Silk Road: a bitter-sweet win for the feds


Chalk up another big success for the feds. Silk Road, a high-profile underground marketplace, has been taken down hot on the heels of nuking Freedom Hosting, and infiltrating Anonymous and Lulzsec, and similar smaller profile successes.

Silk Road was one of the Internet’s best-known marketplaces for illicit goods. Operating as a Tor “hidden service”, it provided a virtual shopping mall, putting sellers of drugs and other goods in touch with buyers in a secure, anonymous environment. Transactions were conducted in Bitcoins, the virtual currency backed by cryptographic algorithms, with the site taking a cut of each sale.

The site was operated by Ross William Ulbricht, going under the alias “Dread Pirate Roberts” in a nod to cult movie classic The Princess Bride. Ulbricht had previously claimed to have taken over the site from its original creator, which probably prompted him to adopt the pseudonym. Dread Pirate Roberts, or DPR, operated the site under a veil of strict secrecy considered by many to be impenetrable.

But in a lesson to anyone seeking to remain anonymous online, Ulbricht made a series of blunders – missteps which serious practitioners might consider classic beginner mistakes bordering on the childish. And while he’d managed to fly under the radar for two years (Silk Road was founded in 2011) and although he raked in an estimated $80 million worth of Bitcoins along the way, DPR lived a modest lifestyle, and the end result was only a matter of time: the Internet never forgets those little historic slips.

Although he was suitably paranoid in avoiding any personal contact between his real life presence (including his alias, Joshua Terrey) and DPR, he wasn’t smart enough to truly segregate the personas’ online access. Posts to forums which tied his real-world identity to the operation of Silk Road were key evidence, and having fake IDs shipped to his actual front door was just face-smackingly dumb.

A lot of the evidence is detailed in the criminal complaint against Ulbricht, starting on paragraph 33. Career criminals will sneer at his ineptitude. Wannabe Silk Road successors will learn from his mistakes: alternatives to Silk Road were already in the market and are steadily growing to fill the void, but some of these will fall in similar fashion – the next generation of site (and site operator) who learns from Ulbricht’s mistakes from inception will be tougher propositions for the feds.

Silk Road was more sophisticated than many credit, and even a cursory analysis shows the level of business acumen in the underground economy. The site was more than a simple forum to put buyers and sellers of illicit goods in contact with each other. Although all transactions were conducted in Bitcoins, the site allowed sellers to post prices in dollars, and even offered currency hedging to protect sellers from fluctuations in the virtual currency’s value.

The fall-out begins

Authorities have already started targeting Silk Road users with the evidence they gathered in the bust. So will the Silk Road takedown really change the nature of the underground economy? Probably not, but that doesn’t mean it was a waste of time.

If the war on drugs has taught us anything, it’s that crackdowns don’t really achieve very much. The war on drugs, increasingly viewed as a policy failure, mirrors the prohibition era, which didn’t do much to curb drinking but did massively empower gangsters like Al Capone and Bugs Moran. It’s about supply and demand – if the demand is there, someone will fill the vacuum left behind after a bust.

That also has uncomfortable ramifications for the previous big crackdown we covered – the authorities’ successful attack on Freedom Hosting, which provided hidden services to child pornography suppliers and others. That was a huge success for the authorities, but is likely to do little to curb the underlying problem.

The fact remains that there is a demand for the product, and taking away a popular Web site (Lolita City, hosted at Freedom Hosting, was one of the most public sources of this material) will not change that.

Firstly, it does not stop the supply – the purveyors of child porn still exist and know, better than anyone else, the alternative avenues (many of which predate Lolita City). Second, it does not remove the material – the stuff on Freedom Hosting was only copies of material available elsewhere.

Drugs and child porn are frequently the purview of organised crime, which is well resourced and highly skilled – comparable to the authorities themselves. Shutting down a storefront does little to harm the supply chain. Earlier busts, like Operation Ore in 1999, identified thousands of suspects but didn’t stop the supply. Likewise, when spammers go to jail, spam levels drop, but only momentarily.

But that doesn’t mean takedowns aren’t worth the effort. The publicity tends to centre on exactly the wrong parts – the visible shuttering of sites like Silk Road and Lolita City – and sometimes on the immediate arrests which follow. But the real value is in the long hard slog to come: the upstream investigations into the source of the material, whether that’s drugs or guns or pornography or whatever.

The material gathered from Freedom Hosting’s servers, and Silk Road’s forums and logs, will be forensically analysed in minute detail for any leads which might identify the bigger fish. But those investigations are much more difficult and longer term, targeting much wilier adversaries. Remember that Al Capone was eventually nailed for tax evasion, not murder or prostitution or any of the numerous other crimes committed by the Chicago Outfit. Organised crime, evolved to the modern online world, is more guarded than ever.

Lower down the food chain, though, things will normalise quickly. The roaches, having scurried into cover when the light of the law fell on the scene, will venture out quickly enough as the mechanics of supply and demand continue. Bitcoin’s value dropped momentarily but has recovered quickly, and may increase since DPR held a healthy percentage of all Bitcoins in existence – the feds have seized his virtual wallet but have so far been unable to recover the contents.

But one conclusion is inescapable: online communities have adopted tools and techniques they thought would render the authorities powerless, but those authorities have stepped right up to the challenge, seeking out the chinks, attacking the vulnerabilities and playing the long game with great success.

The cat and mouse game will continue – the next big question is whether the authorities can leverage these successes against the real big players – the organised crime syndicates which, despite concerted global efforts, continue unabated.