Prior to 2013, Silk Road was a popular online marketplace founded by Ross Ulbricht, known at the time as Dread Pirate Roberts. Rooted in anonymity and truly free exchange, law enforcement authorities targeted the site for facilitating an alleged trade in illegal drugs. After being raided by the FBI and other agencies in 2013, those agencies seized about 175,000 bitcoins under civil asset forfeiture laws. Ulbricht received two life sentences in connection with his role in Silk Road. However, the government was left with a large block of cryptocurrency in the form of Bitcoin, the value of which is volatile and based almost entirely on the market’s faith therein. In fact, upon news of the closure of Silk Road the value of Bitcoin dropped from $140 to $110.

The digital assets of Silk Road and its founder have been subject to a great deal of turmoil. Agent Carl Force of the Drug Enforcement Agency was sentenced earlier this year for stealing $700,000 of Bitcoin and selling information regarding the government’s investigation of Silk Road to Ulbricht while working undercover to investigate the service and its founder. After the first auction in June of 2014, the US Marshals accidentally disclosed a partial buyers list through a wrongly addressed e-mail message. The ownership of various blocks of Bitcoin seized in connection with the takedown of Silk Road was highly contested: Ulbricht claimed that about $85M worth of seized Bitcoin were personal property located in his Bitcoin wallet and unrelated to the operation of Silk Road.

The US Marshals Service has sold the seized assets in a series of auctions. The bitcoins have been sold in blocks ranging from 3,000 to 2,000 coins.Ultimately, the US government appropriated the vast majority of the coins in Ulbricht’s wallet, many of which have been auctioned off in the past week. Bitcoins stored on the Silk Road server were sold last year, with venture capitalist Tim Draper emerging as the sole purchaser of the initial block of Bitcoin.The last of the Silk Road coins were purchased on November 12th of this year, in an auction that attracted just 11 bidders. This low turnout was similar to that seen in the last auction in December of 2014, suggesting that that perhaps these large blocks in which the assets are being sold is preventing the government from obtaining the best possible price for seized assets. At the time of the November 2015 auction , each 2,00o coin block had a value of $790,000. Although winning bids were not reported, it is widely speculated that auction winners were able to purchase the coins at a significant discount from market price.

Given the government’s experience with this block of cryptocurrency, it is clear that better rules are necessary in order for agencies to effectively deal with and benefit from the increasing acceptance of alternative currencies. Perhaps a reevaluation of hiring criteria for highly skilled computer programmers would result in more robust and effective cybercrime prevention efforts in the future.

Anthony Jackson

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