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Bitcoin Crime Encryption The Almighty Buck The Courts

DOJ Hasn't Actually Found Silk Road Founder's Bitcoin Yet 294

Posted by timothy
from the what-are-the-odds dept.
Techdirt has an interesting followup on the arrest and indictment of Silk Road founder Ross Ulbricht, in connection to which the FBI seized 26,000 or so Bitcoins. From the Techdirt piece: "However, in the criminal complaint against Ulbricht, it suggested that his commissions were in the range of $80 million -- or about 600,000 Bitcoins. You might notice the disconnect between the 26,000 Bitcoins seized and the supposed 600,000 Ulbright made. It now comes out that those 26,000 Bitcoins aren't even Ulbricht's. Instead, they're actually from Silk Road's users. In other words, these were Bitcoins stored with user accounts on Silk Road. Ulbricht's actual wallet is separate from that, and was apparently encrypted, so it would appear that the FBI does not have them, nor does it have any way of getting at them just yet. And given that some courts have argued you can't be forced to give up your encryption, as it's a 5th Amendment violation, those Bitcoins could remain hidden -- though, I could see the court ordering him to pay the dollar equivalent in restitution (though still not sure that would force him to decrypt the Bitcoins)." The article also notes that the FBI's own Bitcoin wallet has been identified, leading to some snarky micropayment messages headed their direction.
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DOJ Hasn't Actually Found Silk Road Founder's Bitcoin Yet

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  • He might need some of that hoard to pay for his defense. I don't know that going cheap on this will be in his interest.

    • by hsmith (818216) on Saturday October 05, 2013 @11:09PM (#45048621)
      But that is part of the game. You gut someones means and prosecute them so they can't defend themselves. That is the game the government plays.
      • by girlintraining (1395911) on Saturday October 05, 2013 @11:36PM (#45048723)

        But that is part of the game. You gut someones means and prosecute them so they can't defend themselves. That is the game the government plays.

        Only with people dumb enough to not prepare ahead of time for this. This guy was 'new money'. He didn't know how to manage his assets, how to invest, how to setup multiple accounts, and didn't have the good sense to bond a lawyer ahead of time and give them limited power of attorney so they could coordinate his estate while he was in jail. See, this is what 'old money' does, and it means they get to hire entire bus loads of attorneys to show up at court, and the government can't do dick about it because they were bought and paid for ahead of time and are being funded out of accounts they can't seize or have access to because the money's been cleaned and separated from his personal accounts through shell corporations, etc.

        Don't talk about how to play the game... this guy wasn't a player, he was a loser. He was setup from day one, by his own stupidity, to lose. If I was running a website like that, the very first thing I'd have done after getting ahead financially is separate out as much money as I could for future legal troubles, and hire accountants and lawyers so when the day came to save my sorry ass, all I'd have to do is just sit in jail and wait while Plan Bravo executed all on its own to spring me.

        But, since the man was basically a walking cliche instead of a proper criminal or businessman or even passably decent nerd, I feel compelled to quote off his namesake:

        "Do you hear that, Fezzik? That is the sound of ultimate suffering. My heart made that sound when the six-fingered man killed my father. The Man in Black makes it now."

        • Don't talk about how to play the game... this guy wasn't a player, he was a loser. He was setup from day one, by his own stupidity, to lose. If I was running a website like that, the very first thing I'd have done after getting ahead financially is separate out as much money as I could for future legal troubles, and hire accountants and lawyers so when the day came to save my sorry ass, all I'd have to do is just sit in jail and wait while Plan Bravo executed all on its own to spring me.

          So, what you're saying is that Walter White did it right in Breaking Bad when he hired Saul with a rather large retainer.

        • Isn't that exactly what "Dot Com" did?

        • You'd have put money away and bonded lawyers so they could "spring you"? How exactly are these lawyers going to do that? Ulbricht is guilty as fuck and clearly knows it. The two criminal complaints are overflowing with evidence and that's not going to be all the Fed's have got. I have a hard time seeing how any lawyer is going to wriggle out from under all that stuff. Doesn't matter if you somehow managed to bond the best of the best ahead of time.

          Also, you seem to have overlooked the fact that the guy was

        • Everyone's an armchair criminal mastermind now that Breaking Bad is done.
      • Re: (Score:2, Interesting)

        by Anonymous Coward

        Will be interesting to see which lawyer will step up and take cases on behalf of Europeans and other countries where purchasing pot is legal and demand the return of their clients funds as no laws where broken by their clients.

        Going to be a great cutting edge tech case for some lawyer to raise their profile.

        There is also the potential for people who opened an account, loaded up bitcoins, but never made a transaction for illegal products (though intent might get murky) however there are/were

    • If the affidavit is accurate, he's going to have a hard time dodging the charges. Spending all his money on defense might not be the best option.

      • He'll probably just let the process play out with his public defender, aiming for the lowest legal penalty possible, and promptly leave the country for a non-extraditing locale at the first opportunity. Then he'll able to recover his funds and go about his life, more or less as he wishes. There's virtually no chance of those funds being recovered by the authorities; I'd be very surprised to learn that the BTC in question are still in the wallet in question even now. Setting up contingency plans for transfer

    • by mysidia (191772)

      You're not allowed to use gains the government claims are ill-gotten, in order to fund your defense.

      Once they claim certain dollars are proceeds of illegal activity, they freeze the assets, and they will be held in trust, or held by police, until the charges are settled.

      That means those bitcoins will be unavailable to use for his defense, even if they are his, and he does decrypt them.

      • by philip.paradis (2580427) on Sunday October 06, 2013 @12:09AM (#45048865)

        I believe you lack adequate information on how Bitcoin works. If he or someone he trusts and gave instructions to beforehand has access to another copy of the wallet, it's just as good as the original, and the coins may be transferred elsewhere and converted to other currencies, etc via the normal exchanges. I'll be surprised if the prosecuting authorities manage to figure out how to track that; they certainly won't be able to stop it. If by some chance they manage to gain access to the encrypted keys that protect the wallet in their possession, it almost certainly won't be of any value (to them) by then.

        • by Tom (822) on Sunday October 06, 2013 @05:48AM (#45049663) Homepage Journal

          That is an actual cool feature of Bitcoin - you can copy money. You can only spend it once, but you can have a backup copy of your money. Or several.

          • by ultranova (717540)

            Or, if you trust your memory, you could use a deterministic wallet generated from a memorized seed, such as a long enough passphrase. That way, no backups are necessary, and it's pretty much impossible to even determine which adresses are yours.

          • by wvmarle (1070040)

            Just out of curiousity: how do you keep those back-ups in sync, especially when you have some bitcoin, you backup them, spend some, and for whatever reason have to start using the backup copy which includes the already spent bitcoins.

        • by wvmarle (1070040)

          It's really easy to seize bitcoin.

          Police just confiscates the password to the wallet (a copy of that wallet may come in handy), and has everyone else forget it. Those passwords are generally short enough to write down on a single post-it note, that can then conveniently be attached to the relevant documents.

          Come time to release the seized/frozen bitcoin, they simply hand the post-it note with password to the owner.

          Simple, isn't it? Even easier than seizing money that's in the banks, where you need to do stu

      • Once they claim certain dollars are proceeds of illegal activity, they freeze the assets, and they will be held in trust, or held by police, until the charges are settled.

        The FBI can't get their hands on this money because Bitcoin is a decentralized currency. They have nothing to "freeze" or "hold on" to. That's the whole point of Bitcoin, actually.

    • by MrEricSir (398214) on Sunday October 06, 2013 @12:17AM (#45048887) Homepage

      He might need some of that hoard to pay for his defense. I don't know that going cheap on this will be in his interest.

      According to Wired he's using a public defender. [wired.com]

      Remember, Ulbricht was living in a shared apartment and working out of a library. If his defense is that he's not the guy running Silk Road, it would be suspicious for a man in his situation to suddenly have an expensive defense team.

      • He might need some of that hoard to pay for his defense. I don't know that going cheap on this will be in his interest.

        According to Wired he's using a public defender. [wired.com]

        Remember, Ulbricht was living in a shared apartment and working out of a library. If his defense is that he's not the guy running Silk Road, it would be suspicious for a man in his situation to suddenly have an expensive defense team.

        Maybe he could start a Kickstarter to fund... well, not his defense, because that's not a creative work, so to speak, but a DOCUMENTARY about his defense, including people who could just check by to see if he was dead yet.

      • by Sycraft-fu (314770) on Sunday October 06, 2013 @07:34AM (#45049995)

        Public defenders are a good choice. I know that there's this Hollywood cliche that public defenders were C students that are worthless and don't know what they are doing but that isn't usually the case. Many of them are quite passionate about what they do, and good at it. Also they have a lot of trial experience, which is something that private attorneys often don't. Knowing the law and being good at trial are different things and public defenders get a lot of trial time. Plus they have experience with criminal law, since that's what they do. They don't spend time messing with estate planning or shit like they, they defend criminal cases.

        So depending on the charge, the area you are in, etc, etc a public defender can actually be good, maybe even the best, option. They may have a better handle on the law and be better at trial than a private lawyer.

  • by ndogg (158021) <the.rhornNO@SPAMgmail.com> on Saturday October 05, 2013 @11:17PM (#45048643) Homepage Journal

    This brings up an interesting thought. Since the total number of Bitcoins is fixed, and if these coins seem to now be irrecoverable, what happens to the currency when it disappears into encrypted black holes like this?

    • by ThatAblaze (1723456) on Saturday October 05, 2013 @11:23PM (#45048677)

      That's easy: The value of each bitcoin in circulation increases.

      • by ndogg (158021)

        That seems obvious, but what are users going to do if all of it disappears behind these encrypted black holes?

        • by Richy_T (111409)

          There's not much chance of *all* of it disappearing it that way and the currency is infinitely divisible if required. There will always be enough.

      • by whoever57 (658626)

        That's easy: The value of each bitcoin in circulation increases.

        Only if people know that the bitcoins are irrevocably lost.

        • by Anonymous Coward on Sunday October 06, 2013 @12:23AM (#45048909)

          People do not have to know it is irrevocably lost, people do not even have to know that any of this happened. This is the most basic concept in economics.

      • by Tom (822)

        So far, it didn't happen. Bitcoin value is almost exactly where it was before his arrest (though it did move quite a bit in the days immediately following).

    • by allo (1728082)

      It is not fixed. When these Bitcoins are lost forever, they can be mined again. The amount is only fixed, when there is no loss of existing BTC. Or the other way round: the amount of existing BTC is fixed, not of mining BTC. So if there is a loss, there is a chance to mine again.

  • by Anonymous Coward

    They'll get along fine with him in prison, and by the time he gets out, the Bitcoins will be a dead fantasy.

  • Lost forever? (Score:4, Interesting)

    by wvmarle (1070040) on Saturday October 05, 2013 @11:23PM (#45048673)

    Now imagine that this Ulbright ends up in jail, or dies, the keys to this encrypted wallet are lost, and with it these 600,000 bitcoin are lost. I think this is a pretty realistic scenario.

    Now what consequence would this be for the bitcoin as a currency, when a significant chunk of its coins are taken our of the equation? It's about 5% of the current total number of almost 12 million bitcoin in existence (and 3% of the theoretical maximum of 21 mln). And bitcoin can not be recreated or added to, like a regular currency.

    Another thing of note, is that apparently a single bitcoin user managed to amass 5% of the total number of that currency in existence. Those numbers potentially give that person massive market power: dumping them all on the market in one go would cause the value of bitcoin to crash. Smaller quantities have that potential already.

    • by khallow (566160)

      Those numbers potentially give that person massive market power: dumping them all on the market in one go would cause the value of bitcoin to crash.

      So what? The power to temporarily depress the value of goods or services is something a lot of people possess. But they don't use it because they aren't dumb and don't want to lose a lot of money.

    • Re:Lost forever? (Score:4, Informative)

      by girlintraining (1395911) on Sunday October 06, 2013 @12:51AM (#45049003)

      Now imagine that this Ulbright ends up in jail, or dies, the keys to this encrypted wallet are lost, and with it these 600,000 bitcoin are lost. I think this is a pretty realistic scenario.

      No, he has the bitcoin equivalent of 600,000; Not 600,000 actual coins. The coins themselves are divisible.. so he has a crapton of fractions of coins, adding up to a total of 600,000.

      Now what consequence would this be for the bitcoin as a currency, when a significant chunk of its coins are taken our of the equation? It's about 5% of the current total number of almost 12 million bitcoin in existence (and 3% of the theoretical maximum of 21 mln)

      Umm, bad news: As of this submission, there were 11,800,375 [blockexplorer.com] coins created so far. The "theoretical maximum" is 21 million coins, yes, but you forgot each coin is divisible by https://en.bitcoin.it/wiki/Myths#21_million_coins_isn.27t_enough.3B_doesn.27t_scale [slashdot.org]

      ">100,000,000. So in actuality, there are 2,099,999,997,690,000 units of currency that can be traded without modification to the current protocol. What most people don't understand about bitcoin is that even if a few coins here and there fall out of circulation, or even more than a few, so long as there are a sufficient number of atomic currency units available for trade, the system will function perfectly. Trading in bitcoins is more like trading in company stock than in actual currency -- they can be divided, aggregated, etc., etc. A bitcoin is, at the protocol level, just a token for a massive transactional log called the 'block chain'. It doesn't matter how many bitcoins are generated, or how many fall out of circulation, as long as enough remain in circulation to cover the transactions since the last block in the chain was created.

      Another thing of note, is that apparently a single bitcoin user managed to amass 5% of the total number of that currency in existence. Those numbers potentially give that person massive market power: dumping them all on the market in one go would cause the value of bitcoin to crash. Smaller quantities have that potential already.

      That person is now no longer a person, but a government. Just a minor footnote. Now, all that said, here's the thing about bitcoins... should we ever run out of them for whatever reason, we can always 'reset the clock' as it were -- start a new seed, a new block zero, and start building a new block chain from there. This isn't like IPv4 address space exhaustion; We just plug in a new seed and viola, Bitcoin Mark II.

      Eeeh... all that said, I don't trade in bitcoins and I think the entire business is silly but if we're going to talk turkey, we should at least be accurate in our assessments.

      • by lxs (131946)

        We just plug in a new seed and viola, Bitcoin Mark II.

        Or Bitcoin mark XXVII... [altcoins.com]

      • by wvmarle (1070040)

        Now imagine that this Ulbright ends up in jail, or dies, the keys to this encrypted wallet are lost, and with it these 600,000 bitcoin are lost. I think this is a pretty realistic scenario.

        No, he has the bitcoin equivalent of 600,000; Not 600,000 actual coins. The coins themselves are divisible.. so he has a crapton of fractions of coins, adding up to a total of 600,000.

        That still doesn't make it any less than the 5% of current total coins (or fractions of coins) around.

        If you divide each by a million, it means he has 600,000,000,000 millionth of bitcoin. THat is still 5% of the "millionth bitcoin" around

        And, as has been shown many times before so not going to repeat it, the mere fact that there is a limited number of bitcoin is an issue, making the value of a single bitcoin (or whatever small fraction - that's irrelevant) increase in value all the time. Maybe you use a wh

      • by AmiMoJo (196126) *

        should we ever run out of them for whatever reason, we can always 'reset the clock' as it were -- start a new seed, a new block zero, and start building a new block chain from there.

        The new currency would only have any real value if people recognized it though, and since lots of people have a big incentive not to recognize it (it would devalue their Bitcoins) that seems unlikely to happen.

        At the moment Bitcoin isn't very useful for the ordinary consumer because its value fluctuates too much. It's fine if you are mining or in some business where you can accept BTC and then spend it on other services. Well, these days even mining is a waste of time and energy unless you were one of the l

      • Eeeh... all that said, I don't trade in bitcoins and I think the entire business is silly but if we're going to talk turkey, we should at least be accurate in our assessments.

        Not sure that bitcoins are any less real than a lot of the rest of the crap that people trade in the markets.

  • Minor details! (Score:5, Interesting)

    by girlintraining (1395911) on Saturday October 05, 2013 @11:27PM (#45048697)

    in the criminal complaint against Ulbricht, it suggested that his commissions were in the range of $80 million -- or about 600,000 Bitcoins.

    Yes, and given how badly he managed his assets, I doubt even a fraction of this will be recovered. He was not a very good businessman, his servers weren't very well secured... in fact the only thing in the "had lots of" category with this guy was ego. I mean really... "Dread Pirate Roberts"? And have you seen some of the things he wrote on this website of his? "I'll take as much of your money as I want because this is my ship. If you don't like it, fuck off." -- It's actually included in the criminal indictment against him, along with a laundry list of, shall we say, personality shortcomings of his leading to other elements of the criminal underground coming by to explain all meanings of the word "respect" to him, and then him blowing tons and tons of money either paying these people off, or trying (pathetically) to put hits out on them.

    If there's one charge I could add to the indictment, it would be criminal stupidity.

    It now comes out that those 26,000 Bitcoins aren't even Ulbricht's. Instead, they're actually from Silk Road's users. In other words, these were Bitcoins stored with user accounts on Silk Road.

    Technically, they were for purchases pending. Silk road worked by letting you transfer coins into a silk road proxy account. It ran every submission through its "tumbler" to randomize which coins were actually used for which transactions. So what was seized was basically the day's take out of the register, as it were.

    Ulbricht's actual wallet is separate from that, and was apparently encrypted, so it would appear that...

    That he'll be charged as a terrorist and sequested in a room somewhere to be beaten with a metal pipe or waterboarded until he gives up the password. Has anyone heard from him lately?

    And given that some courts have argued you can't be forced to give up your encryption, as it's a 5th Amendment violation...

    We'll just create a new court especially to prosecute terrorists like him extrajudicially. Oh wait... we already did.

    The article also notes that the FBI's own Bitcoin wallet has been identified, leading to some snarky micropayment messages headed their direction.

    Taunting the police has historically worked out quite well for criminals. Dude, you aren't anonymous. You basically just signed your own search warrant.

    • by Nutria (679911)

      to be beaten with a metal pipe

      A $5 wrench [xkcd.com], you wannabe.

      or waterboarded until he gives up the password.

      At Gitmo, natch.

    • That he'll be charged as a terrorist and sequested in a room somewhere to be beaten with a metal pipe or waterboarded until he gives up the password. Has anyone heard from him lately?

      Ulbricht appeared in court on Friday, and after a request from his legal team has a bail hearing scheduled for October 9th [bbc.co.uk].

    • From The Tellegraph ...

      By chance one of those agents, posing as a major drug smuggler, was contacted by Dread Pirate Roberts, who asked him to torture and execute someone who had stolen Bitcoins from the site.

      The agent sent fake pictures of a man being tortured, and of a dead body, and was paid $80,000.
      Apparently encouraged, Dread Pirate Roberts then asked another drug dealer to kill a Silk Road user in Canada called "FriendlyChemist" who was threatening to release details about the site.
      He wrote: "I would like to put a bounty on his head if it's not too much trouble for you. Necessities like this do happen from time to time for a person in my position. I wouldn't mind if he was executed."

      He then said $150,000 seemed too much, adding: "Don't want to be a pain here but the price seems high. Not long ago I had a clean hit done for $80,000. Are the prices you quoted the best you can do? I would like this done asap ... it doesn't have to be clean."

    • I don't think the government would want to recover them - if they were to sieze them, what would they do then? They can't spend or sell the coins, because doing so would be giving an implicit endorsement to bitcoin as a valid currency.

  • Could seizure by authorities unable to crack encryption have some even slight deflationary effects on Bitcoins?
    • by mysidia (191772)

      Could seizure by authorities unable to crack encryption have some even slight deflationary effects on Bitcoins?

      There is likely not enough trade in bitcoins or economic activity, for much deflation to occur. It was only some small portion of the total bitcoins available that are taken out of circulation by the seizure.

      It is not as if the guy was offering all those BTCs on the open market previously; coins that are being hoarded, don't really cause deflation when they vanish.

      • Good point. I didn't realize hoarding was so bad in BTC. Your comment sent me off on a tangent to this article [theatlantic.com] and it appears you're quite correct on that account. Even so, my question was intended as mostly hypothetical (hence the "some even slight"). It seems that if there's only a slight amount in circulation, the deflationary effects of any of the circulating currency being removed from the market (via seizure by authorities unable to crack the encryption) would have an amplified effect.

        Authorities do

    • by Richy_T (111409)

      I don't think you understand deflation.

      • There's a far greater chance that I don't understand Bitcoin. I have in mind a scenario where the authorities seize fairly large quantities of the currency and permanently remove it from circulation on account of their inability to crack the encryption. Permanently removing any currency, from greenbacks to gold, would have a deflationary effect since it would decrease the monetary supply relative to the supply of available goods and services. Put differently, the relative scarcity of the currency would mean

        • Put differently, the relative scarcity of the currency would mean that the price of goods and services in that currency would decrease Negative. Like gold, if a chunk went missing forever, the demand vs supply would increase, hence making existing supply more valuable.
  • by Cito (1725214) on Sunday October 06, 2013 @12:00AM (#45048823) Homepage

    I got my package I ordered in mail today :-) at my mailbox etc drop box

    I had made a small hash order and then saw news of the shut down, where I live there is 2 unsecured hotspots a library, and a coffee shop I can reach with my beam antenna which I used those for silk road purchases.

    I gave up thinking I wouldn't get my order since the site shut down 3 days after my order.

    But the funny thing is I got home opened the blank package inside was my hash and a small funny message printed and cut out saying "so long and thanks for all the fish..."

    Hehe, there is another "silk road" type site that went up but is more of a classifieds Craigslist type setup I saw advertised on the "hackBB" tor forum which is still up.

    • Re: (Score:3, Insightful)

      by Anonymous Coward
      I don't get it... you go through all that trouble to purchase in a manner you feel is anon on silk road, but then you post about it on slashdot using your registered account? I don't know much about silk road or its transactions, but it sort of blows my mind that people would sent drugs through the mail, nevermind risk picking them up. Same people who don't mind their drugs having bits of feces on them from time to time I suppose.
      • by Firethorn (177587) on Sunday October 06, 2013 @02:59AM (#45049311) Homepage Journal

        I don't get it... you go through all that trouble to purchase in a manner you feel is anon on silk road, but then you post about it on slashdot using your registered account?

        Given the nature of the internet, it can easily be argued that he's lying his ass off. Even if he isn't, 'small hash order' indicates he's a user, not a dealer, thus *on average* incredibly unlikely to be a worthy target for the 3+ agencies you'd need to coordinate with in order to track him down.

        Off the top of my head - you'd need to get a warrant to get slashdot to disclose Cito's account and IP address information. Then you'd need to figure out WHERE in the world he is(presumably the USA). You have to hope that he was using home or at least work for his slashdot postings rather than using the same anonymous internet cafe. Once you've figured out where he is, you have to contact the appropriate state police agency to coordinate with, along with the postmaster general(assuming USPS was used as opposed to UPS/Fedex).

        On Average it's just not worth it. They want dealers, not users.

    • by DiSKiLLeR (17651)

      Anddd you didn't post this anonymously.

      • Anddd you didn't post this anonymously.

        Because posting anonymously on /. protects privacy (from 3-letter US agencies).

        • Uh... come on folks, this is /. after all. When you [x] Post Anonymously, it's anonymous. Basically, when you click that anonymous button, it does a reverse traceroute and auto-roots every server and network device you've traveled across to get here. From there, it modifies server and device logs to substitutes your IP with the IP of [famous coffee shop] farthest from your actual location. Only post anonymously when you're absolutely sure you need to. ;)
  • Let's get serious here. These guys still operate with tiny pieces of paper hidden on a human messenger. This is slower than TCP-IP over pigeons:
    https://tools.ietf.org/html/rfc1149 [ietf.org]
    https://en.wikipedia.org/wiki/IP_over_Avian_Carriers [wikipedia.org]

    As far as getting a serious indictment on those people through monitoring their Internet activities, well it isn't really worthed trying unless you can keep the costs of trying quite low.

Nothing is more admirable than the fortitude with which millionaires tolerate the disadvantages of their wealth. -- Nero Wolfe

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