The Dread Pirate's Cash Stash is Still Safe
As a quick addendum to our recent post on the Silk Road bust and what it means for bitcoin (surprisingly little), here is something that strikes us as truly funny. Apparently the FBI finds itself unable to confiscate the Dread Pirate's stash of bitcoins:
“Closing down the Silk Road and arresting its alleged operator has left the FBI in uncharted territory. After shuttering the hidden site, law enforcement went to work confiscating the money and materials belonging to supposed drug kingpin Ross Ulbricht, but this usually routine procedure is proving especially troublesome in this case. The cache of more than 600,000 bitcoins in Ulbricht’s personal fortune are still inaccessible to the FBI. The only way to move Bitcoins out of a private wallet is to have the corresponding private key to authorize the transaction. The FBI has been unable to get through the encryption protecting Ulbricht’s wallet, leaving all those Bitcoins — amounting to roughly $80 million at current rates — out of reach. Based on publicly available data, this is about 5% of all Bitcoins in existence right now.
Funds held by users of the site, however, were not so well-protected. Before completing transactions on the Silk Road, users would load Bitcoins into an escrow account on the site. The agreed upon coins would only be transferred to the seller’s private wallet once the buyer had verified delivery of the goods. When the feds took over the Silk Road, there were over 26,000 Bitcoins in user accounts that were relatively easy to snatch up.
The FBI has transferred all 26,000-plus seized Bitcoins to its own personal wallet, but because Bitcoin transactions are tracked publicly, it didn’t take the internet long to find the FBI’s wallet address. Users have taken to transferring tiny fractions of a Bitcoin to the FBI with public comments attached decrying the war on drugs and the arrest of Ulbricht. Users have even helpfully tagged the wallet address as “Silkroad Seized Coins.” You can check out the comments as they come in by watching the blockchain for the FBI’s wallet.”
In other words, one of bitcoin's main attraction – that it is untraceable like cash and cannot be 'stolen' in the conventional sense by outsiders – remains in perfectly fine fettle. The FBI's inability to seize the Dread Pirate's bitcoin stash is a great PR victory for bitcoin.
As to users inundating the FBI's bitcoin wallet with protests against the drug war, this is an additional irony. Since it is not possible to identify them, they need not fear any reprisals, which is giving them an excellent opportunity to vent their opinion on the senseless 'drug war'. That isn't going to change anything, but we suspect that even within the FBI there are by now many people who are questioning whether the 'war on drugs' makes any sense. As noted previously, after more than 30 years, it has yet to attain a single one of its purported official objectives. That leaves basically only one possibility if one employs Occam's razor in pondering the question why it is continued: the official objectives are not the true objectives. There is a hidden agenda.
Pecunia Non Olet
The authorities have seized Ulbricht's bitcoin 'wallet' – but this is not sufficient to take control of the funds:
“While authorities have control of Ulbricht’s wallet, that’s not the same as having the funds. It’s akin to seizing a computer from a suspect with valuable data inside, but being unable to access it because strong encryption was used to prevent access. Ulbricht himself surely has the necessary information to unlock his wallet — otherwise there would be little use in accumulating $80 million worth of Bitcoins. It’s possible prosecutors will use the leverage they have on him to work out a deal that includes turning over the encryption keys.”
If Ulbricht is betting on government's greed providing him with a little bit of leverage in negotiations, he is probably correct. It gets even funnier though – the government doesn't recognize bitcoins as 'money' – but that won't keep it from spending this 'non-money'. As the author notes, the essentially bankrupt government no doubt can use the cash infusion:
“The government doesn’t even want to recognize Bitcoins as money, but that apparently won’t stop it from spending them. In these dark days of government shutdowns and sequestration, Uncle Sam could use the infusion of cash. The Bitcoins taken as part of the Silk Road operation will be held until legal proceedings have finished, then they will be liquidated, according to an FBI spokesperson. Users who are out those 26,000 BTC are unlikely to be seeing them again. Even if Ulbricht avoids spending the remainder of his days in prison, his $80 million fortune probably won’t be waiting for him.”
They will throw the book at Ulbricht, so it is highly doubtful he will ever leave prison again. Of course it cannot be categorically ruled out that drug laws will change one day and some drug-related sentences will then be altered retroactively. Anyway, bitcoin's reputation as a safe and anonymous form of money remains intact and may even be enhanced in the wake of the Silk Road bust. As to Uncle Sam, he is simply acting according to the ages old maxim:
“Pecunia non olet”.
Chart by: Mt.Gox bitcoin exchange
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