November 2011
Success was also testing the big ambitions and grand ideas with which Ross Ulbricht had started Silk Road.
After getting overwhelmed by new users in June 2011, he had brought the site back online, but on a more limited basis—with new registrations halted. His friend Richard, who had been helping him write the site’s code, asked him: “Have you ever thought about doing something legitimate, something legal?”
Ross, in fact, had considered alternatives, and he began collaborating with Richard on a Bitcoin exchange—not a silly idea given the troubles that Mt. Gox was having. They began designing a prototype for their exchange while Ross continued running Silk Road.
In the fall, Ross was forced to consider his options seriously after a friend of his ex-girlfriend—the only other person who knew about his involvement with Silk Road—posted a revealing message on Ross’s Facebook page: “I’m sure the authorities would be very interested in your drug-running site.”
Ross immediately deleted the post and unfriended the woman who had posted it. But he was terrified and went over to Richard’s house to talk with the only other person who knew his secret.
“You’ve got to shut the site down,” Richard told him, after Ross had arrived and explained what had happened. “This is all they need. Once they see this, they can get a warrant and it’s over. This is not worth going to prison over.”
Ross told Richard that he had, in fact, already sold the site to someone else, but Richard could tell Ross was still very shaken. And there was good reason for him to be: Ross had not sold the site. He lied to Richard as one part of his effort to cover his tracks. He was, in fact, still firmly in charge of Silk Road.
Looking at the numbers made it easy to see why Silk Road was a hard business to turn away from. In August alone, the site had generated $30,000 in commissions. There was so much business that in September Ross hired his first staff member to help him out—a user of the site who went by the name chronicpain.
More was involved than the money, though. Ross’s site was actually accomplishing the big things he’d been dreaming about a year before—fulfilling both his ego and his ideals. On the Silk Road forums, he was able to give his grandiose aspirations free rein:
“We’ve drawn a line in the sand and are staring down our enemies. Like it or not, if you are participating here, you are standing on that line with us. This is not about making money. This is about winning a war. Look how far we’ve come in 8 short months. We are JUST getting started.”
The notion that a site dedicated to selling heroin and forged passports was a moral cause would seem to many in the outside world an exceedingly bold claim. But for Ross, Silk Road was an application of the ideas advanced by the philosophers and economists whom Roger Ver and Erik Voorhees also loved—the ones who prized freedom above all else. According to this moral code, people should be allowed to do anything they please as long as it didn’t hurt others. Freeing people from the constraints that held them back was an achievement of the highest order, even when all that it allowed was a junkie to get his fix.
The emphasis on freedom did not mean that Silk Road was an entirely lawless place. If a product, such as child porn, required the victimization of someone else, it was banned from the site—and immediately removed by Ross—following the one rule that all the anarchists and libertarians tended to agree on. When Ross created a category called forgeries, there were also limits: “Sellers may not list forgeries of any privately issued documents such as diplomas/certifications, tickets or receipts,” he wrote on the Silk Road forums. But documents created by governments were fair game.
The success of Silk Road was certainly offering Ross a freedom unlike anything he had experienced before. In late 2011, he sold his pickup truck and moved to Sydney, Australia, where his sister lived. All he needed for his job was his Samsung laptop. He would fit in his work around trips to Bondi beach, where he surfed and hung out with a crew of friends he quickly fell in with. As always, his cool gravelly voice and good looks made it easy for him to meet women. But he had, by now, learned his lesson about discussing Silk Road with anyone. When people asked what he did for a living, he would explain that he was working on a Bitcoin exchange. But for someone involved in such a bold and transgressive enterprise, Ross was a surprisingly fragile and sensitive soul. After a day of walking around Sydney with a girl he liked, just before the New Year, Ross explained how difficult his double life was becoming in the one forum where it was possible—the diary on his computer.
“Our conversation was somewhat deep,” he wrote of his walk with the girl. “I felt compelled to reveal myself to her. It was terrible. I told her I have secrets. She already knows I work with Bitcoin which is also terrible. I’m so stupid. Everyone knows I am working on a Bitcoin exchange. I always thought honesty was the best policy, and now I don’t know what to do. I should’ve just told everyone I am a freelance programmer or something, but I had to tell half truths. It felt wrong to lie completely so I tried to tell the truth without revealing the bad part, but now I am in a jam.”
It was, though, the norm for Ross to fluctuate between self-doubt and hubris. The unusual combination seemed to actually be one of the keys to his success. His self-reflectiveness led him to question everything and constantly rework his site, while his confidence kept him going when he got down on himself.
Keeping his spirits up was becoming easier in late 2011 because Silk Road had attracted a lively community of users. Ross had also found someone he trusted on the site—a vendor on Silk Road who became a staff member and went by the name Variety Jones. Ross described him as “the biggest and strongest willed character I had met through the site thus far.” Variety Jones, or vj, as Ross referred to him, pointed out flaws in the site’s design and helped Ross figure out how to fix them. More important, he became a sort of confidant and even a friend to Ross, helping him think through the best way to run the site, and to feel less lonely.
When Ross was worrying about the people who might compromise him, Variety Jones came up with a clever idea: Ross could change his name on the site from silkroad to Dread Pirate Roberts. The name carried a swashbuckling panache that Ross liked, but it also provided something more important: an alibi. In the movie The Princess Bride, Dread Pirate Roberts was a name that was passed along between vagabonds. This could allow Ross to later say that the job of running Silk Road had been done by different people at different times.
“start the legend now,” Variety Jones told him in a chat.
“I like the idea,” Ross wrote back. “goes along with my captain analogy.”
Variety Jones also helped Ross hone his public pronouncements on the site, which never showed any of the insecurity that Ross had in his real life. In his “State of the Road Address,” posted on the Silk Road forum in January 2012, Ross explained that the site was “never meant to be private and exclusive. It is meant to grow into a force to be reckoned with that can challenge the powers that be and at last give people the option to choose freedom over tyranny.”
If nothing else, Silk Road was indeed providing a good showcase for how anonymous markets and decentralized currencies could work in practice. In early 2012 Silk Road was still essentially the only place where people were regularly using Bitcoin to make real online, anonymous transactions—and the system was working as well as the Cypherpunks might have hoped. Silk Road customers were regularly sending payments of thousands of dollars—or hundreds of Bitcoins—to vendors on the other side of the world. In early 2012 there were vendors in at least eleven countries and many of them were willing to send their products across international borders. All of this was done using Bitcoin addresses and private keys that did not require either side to provide any personal information. There were essentially no complaints on the site about the Bitcoin payment system, and many users who came for the drugs grew to admire the ways in which the virtual currency improved on existing payment systems. It turned out that when the incentives were high enough, lots of people, even those in altered states, could use Bitcoin as intended. The only occasional gripe was about the volatile price of Bitcoin, which made it hard to know how much a vendor would be charging a week later. But Ross dealt with this by creating a clever hedging program that allowed customers and vendors to lock in a price.
Silk Road was also providing a demonstration of how the market could work to keep an unpoliced community in check, even one where the members of the community went by screen names like nomad bloodbath, libertas, and drdeepwood. The primary tool that brought accountability to this anonymous market was the same sort of feedback mechanism used by eBay and Amazon. When a customer received a Silk Road product through the mail, he or she was asked to rate the transaction on a scale from 1 to 5. Even if no one knew the real name of a seller, the reviews attached to a seller’s screen name would allow customers to determine if that particular vendor was trustworthy. A few bad reviews could sink a seller’s business.
This feedback loop created a remarkably engaged online community in which pot and heroin highs were discussed with the same level of analytical detail that Consumer Reports brought to its toaster reviews. And it injected accountability into this apparently lawless land. An academic study of Silk Road later found that nearly 99 percent of all reviews gave the maximum score of 5 out of 5. This helped keep Silk Road growing, from 220 vendors in late 2011 to around 350 in March 2012. The value of all sales in the spring of 2012 was around $35,000 a day. Ross was taking between 2 and 10 percent of each purchase as a commission, depending on the size of the order. In March, that amounted to nearly $90,000 in commissions, collected in Bitcoins.
There was, however, an often unspoken irony in the success of Silk Road, and of Bitcoin for that matter. The site and the currency, which aimed to circumvent the power of the government, were largely built on technology that had been created by the government or through research sponsored by tax money. The Internet itself was an outgrowth of several government research programs, and the Tor network that served as a backbone of Silk Road had been created by the Office of Naval Intelligence. Bitcoin, meanwhile, relied on advances in cryptography that had been built thanks to government funding. Ross himself had gained the expertise to build his government-eluding site after attending one of the best-funded public high schools in Texas and two public universities. It was no coincidence that these technologies did not emerge from a place with a weak government and bad educational systems. But Ross focused on the wrongs the government committed and ignored the advantages it had provided.
That same government was, of course, not going to sit by idly while the technology was used to support an online drug bazaar. Ross didn’t know it, but in the fall of 2011 the Baltimore office of Homeland Security Investigations, or HSI, the law enforcement arm of the Department of Homeland Security, had opened accounts on Silk Road and began making small-scale purchases. This led federal agents, in January, to the doorstep of a young man in one of the poor suburbs of Baltimore who was known on Silk Road as DigitalInk. In real life, DigitalInk’s name was Jacob George and he had been buying drugs—including methylone, bath salts, and heroin scramble—on the streets of Baltimore and reselling them online, becoming one of the most popular vendors on Silk Road after joining the site in July 2011.
After DigitalInk was arrested in early 2012, he immediately agreed to cooperate with the police. His record of Bitcoin transactions provided only limited information about the identity of his customers, owing to the lack of personal information connected to Bitcoin addresses. But it was a first strand of loose yarn for the officers to start pulling at. And in March the HSI bureau in Baltimore got approval from local prosecutors to form a task force, with other federal agencies, that would aim to burrow further into the cryptographically secured drug bazaar. The task force was given the name Marco Polo in deference to the man who explored the original Silk Road and all the new wonders it contained. A short while later, the agents in Baltimore created an undercover identity for themselves on Silk Road, with the screen name nob, and set out to build a relationship with a man they knew of only as Dread Pirate Roberts.