Digital Gold (8 page)

In building Silk Road, the drugs were the easy part. The harder part was finding a way to sell the drugs online, outside the watchful gaze of the authorities. The first necessary tool he'd discovered was software, known as Tor, which allowed people to obscure their location and identity when surfing the Web. It also allowed for websites to be set up behind a similar curtain of anonymity. While Tor had been created by United States Naval Intelligence, to give dissidents and spies a way to communicate, it was based on ideas that had been developed by David Chaum and other cryptographers. Most Tor websites could be visited only by people using a Tor web browser. The web address that Ross posted on the Bitcoin forum for Silk Road—http://tydgccykixpbu6uz.onion—gave it away as a Tor site.

The second important tool that Ross had discovered was Bitcoin. With Tor alone, a customer wanting to buy Ross's mushrooms could have visited Silk Road without being tracked. But assuming the customer didn't want to pay by sending cash through the mail, all the other alternatives for making digital payments were easily tracked—as the Cypherpunks well knew. Ross saw that Bitcoin solved this problem. If a buyer paid for drugs with Bitcoin, the Bitcoin blockchain ledger would record coins moving, but the Bitcoin addresses on either end—a series of letters and numbers—would not include the names of the people involved in the transaction. Now the only identifying information about the buyer was the postal address where he or she asked to receive the drugs. And this was easy to game by providing anonymous post office boxes.

Within the Bitcoin world, there had been a common assumption that people looking to buy illegal or unsavory goods were likely to be among the first to have an incentive to use Bitcoin. In one early conversation about where Bitcoin might catch on,
Satoshi had argued for online porn, where users
“either don't want the spouse to see it on the bill or don't trust giving their number to ‘porn guys.'”

Ross had made his first post about Silk Road in the middle of a long-lasting thread on the Bitcoin forum, entitled “A Heroin Store,” which had been discussing the possibility of such a marketplace. Martti had chimed in a few months earlier, helpfully trying to think of ways to make it work. For him, the sticking point was how to get both sides of the transaction to trust each other enough to part with their Bitcoins and drugs.

The fact that Ross had figured out how to put all the pieces together was a minor miracle. Ross had studied physics in college and materials science in graduate school at Penn State. But he was only an amateur programmer and he had to learn the nuances of Tor and Bitcoin software as he went along, stumbling at many points. His ability to pull it off was a testament to his work ethic and business acumen. In response to Martti's concern, he created an escrow service—essentially himself—to hold the Bitcoins of a customer until the drugs arrived in good condition, so the customer had some recourse if the pills or powder didn't show up as expected. On the programming front, Ross managed to sweet-talk an old college friend, who was a more experienced programmer, into giving him lots of technical advice.

In addition to all this, though, Ross's ability to get Silk Road up and running was a product of his sheer desperation at a difficult moment in his life. Two years earlier, Ross had abandoned graduate school—despite having already published several scientific papers—because he wanted to do bigger things with his life. The first things he tried all fell flat, including a used book store he was running at the time he put Silk Road online. This had been one of the first prolonged periods of struggle in a life that had otherwise
been quite charmed. Ross had movie star looks that won him comparisons to the actor Robert Pattinson, and he had always had an easy time making friends, attracting women, having fun, and grabbing brass rings like his Eagle Scout badge and the graduate school fellowship. His failures after leaving graduate school had led him, by late 2010, to a crisis of confidence in which he turned away from his friends and broke up with his girlfriend for a spell.

“I felt ashamed of where my life was,” he wrote in the digital diary he kept on his laptop. “More and more my emotions and thoughts were ruling my life and my word was losing power.”

Silk Road was, in some sense, a last heave—a Hail Mary in the parlance of Ross's football-mad hometown. By the time he got it open in late January,
he had, by his own accounting, gone through $20,000 of the $30,000 he had to his name.

When Silk Road finally opened up to anyone with a Tor web browser it was a simple site, with pictures of Ross's mushrooms next to their price in Bitcoin. At the top, there was a man in a turban riding a green camel, which would come to be the site's trademark image. Within days, a few people signed up, and the first orders came in for Ross's mushrooms. Soon thereafter, the first vendors joined in, offering to sell their own illegal wares.
By the end of February, twenty-eight transactions had been made for products including LSD, mescaline, and ecstasy. Ross's growing confidence was evident from a message he posted on the Bitcoin forum from his new screen name: silkroad.

“The general mood of this community is that we are up to something big, something that can really shake things up. Bitcoin and Tor are revolutionary and sites like Silk Road are just the beginning,” he wrote on the forum.

In his own diary, Ross was more frank: “I am creating a year of prosperity and power beyond what I have ever experienced before.”

March 16, 2011

T
he response to Silk Road on the Bitcoin forums was initially somewhat tepid—only a few people chimed in. But it got much more attention on the most widely used message board for hackers—4chan—and new Silk Road members were soon pouring in, along with orders. By mid-March, the site had over 150 members. That was, in fact, more than Ross was equipped to handle. He had to return again and again to the friend who had been helping him with the code, to figure out how to deal with all the traffic. When the site went down on March 15, he chatted his friend Richard Bates in a panic.

“i'm so stressed! i gotta get this site up tonight,” Ross wrote.

“I'm not sure how this stuff works,” Richard wrote back.

“i wish i did,” Ross responded.

One of the people who visited the site while it was temporarily offline was the host of a popular libertarian radio program in New Hampshire,
Free Talk Live
, who was broadcasting live at the time. Ian Freeman and his cohost had been introduced to Bitcoin earlier in the year by Gavin Andresen, a regular listener who thought
the show could reach an audience that would be sympathetic to Bitcoin. At a lunch with Gavin, the hosts of
Free Talk Live
had shown interest, but ultimately went away unconvinced. Who was going to have an incentive to use this? they asked. Their views, though, changed dramatically less than two months later when they learned about Silk Road.

“All of the sudden my interest has been piqued,” Freeman said on the air.

Freeman and his cohosts did their best to explain how Bitcoin and Silk Road worked and they debated the possibility that Silk Road was a trap set up by the CIA. But the hosts agreed that Silk Road was something utterly new, harnessing Bitcoin to enable a type of transaction that was, for all intents and purposes, not possible before—an online drug purchase. What's more, getting cocaine or LSD delivered to your home—or a rented mailbox—seemed highly preferable to meeting a sketchy dealer at some dark rendezvous.

When Freeman tried to get on Silk Road while he was on the air, and found it was down, he wondered if it had all been a mirage. But when he had been on the site shortly before, he had seen 151 registered users and 38 listings. Someone had recently delivered ecstasy tablets from Europe to the United States, taped to the inside of a birthday card. Here was something that could take advantage of Bitcoin's unique qualities and help it grow.

“This could be the killer application for Bitcoin,” Freeman said.

When Ross learned about the broadcast a day later, he had gotten Silk Road up again, and he wrote to his friend Richard Bates with a mixture of fear and pride.

“my site had a 40 minute spot on a national radio program,” Ross wrote in a chat session with Richard.

“friggin crazy, you gotta keep my secret buddy,” Ross added.

“I haven't told anyone and I don't intend to,” Richard wrote back.

“i know i can trust you,” Ross responded.

O
NE OF THE
many listeners who heard the conversation about Silk Road on
Free Talk Live
was Roger Ver, an American entrepreneur living in Tokyo, just a few miles from Mark Karpeles.

In comparison with many Bitcoin aficionados, Roger had a rather happy upbringing in the Bay Area, where he grew up with one sister and two half brothers. He had been a natural at the strategy game
Magic: The Gathering
—so good that he traveled on an amateur circuit to play competitively. But he was also on a wrestling team, and he and his brother both spent many afternoons fine-tuning their muscle cars—Roger's, a Mercury Capri; his brother's, a Mustang.

At the age of twenty, Roger signed up to run for the California state assembly as a libertarian candidate, vowing never to take a government salary. In the midst of his campaign for the assembly, federal agents arrested Roger for peddling Pest Control Report 2000—a mix between a firecracker and a pest repellent—on eBay. Roger had bought the product himself through the mail and he and his lawyer became convinced that the government was targeting Roger because of remarks he had made at a political rally, where he had called federal agents murderers. He would be the only person arrested for selling Pest Control Report 2000 through the mail and the prosecutors showed no leniency. Hit with felony charges,
he was sentenced to ten months in prison after agreeing to plead guilty.

The experience turned Roger's libertarian ideas from a political cause to a personal crusade—he believed the government was out to get him. In prison, Roger taught himself Japanese, and the day his probation was up he flew to Japan to start a new life, free from the United States government. Japan's orderliness appealed to him. That and he had a thing for Japanese women.

It was during a brief trip back to California to see his family that Roger sat down to breakfast listening to a month-old
Free
Talk Live
podcast on his iPod. When the hosts started talking about Bitcoin, something snagged in his mind and he stopped what he was doing. Many Bitcoin fanatics would later talk about their ecstatic moments of conversion to the Bitcoin cause, but few were as extreme as Roger's. While the podcast was still playing, Roger did a search for Bitcoin on the laptop he had on his kitchen table and began making his way through everything he could find.

He was so entranced by the idea of a financial system outside the control of the government that he read clear through the night to the next day. After a short nap, he began reading again and went on reading for a few days until he eventually felt so weak, and so gripped by a sickness taking over his throat, that he called a friend and asked to be taken to the hospital. There he was connected to an IV sack that pumped antibiotics and sedatives into him. It might have been the drugs, but as he lay in his hospital bed, he felt he had found a kind of promised land that he had been waiting for all of his short life—the Galt's Gulch he had been searching for like a libertarian Indiana Jones.

Roger had an intuitive sense of the way markets worked long before he had developed his market-centric ideology. When Roger was in fifth grade, he cornered the market on Lindy dollars, a school-wide currency named for a beloved teacher, after realizing that a Lindy dollar was not worth the same as a real dollar, as most students assumed. Using his Lindy dollars, Roger bought up all the Rice Krispies treats and brownies at the school bake sale and once there were no other sellers, jacked up their prices. The other students quickly paid Roger's prices, realizing they had no other use for their Lindy dollars.

Roger launched a business, Memory Dealers, during his first year at De Anza College in Cupertino, just after the tech bubble burst, when bankrupt companies began selling their computer hardware cheap. He scooped up all the hardware he could find and
sold it online. The business became so successful that he dropped out of school after his first year. By the time he discovered Bitcoin, his company had thirty employees and sales of around $10 million a year, which paid for Roger's Lamborghini Gallardo and his luxury apartment in Tokyo, just a few blocks from the flashing, teeming transit hub and commercial district of Shibuya.

In April 2011, after hearing about Bitcoin on
Free Talk Live
, he used his fortune to dive into Bitcoin with a savage ferocity. He sent a $25,000 wire to the Mt. Gox bank account in New York—one Jed had set up—to begin buying Bitcoins. Over the next three days, Roger's purchases dominated the markets and helped push the price of a single coin up nearly 75 percent, from $1.89 to $3.30.

At the same time that he was buying, Roger announced on the Bitcoin forums that his computer hardware company, Memory Dealers, would immediately begin accepting payment in Bitcoin. Not long after that, he turned a regular Memory Dealers' advertisement that he paid for on
Free Talk Live
into an advertisement for Bitcoin and crowdsourced the copy for the ad from the Bitcoin forums. Soon enough, he had put up a gold-and-black billboard, on the side of an expressway in Silicon Valley, with an enormous Bitcoin emblem and the phrase “We Accept Bitcoin,” over the Memory Dealers web address. The crowd on the forums went wild.

“God I love Bitcoin!” one user wrote.

“We needed this,” another said.

Roger said he was looking to do even more: “I promise I'm doing whatever I can to help make Bitcoin succeed (Billboards, National radio ads, etc.).”

Roger's appearance on the scene coincided with the first mainstream news coverage for Bitcoin, which helped push the price up, and, in turn, led to more mainstream news coverage. In the first such article, on
Time
magazine's website, Jerry Brito, a fellow at
the libertarian-oriented Mercatus Center at George Mason University, was given space to discuss why Bitcoin might matter:

Law-abiding citizens can carry on their affairs without anyone snooping on them or telling them what they can and can't do. Want to contribute to WikiLeaks or some other politically unpopular organization? No problem. Live under a repressive regime and want to buy a repressed book or movie? Here's how. No wonder the Electronic Frontier Foundation calls Bitcoin “a censorship-resistant digital currency.”

A few days later
Forbes
magazine did its own lengthy and positive story on Bitcoin, noting that the virtual currency
“cuts across international boundaries, can be stored on your hard drive instead of in a bank, and—perhaps most importantly to many of Bitcoin's users—isn't subject to the inflationary whim of whatever Federal Reserve chief decides to print more money.”

Until very recently, Bitcoin had been kept alive almost entirely by computer programmers who played around with the Bitcoin software themselves. Now it was attracting a new breed of participant, like Roger Ver, who could not understand the code, but for whom the political possibilities behind Bitcoin were enough of a draw.

S
ATOSHI
N
AKAMOTO PICKED
this moment to finally disappear for good. The author of the Bitcoin software hadn't posted to the forums since December, but he had continued to e-mail with a select number of developers, including Gavin, Martti, and Mike Hearn, a Google programmer in Switzerland, who got drawn into the project after the WikiLeaks blockade. In late April Hearn politely asked how involved Satoshi intended to be moving forward.

“Are you planning on rejoining the community at some point (e.g. for code reviews), or is your plan to permanently step back from the limelight?” he asked.

“I've moved on to other things,” Satoshi wrote back. “It's in good hands with Gavin and everyone.”

A few days later, Satoshi wrote a slightly peeved e-mail to Gavin about an interview he had recently given to another online radio show.

“I wish you wouldn't keep talking about me as a mysterious shadowy figure,” Satoshi wrote. “The press just turns that into a pirate currency angle.”

Gavin wrote back acknowledging the point. He also told Satoshi that he had received from the CIA an invitation to speak about Bitcoin, which he was planning to accept.

“I hope that by talking directly to them and, more importantly, listening to their questions/concerns, they will think of Bitcoin the way I do—as a just-plain-better, more efficient, less-subject-to-political-whims money,” he wrote.

Gavin never got a response and assumed that Satoshi had been turned off by the idea of Bitcoin fraternizing with the most intrusive arm of the American government.

Satoshi's final e-mails went to Martti, whom Satoshi asked to take full ownership of the Bitcoin.org website.

“I've moved on to other things and probably won't be around in the future,” Satoshi wrote to Martti, in early May, before transferring the site to Martti and disappearing into the ether.

Martti took responsibility for the site, but he had otherwise almost entirely stopped his work on Bitcoin. With the price rising, he sold more than half of his twenty thousand or so Bitcoins and bought himself a nice apartment in Helsinki. Both Martti and Satoshi seemed to recognize that the community had grown large enough that it no longer needed either of them.

T
HIS WAS THE
moment that many early adopters had been waiting for. Bitcoin was getting mainstream attention and being taken seriously by important people. By mid-May, the price of a single Bitcoin was approaching $10.

Thanks to Silk Road, Bitcoin was being regularly used for the first time as a medium of exchange for real, if illegal, things. This was not enough to allow Bitcoin to claim the mantle of money, which had several properties that Bitcoin lacked. But Bitcoin could now meet some definitions of a currency, a label that had been purely aspirational through 2009 and 2010.

“My wife isn't calling it a ‘pretend money project' anymore,” Gavin told the others gathered on the Bitcoin chat channel one morning.

But Gavin didn't let this go to his head. He avoided the urge to buy Bitcoins and speculate on their rising price, as everyone else seemed to be doing. He had promised his wife that while he would spend his time on the project, he would never spend any of the family's money. At this point, it was also evident to Gavin that the price and power of Bitcoin were no longer reliant just on the strength of the underlying Bitcoin protocol. People moving into and out of the virtual currency were using services that people had built on top of the protocol, and it was quickly becoming clear that these services were not equipped to deal with the rapid growth.

In Tokyo Mark Karpeles had to rush home from his honeymoon with his new Japanese wife—whom he had met a few months earlier, not at a bar, but in the office building where he was working—to try to fend off hackers who had launched a denial-of-service attack on Mt. Gox. The attackers said they would relent only if Mark paid a $5,000 ransom.

“This was—of course—denied,” Mark explained to his users. “We do not negociate with internet terrorists!”