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February 21, 2024

Bitcoin use in question after Silk Road drug bust

By MIKE YAMAKAWA | October 31, 2013

For two years, the Silk Road was an online, underground marketplace for narco-traffickers and other criminals: an eBay for customers interested in purchasing all sorts of illegal drugs and miscellaneous merchandise, including firearms and contract killers. While most commercial websites, such as Amazon, require some form of registration, the Silk Road didn’t require any personal information. The anonymity of Silk Road was the key to attracting thousands of criminals to the online market. Fortunately, after two years of operating in impunity, the FBI was able to shutdown the site on Oct. 2.

Some legacies of the Silk Road still persist however, like the ever-alert black market competitors rushing to increase their anonymity. Their currency, the Bitcoin, has also been the center of discussion between entrepreneurs, retailers and investors. In fact, one of the largest reasons that the Silk Road and other markets were able to function anonymously was the Bitcoin, an electronic currency that was designed to be entirely computerized. It was designed to circumvent the slow and rather expensive middleman, the bank, that consumers conventionally go through to make purchases. Unlike the dollar system, which is under some control by our government, the Bitcoin is completely decentralized.

Unfortunately, because of these disreputable markets, the Bitcoin has been associated with illicit activities. Data has shown that Silk Road managed up to four million units of bitcoins; this is estimated to be to nearly $30 million to $45 million in transactions. Many consumers and retailers have asked whether the integrity of Bitcoins was compromised because of this situation. People have been keeping Bitcoins in their scope, however, despite black market associations.

A lot about the Bitcoin remain incredibly cryptic. The creator is unknown, the location of all transactions with the currency is unknown, and Bitcoin users are protected with much privacy. The creator, known by the alias, Satoshi Nakamoto, debuted his newly invented digital currency on Jan. 3, 2009. Back then, the currency did not have any real value, like copper or gold does, and still functions solely through lines and lines of computer code (hence, the name “Bit”-coin). In fact, the very first Bitcoin that was introduced to its ecosystem was valued at a fraction of a penny. By June of 2011, the Bitcoin was valued for more than twenty-nine dollars.

Despite the mysterious nature of Bitcoin, investors are convinced that it can offer cheaper payment processing and more secure transactions. Many people have brought up double-spending as a potentially devastating problem to the system. This is when an owner re-spends what he has already used by signing the digital coin again with another receiver (in essence, “hacking” the system). This problem is resolved cleverly by the design of the bitcoin network. The network is patched through multiple nodes throughout the globe, called a peer-to-peer (P2P) network, allowing others to crackdown on suspicious transactions or hacks. This creates a very strong defensive barrier against those trying to take advantage of the system.

Immediate consequences of the drug bust included the fluctuation of the bitcoin value. However, recent rebound and stabilization of the currency shows that we may be entering a generation when people can trust the mysterious Bitcoin.

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