March 16, 2011
The 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.
ONE 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.
SATOSHI NAKAMOTO 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.
THIS 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!”
But it took days for Mark to install the necessary protections against what was a fairly standard attack.
In Texas, Ross had shut down his used book business so that he could work on Silk Road full-time. He was staying up late, furiously trying to rewrite his site from scratch so it would be able to withstand both the traffic and the hackers who were already targeting him. Silk Road now had over a thousand people registered, ten times more than it had just two months earlier. In mid-May, to get the new version online, Ross had to shut the site down for a few days, which turned into one of the more stressful periods he had endured.
“Updating a live site to a whole new version is no easy task,” he wrote in his diary. “You don’t realize how many little pieces lay on top of one another so it works just right (at least when you code poorly like my amateur ass was doing). So for about 48 hours it was stop and start on the switch, but I finally got there and it was working.”
While Silk Road was down, the price of Bitcoin entered a short period of decline, suggesting just how important the site was for the fate of the virtual currency at this point. Silk Road users showed up on the Bitcoin chat channel asking if there was anywhere else they could score some drugs. When Silk Road came back online, the price of Bitcoin picked up again.
But the real onslaught began on June 1 when the gossip/news website Gawker published an in-depth story about Silk Road, based on interviews with people who had purchased and received LSD and purple haze pot from the site. There were now 340 different items available, including tar heroin and Afghani hash.
In the days immediately after this story came online, over a thousand new people were registering for Silk Road every day and the price of a Bitcoin on Mt. Gox shot up, crossing $10 for the first time the day after the Gawker story and $15 two days later.
The growth of the black market was something many of the old Cypherpunks had wanted to enable by creating an anonymous currency—in the 1990s some of the Cypherpunks had even talked about a “Digital Silk Road.” But now that it was actually here, it was causing much more mixed feelings in the Bitcoin community. While Martti had welcomed the site and Roger Ver looked on approvingly, many of the Bitcoiners who were more interested in technology than politics thought this was the worst thing that could happen to the Bitcoin network. Gavin tried to personally distance himself and Jeff Garzik, a programmer living in North Carolina who had become one of the steadiest contributors to the Bitcoin software, wrote to Gawker to explain that Bitcoin was actually less anonymous than most people believed, owing to the record of all transactions on the blockchain. Sure, the blockchain didn’t have names, but Garzik explained that the police would probably be able to determine the identity of users through sophisticated network analysis.
“Attempting major illicit transactions with Bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb. :),” Garzik wrote.
In conversations with other developers, Garzik was less worried about Silk Road users getting caught and more concerned about all the negative attention that Silk Road would bring if it continued to grow. The worst fears of people like Garzik were borne out on June 5 when Senator Chuck Schumer of New York held a heavily covered news conference, at which he decried the brazen business of Silk Road and called for prosecutors to shut it down. He described Bitcoin as an “online form of money laundering used to disguise the source of money, and to disguise who’s both selling and buying the drug.”
Rather than scaring people away, Schumer’s commentary—and the deluge of media attention it received—brought on yet another surge of interest, sending the price of Bitcoin on an Icarus-like rise that had it at $30 within two days. That was a 600 percent rise from a month earlier, and a 9,000 percent increase from six months earlier. Silk Road now had ten thousand members.
Ross had, by now, fully recouped his initial investment—earning $17,000 from the sale of his mushrooms, and $14,000 from commissions collected on the sales made by others. But the news out of Washington strained Ross’s already frayed nerves.
“I was mentally taxed, and now I felt extremely vulnerable and scared,” he wrote in his journal. “The US govt, my main enemy was aware of me and some of its members were calling for my destruction. This is the biggest force wielding organization on the planet.”
When Ross shut the site down in mid-June, to take a breather, he wrote on the Bitcoin forums that his little experiment had claimed way too much attention: “We’ll do our best to get out of the spotlight and hopefully the merits of Bitcoin will become the focus.”
But for regular Bitcoin companies, the situation wasn’t going much more smoothly. Around the same time Silk Road went down, Mark Karpeles found himself unable to process withdrawals from Mt. Gox for four days. The problems helped pull the price of Bitcoin down almost as quickly as it had gone up. But even as the price settled down, below $20, something in the air was different. Some of Bitcoin’s youthful innocence seemed to be gone.
Just a few months earlier—and even a few weeks earlier—the forums and chat channels had felt like a cozy global community. All the main characters could be found online talking to each other at almost any hour.
Now, everyone was too busy to chat, or was put off by all the negative energy. Mt. Gox users were on the forums complaining about Mark’s silence as his exchange struggled and trades got delayed. In the chat rooms, a few upstart exchanges that were attempting to challenge Mt. Gox slammed Mark and his maintenance of Mt. Gox. There were a growing number of signs that Mark was indeed falling behind. In May he had hurriedly decided to move Mt. Gox into an expensive office tower, but so far he had been able to find only one employee who was willing to take the risks involved in working on Bitcoin. Jed McCaleb sent Mark suggestions for how to improve the site but Mark never responded.
Much of the tension in the broader Bitcoin community seemed to be a result of the deluge of curiosity seekers and pranksters, who overwhelmed the chat channel with inane commentary. In June, over 15,000 new people joined the forums, more than doubling the membership and leading to 152,000 new postings.
Bitcoin was supposed to be a new kind of community with no central authority, powered by the people who joined it. That had worked until now because the people involved wanted to see it succeed. But what if the people joining in had no such interest? Should some authority figure intervene and, if so, who could it be?
Some of the leading developers working with Gavin suggested that moderators should more aggressively police the forums and potentially even move the forums from Bitcoin.org, so that the conversations on the forums didn’t look as though they had some official status within Bitcoin.
Martti, who had been given final say over the websites by Satoshi, was uneasy about these changes. He said he had long avoided determining what should and should not be discussed on the forum, as long as illegal transactions weren’t happening on the forum itself.
Gavin largely stayed out of the public debate—he knew it wasn’t worth fighting—but he quietly found a way to move forward by creating a mailing list dedicated to Bitcoin development that would be easier to control, a move that did not go over well with everyone.
Around the same time, Gavin made his visit to the CIA to present Bitcoin to a conference on emerging technology. He reported back immediately to the forums and was transparent about what he had said during his visit and what the response had been (everyone at the CIA meeting seemed to be interested). Many people on the forums were supportive of his decision to make the visit, but not everyone was. Those debates, though, were quickly overshadowed by bigger questions about whether the people building this community had the skills to keep it growing.