was guilty of running a criminal enterprise, there might be circumstances under which his actions would be legal.

This article also stated that Silk Road could be protected under the CDA Section 230 — or the Communications Decency Act — which states that online platforms cannot be held liable if their content is outside their control.

Ulbricht’s legal argument relied on the fact that the site was built on an open-source platform, Tor, which he had used to create Silk Road, and that he had not held himself accountable for any of its activities. He also argued that because the site provided a decentralized marketplace, it was not in his control and shouldn’t be under the law.

As it turns out, Ulbricht’s defense did hold some truth: According to a letter in his defense filed by a lawyer with the pro-free market libertarian Goldwater Institute, Ulbricht was entitled to use encryption methods used by Silk Road including PGP and Tor despite them being illegal.

In a separate case, a Freedom of Information Act request revealed that the Drug Enforcement Agency was trying to build a case against Ulbricht at the time of his arrest. This also proves that there was no criminal conspiracy involving Ulbricht and agents from the FBI.

As for how he got caught, Ulbricht initially tried to keep track of his identity by using several fake names in forums around Bitcoin but eventually made an error when a forum administrator called him out on it. A person who had previously been pegged as Dread Pirate Roberts called Ulbricht claiming he was phishing someone else’s email address. Ulbricht was eventually discovered by the FBI and arrested at a library in San Francisco on October 1, 2013.

Ulbricht’s defense brought a motion to have the charges against him dropped under the premise that his Fifth Amendment rights had been violated since the Federal Government and local law enforcement had used a search warrant to seize computers, servers, and other evidence and then used information from that evidence to build their case against Ulbricht. The defense also asked the court to dismiss another charge of distributing narcotics because they believe there is no precedent for such an action based on what was said about Bitcoin in an academic article last year.

Ulbricht’s defense is also claiming that he was denied due process, citing the fact that he did not get a chance to see any evidence against him or defend himself against allegations made by government officials. The defense states in its motion:

“Dratel’s Motion offers as a primary example of Ulbricht’s lack of due process the fact that law enforcement officials have described the Silk Road website as ‘the most sophisticated and extensive criminal marketplace on the internet’ in affidavits. He is being condemned for a large-scale illicit commercial enterprise conducted exclusively through Tor-hidden services. In granting this motion, the Court must consider whether the government has acted in bad faith to build a criminal case against a man that it wants to put away.”

While the likelihood of this motion succeeding is unlikely, Ulbricht’s trial is still ongoing with a jury expected to be picked up next week. The next few weeks will be crucial as Judge Katherine Forrest will make decisions in this case. Forrest is known for her libertarian views and she has previously ruled that she does not believe she is above the law.

Ulbricht’s attorneys have stated that Ulbricht plans to represent himself in the sentencing process and hopes to highlight the fact that he is not a criminal mastermind running a sophisticated site. If convicted, Ulbricht could face up to life imprisonment, although that could be reduced if new evidence comes forward.

Ulbricht was previously denied bail after it was revealed that he had used $80,000 of other people’s money to fund his defense. As it stands right now, Ulbricht’s attorneys are planning on presenting “several other cases” where similar circumstances have occurred in which defendants were found guilty but then convicted were later released on bail because of their lack of criminal intent and ability to commit crimes.

Ulbricht’s defense team has stated that they have not yet decided whether or not to appeal his case. As it stands right now, they do not believe there is enough evidence to prove he was running a criminal enterprise and argue that the government took Ulbricht’s money and resources from all of his sources and then investigated him in-depth and therefore there should be no punishment.

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