Oct 04, 2013

    Silk Rd closure doesn't spell end for bitcoin

    THE United States Justice Department has shuttered online marketplace Silk Road and indicted its alleged founder.

    Founded in 2011, Silk Road facilitated commerce in illegal goods and services, including narcotics, counterfeit currency and hacking services, with payments processed in the digital currency called bitcoin.

    Perhaps not coincidentally, the price of bitcoins fell to about US$119 (S$149) on Wednesday, down from US$145 at the end of last month.

    About 9.5 million bitcoins worth about US$1.2 billion have been exchanged on Silk Road, which prosecutors called "the most sophisticated and extensive criminal marketplace on the Internet".

    The Federal Bureau of Investigation seized 26,000 bitcoins - worth about US$3.6 million - from Silk Road in what prosecutors called the largest bitcoin haul in history.

    While bitcoins, which are not backed by a government or central bank, have begun to gain a footing among some businesses and consumers, they have yet to become an accepted form of payment on the websites of major retailers such as

    Ross William Ulbricht, 29, known on Silk Road as "Dread Pirate Roberts", was arrested on Wednesday in San Francisco and charged with narcotics-trafficking conspiracy, computer-hacking conspiracy and money-laundering conspiracy.

    He calls himself an "investment adviser and entrepreneur" on his LinkedIn profile, but prosecutors said his activities included making a death threat against a Silk Road user who had threatened to reveal information about the site.

    While the Feds celebrated, Silk Road travellers took to Reddit, where they are freaking out about lost money, unconsummated drug deals and the declining value of bitcoins.

    What will Silk Road's end mean for the popular crypto-currency?

    Before the bitcoin was sufficiently mainstream to be used to make donations to non-profit organisations, or to warrant its own exchange-traded fund, it was best known for its utility (and ubiquity) on Silk Road.

    Its association with illicit trade was once central to its identity - and is still an impetus to government scrutiny.

    But the bitcoin no longer needs Silk Road. For one thing, there are other online marketplaces where it could be used.

    Perhaps more importantly, as Reuters reported on Wednesday, in the three months ended in June, bitcoin start-ups raised almost US$12 million from venture-capital investors.

    The bitcoin may still be high-risk, but a customer base of legit start-ups and fewer drug lords probably bodes well.