Progress pill
The great bubble of 2011

Silk Road, the Amazon of drugs

Bitcoin's Pioneering Era

Silk Road, the Amazon of drugs

  • Ross Ulbricht, libertarianism and agorism
  • The genesis of Silk Road
  • The launch of the platform
  • How Silk Road works
  • The Gawker article
  • Reactions to the site's popularity
  • The success of the Amazon of drugs
  • A central element in the construction of Bitcoin
The question of the relationship between cryptocurrency and authority emerged fairly quickly in the history of Bitcoin. In December 2010, Satoshi Nakamoto withdrew from the public eye following the publication of a PC World's article that encouraged WikiLeaks to use Bitcoin. As if to confirm his intuition, the article drew massive attention to Bitcoin, whose price jumped from $0.20 to $32 in just a few months. Satoshi continued to communicate privately with his closest collaborators and ultimately disappeared in the spring of 2011. Quite symbolically, the last message from Gavin Andresen, the developer who had taken over the project, informed Bitcoin’s creator that he had been contacted by In-Q-Tel, an investment fund managed by the CIA. Pandora’s box was truly open.
Satoshi Nakamoto was right to step aside at this point, as the years that followed were marked by the proliferation of illegal uses of Bitcoin. Quite logically, outlaws had an interest in using Bitcoin's resistance to censorship to escape state control. The most popular use case was probably online drug trafficking, which took place via an innovative marketplace: Silk Road.
This platform, quickly dubbed the Amazon of drugs, was created by a 26-year-old Texan by the name of Ross Ulbricht. His strong libertarian ideals inspired the idea for the project. Silk Road was a runaway success, and eventually played such a key role in Bitcoin's economy that we've devoted an entire chapter to it here. We first introduce Ross Ulbricht, the mastermind behind Silk Road, then talk about the marketplace's early days, before looking back at its early successes in 2011.

Ross Ulbricht, libertarianism and agorism

Born in 1984, Ross William Ulbricht grew up in Austin, Texas, where he spent an uneventful youth surrounded by a loving family. He was a boy scout for many years, which gave him a taste for outdoor activities such as hiking and camping, and for sports. A brilliant student, he was awarded a full scholarship to go to university, where he obtained a bachelor's degree in physics and a master's degree in materials science and engineering, specializing in crystallography.
Ross Ulbricht, at an undetermined date (source: FreeRoss.org)
During his university years, Ross experimented with a variety of drugs, particularly psychedelics. But above all, it was during this period that he became deeply interested in libertarian ideas and the Austrian school of economics, reading Ludwig von Mises and Murray Rothbard in particular, but also Joseph Salerno and Lew Rockwell. Through the College Libertarians club, he participated in debates advocating liberalization of the healthcare system and legalization of drugs. In 2008, he supported Libertarian Ron Paul's campaign for the Republican Party primaries.
He was also passionate about agorism, a political philosophy theorized in the 1970s by Samuel Edward Konkin III, which was in some ways a direct application of libertarian doctrine. The heart of agorism (a term derived from the ancient Greek άγορά, agora, meaning "marketplace") lay in promoting the underground economy (which Konkin calls the "counter-economy") as a peaceful means of reducing the influence of the state. The idea was to walk the talk, unifying libertarian theory, based on the principle of non-aggression, with black-market practice, based on the pursuit of profit.
Ross's discovery of the agorist philosophy was a revelation. Libertarian ideas fascinated him, but also created a sense of powerlessness, as they showed the omnipresence of the state. Agorism was a saving grace. In a long message published on March 20, 2012, he explained:
"I read everything I could to deepen my understanding of economics and liberty, but it was all intellectual, there was no call to action except to tell the people around me what I had learned and hopefully get them to see the light. That was until I read 'Alongside night' and the works of Samuel Edward Konkin III. At last the missing puzzle piece! All of the sudden it was so clear: every action you take outside the scope of government control strengthens the market and weakens the state. I saw how the state lives parasitically off the productive people of the world, and how quickly it would crumble if it didn't have it's tax revenues. No soldiers if you can't pay them. No drug war without billions of dollars being siphoned off the very people you are oppressing."

The genesis of Silk Road

The idea of an online marketplace began to take shape in Ross Ulbricht's mind in 2009. After having wanted to call it "Underground Brokers", he decided on the catchier name "Silk Road", a reference to the Silk Road, a network of trade routes that linked Europe and Asia until the 15th century, and through which many goods, ideas and techniques from all over the world passed. The young Texan's project was to "create a website where people could buy anything anonymously, with no trail whatsoever that could lead back to them".
As explained, his approach was above all revolutionary, not opportunistic. He saw the marketplace as a means of reducing the role of the state in society. In March 2010, his Linkedin page stated:
"Now, my goals have shifted. I want to use economic theory as a means to abolish the use of coercion and aggression amongst mankind. Just as slavery has been abolished most everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force."
The idea was not really new. More than just an agorist approach, it was also an illustration of the cypherpunks' intended use of "black markets" to exercise their economic freedom, something we find in Tim May's Cyphernomicon.
What's more, the idea had already been put into practice, as several rudimentary marketplaces already existed, such as the Adamflowers platform launched around 2006. These marketplaces were hosted on the simple Web and use conventional payment methods such as PayPal or Western Union. But Silk Road stood out from these platforms thanks to two technical innovations: Tor and Bitcoin.
Tor (a lexicalized acronym for The Onion Router) is a confidential overlay network (also known as a darknet) based on onion routing, enabling anonymous and relatively untraceable Internet browsing and communication. Developed in the 2000s, the browser became quite popular around 2010, and was well suited to the development of an online black market.
Bitcoin was also a good tool, as it could not be shut down overnight by the authorities (unlike centralized systems such as Liberty Reserve), and transactions passing through the network were not subject to the discretion of a trusted third party. When Ross developed his project in 2009, he envisaged using Pecunix, an e-gold-style digital gold currency system. But in 2010, he discovered Bitcoin, which, despite its short existence, seemed to be the right choice for him.
On the forum, the idea of using Bitcoin for this purpose had already been raised. In June 2010, Teppy, the administrator of the MMORPG A Tale in the Desert and the person behind the Bitcoin presentation on Slashdot a month later, proposed the concept of "A Heroin Store" that would allow users to purchase drugs by paying in bitcoins. He wrote:
"As a Libertarian, the thing I love most about the Bitcoin project is the chance that it could be truly disruptive. I think that drug prohibition is one of the most socially harmful things that the US has ever done, and so I would like to do a thought experiment about how a heroin store might operate, accepting Bitcoins, and ending drug prohibition in the process. We'll assume that the drug store is very high profile, and that law enforcement makes discovering the operator a high priority. We'll also assume that heroin is cheap when bought in bulk; the street price reflects the risk that street dealers must take to sell their product."
After his university years, Ross returned to his native Austin. With no particular attraction to the scientific path, he worked at a number of food-related jobs. In 2010, he ran Good Wagon Books, a used-book resale business that a friend had given him. He had a few employees, but the work didn't interest him. He was far more obsessed with his personal project.
In the summer of 2010, Ross decided to grow hallucinogenic mushrooms as the first product to be sold on his website. He rented a space in Bastrop, on the outskirts of Austin, bought the necessary equipment and, like Walter White in the TV series Breaking Bad, transformed himself from a simple chemistry hobbyist into a drug producer.
To build the site, he asked Richard Bates, a college friend who had worked for PayPal and eBay, for help. Ross didn’t initially tell him the nature of his project, but Richard agreed to give him some computer advice. By the end of 2010, the Silk Road platform was ready for launch.

The launch of the platform

After setting up the platform, Ross Ulbricht turned his attention to promoting it. On January 27, 2011, he registered under the pseudonym Altoid on the forum of The Shroomery, a site dedicated to hallucinogenic mushrooms, and published a message there mentioning the marketplace, in which he claimed to have stumbled across it by chance. On January 29, he repeated this maneuver on the Bitcoin forum, in the thread devoted to Teppy's "heroin store". He wrote:
"Has anyone seen Silk Road yet? It's kind of like an anonymous Amazon.com. I don't think they have heroin on there, but they are selling other stuff. They basically use bitcoin and tor to broker anonymous transactions."
In the message, he provided the address of the site on Tor (tydgccykixpbu6uz.onion then ianxz6zefk72ulzz.onion), as well as a link to a Wordpress blog containing detailed instructions on how to access the platform. The latter was soon suspended, so Ross was forced to set up a new intermediate website at Silkroadmarket.org.
A forum member, using the pseudonym ShadowOfHarbringer, quoted his post and replied:
"So here we go, first Bitcoin drug store. We're going into deep water faster than I thought then. I wonder how long will it take for govs to start investigating Bitcoin."
However, the platform soon ran into technical problems and was temporarily taken offline. During February, Ross asked his friend Richard again for technical advice. On March 1, he finally made an official announcement with a dedicated account on the Bitcoin forum, stating that "28 transactions have been made!" since launch.
Back then, the Bitcoin forum hosted a marketplace where people could buy and sell things in bitcoins. However, there were no rules prohibiting illegal drugs. Martti Malmi, who attended the launch of Silk Road, eventually banned the sale of illegal goods on February 19.
Silk Road drew the attention of Bitcoin users, and in particular agorists, who considered that "Bitcoin is ideally suited for use in counter-economic activities, due to its anonymity and security". The marketplace was also mentioned in numerous places, including on the radio program Free Talk Live and on 4Chan.

How Silk Road works

Silk Road was a marketplace, meaning it acted as an intermediary between buyers and sellers, much like Amazon or eBay. A reputation system was in place to avoid scams. Exchanges were made in bitcoins, and in the early days bitcoin was used as the unit of account rather than the dollar. In addition, Silk Road used an escrow system that enabled the administrators (initially just Ross) to arbitrate in the event of a dispute between a seller and a buyer.
Screenshot of Silk Road in May 2011 (source: archive from Gawker)
Products were shipped via the postal service (the United States Postal Service in the case of the USA), with systematic searches being prohibited in most countries around the world. In the event of an unexpected inspection, the packages were cleverly disguised to appear as ordinary shipments. Products with odors likely to be detected by sniffer dogs were placed in vacuum bags.
In keeping with Ross's libertarian philosophy, the products that could be listed on the site must not have been obtained by harming others: drugs, medicines, precious metal coins, but never stolen bank cards, child pornography or hitmen's services. On the whole, the site was mainly used for illicit drug trafficking, and in particular for the sale of small quantities of cannabis. Legal products such as books, art, electronic components, gold, etc. could also be found on the site, but these made up a tiny proportion of the trade carried out on the platform.
Initially, Ross Ulbricht validated all sales by hand. Self-taught in computer science, the site he set up was riddled with flaws and faults. With the increase in traffic associated with the launch, these problems became hard to bear. So Ross decided to rewrite the platform's code, while continuing to manually manage orders and hold down a job in his official life. The workload was enormous: in his diary, he explained that "rewriting the site was the most stressful couple of months I've ever experienced."
The new version of Silk Road was finally released on May 18, 2011. It included automated payment processing and a bitcoin shuffler, enabling processed bitcoins to be anonymized. However, it also suffered from a flaw that caused a loss of several "thousands of dollars" at the time, prompting Ross to revise the entire processing procedure to fix the problem. Despite this, the site eventually gained popularity through word of mouth.

The Gawker article

The existence of Silk Road had been known on the Bitcoin forum since its inception. At first, however, it escaped the radar of the general press. Thus, even though the hypothetical case of drug trafficking was mentioned in April by Andy Greenberg in his article for Forbes, the journalist was not yet aware of the platform.
The first mention of Silk Road in the mainstream media came on June 1, 2011, when an article by Adrien Chen was published on Gawker, a popular blog hosting multiple authors. The article, entitled "The Underground Website Where You Can Buy Any Drug Imaginable", presented the platform in a favorable light and included testimonials from several satisfied users.
June 1, 2011 article about Silk Road (source: archive from Gawker)
The author even included a few quotes from Ross Ulbricht, whom he interviewed by e-mail and introduced as "Silk Road's administrator". Ross was thus able to share his real motivations, rather than leaving the journalist to speculate on the subject. In the article, he stated:
"The state is the primary source of violence, oppression, theft and all forms of coercion. [...] Stop funding the state with your tax dollars and direct your productive energies into the black market."
This article revealed the existence of Silk Road to the general public, as the story was taken up by the mainstream press, such as The Atlantic. As a result of this unprecedented publicity, traffic on the platform exploded. Servers were struggling to keep up, so much so that Ross was forced to freeze registrations.
Competitors also began to emerge, copying the Silk Road model, such as Black Market Reloaded, which was launched at the end of June. Nevertheless, Silk Road remained number one until its shutdown, thanks to its "first mover advantage" and unique philosophy.

Reactions to the site's popularity

Not everyone welcomed the publicity generated by the Gawker article. The fact that Silk Road was in the spotlight had the side effect of increasing attention on Bitcoin (not least because customers had to obtain bitcoins to buy products). And it turned out that part of the Bitcoin community was hostile to this connection between cryptocurrency and drug trafficking.
In particular, programmer Jeff Garzik, who was involved in the development of the software at the time, took a dim view of this unwelcome association. Following publication of the article, he personally contacted Adrien Chen by e-mail to explain that Bitcoin was not as anonymous as it seemed, all transactions being permanently recorded on the blockchain. He ended his email with this assessment:
"Attempting major illicit transactions with bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb."
The Gawker article also attracted the attention of the authorities. On June 5, a few days after its publication, Senators Chuck Schumer (New York) and Joe Manchin (West Virginia) intervened in the public discourse to demand a shutdown of the platform. In an open letter addressed to the Attorney General of the Department of Justice and the Administrator of the DEA, they wrote:
"We write to express our grave concern upon discovery of an online marketplace for illegal drugs, known as 'Silk Road.' Launched in February, this underground website allows users to hide their identities and freely purchase and sell illegal drugs, ranging from cocaine, heroin, ecstasy, and marijuana. (...) Pursuant to 21 U.S.C. 853(a)(2), the Attorney General has the authority to shut down such entities involved in the delivery and distribution of controlled substances by seizing the website domain name. The Drug Enforcement Administration has been and continues to be rigorous in enforcing our controlled substance laws and regulations. As part of this critical mission, we urge you to take immediate action and shut down the Silk Road network."
Furthermore, in a press conference, Senator Schumer accused Bitcoin of being "an online form of money laundering used to disguise the source of money, and to disguise who's both selling and buying the drug". This had prompted a reaction from Gavin Andresen, the software's main maintainer, who was not in favor of Silk Road, but was sorry to hear such a thing being said on Bitcoin. On his blog, he wrote:
"Second, nobody can control what is purchased with bitcoins, just like my local bank cannot control what I do with the cash I withdraw from their ATM machine. I wonder if Senators Schumer and Manchin would like to replace all cash with a government-issued smart card; after all, that would make it much harder for criminals to get away with buying illegal goods anonymously, and if we are all law-abiding citizens then we shouldn't worry about the government knowing about all of our purchases... right?"

The success of the Amazon of drugs

With the attention of the press, Silk Road took off and eventually became profitable. By the end of the summer, the site's activity had grown to represent almost 10% of the volume traded on the Bitcoin chain. The site, which was funded by commissions on sales, was then generating revenue in the tens of thousands of dollars per month, with operating costs far lower. Ross could now afford to pay himself a generous salary and ended his official employment.
Faced with the growing success of his project, he also had to learn to delegate. So he hired employees to manage site disputes and moderate forum discussions. In his diary, he wrote that "after making about $100k and up to a good $20-25k monthly, I decided it was time to bring in some hired guns to help me take the site to the next level". This was how he started paying people whose formal identities he did not know, but whom he trusted.
Over the summer, he saw his friend Richard in Austin, and the two men planned to open a bitcoin exchange platform. Ross was accustomed to using Bitcoin and was already considering how this platform could enable him to launder the money he had made from Silk Road. However, it would never see the light of day.
It was in this approach that Ross made a fundamental mistake. On October 11, he published an ad on the Bitcoin forum in which he stated "I'm looking for the best and brightest IT pro in the bitcoin community to be the lead developer in a venture-backed bitcoin startup company". He used the pseudonym Altoid (with which he previously promoted Silk Road). In the message, he revealed his e-mail address, containing his legal name: [email protected]. This mistake would cost him dearly, as it would help the police investigation against Silk Road to identify and arrest him two years later...

A central element in the construction of Bitcoin

Ross Ulbricht thus implemented an innovative idea, based on his libertarian and agorist convictions, making use of Bitcoin's resistance to censorship. After a preparation period of over a year, he launched the prototype in January 2011. The beginnings were difficult, but his efforts eventually paid off: by June 2011, Silk Road was known to the world thanks to an article published on Gawker.
The emergence of Silk Road was an essential element in the construction of Bitcoin. The platform's success demonstrated that Bitcoin had a purpose of its own, distinct from traditional state currencies and online payment services. Moreover, the use of Silk Road led a number of people to take an interest in Bitcoin, such as Peter McCormack, future host of the podcast What Bitcoin Did. Silk Road finally opened the door to all manner of illegal uses, for better or for worse.
So, a little over a year after the sale of Laszlo's pizzas, Silk Road became the epitome of Bitcoin trading. At the same time, however, this use was being challenged by another type of activity: speculation. And speculation was in full swing on Mt. Gox, the ecosystem's main foreign exchange platform, which was then run by Frenchman Mark Karpelès.
Quiz
Quiz1/5
What nickname was quickly given to the Silk Road platform created by Ross Ulbricht?