Silk Road seizure increases pressure on virtual currency Bitcoin

The price of bitcoins fell after a raid on Silk Road, the online marketplace that allegedly allows illegal drugs and illicit services to be bought using the virtual currency.

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The price of bitcoins fell after a raid on Silk Road, the online marketplace that allegedly allows illegal drugs and illicit services to be bought using the virtual currency.

The once-obscure Bitcoin has been making news all year.

There have been stories about the wild swings in the virtual currency's exchange rate, moves by financial regulators to shut down some Bitcoin-related businesses, and attempts by its boosters to gain more mainstream credibility.

But this week, the Bitcoin community was hit with a story potentially bigger than all the others: the seizure of the illicit Silk Road website and the arrest of its founder, Ross William Ulbricht, a 29-year-old former physics student from San Francisco.

For the past two years, Silk Road has been the bogeyman for Bitcoin critics. They pointed to the ability to buy drugs and guns on the site using Bitcoin as evidence the virtual currency could enable terrorist and criminal activity.

The service gained widespread notoriety in 2011 when Sen. Charles Schumer, D-N.Y., singled it out as the poster child for how Bitcoin could potentially be used by terrorists and criminals.

"Literally, it allows buyers and users to sell illegal drugs online, including heroin, cocaine and meth, and users do sell by hiding their identities through a program that makes them virtually untraceable," Schumer said then.

So, with the crackdown this week, it would seem like a dark day for the growing Bitcoin community. But several Bitcoin observers took a more nuanced view of the Silk Road story.

Adam Levine, editor-in-chief of the Let's Talk Bitcoin blog and podcast, saw the arrest as part of Bitcoin's natural evolution from renegade currency to mainstream adoption.

"If Bitcoin is going to turn into a mainstream thing, this has to happen," Levine said. "The legitimate uses cannot be overshadowed by the illicit uses."

Bitcoin, created in 2009 by a programmer using the pseudonym Satoshi Nakamoto, is really an open-source protocol that anyone can add to or alter. These protocols run across a wide number of servers around the world for regulating the creation and trading of bitcoins. People can get bitcoins either by buying them with traditional currency or by "mining" them. The mining process involves solving complex computing puzzles that reward a person with bitcoins.

Bitcoin boosters like it because it is a currency that's decentralized, not controlled by any government or company.

It turns out that according to the indictment, a large portion of existing bitcoins seemed to have flowed through Silk Road at one point or another.

While the value of Bitcoin dropped sharply after the news of the arrest, from about $140 to $118, the currency recovered later in the day to $128, where it remained Thursday. A year ago, one bitcoin traded for $14.

Silk Road seizure increases pressure on virtual currency Bitcoin 10/04/13 [Last modified: Friday, October 4, 2013 7:41pm]

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