The shutdown of Silk Road, has received plenty of attention from media and Bitcoin users. The website was deemed as illegal after it became evident it was working as an online marketplace for drug trade, plus a variety of other illicit items. Unfortunately, Bitcoin has taken a huge blow to their reputation in connection with the Silk Road scandal. After all, this is the on line method of payment that was being used on the website for all of the illegal transactions. Just how much will this incident hurt Bitcoin? Not very much, according to the numerous faithful users that are continuing to use it as their primary on line currency everyday.
Jackson Warren, who is a Bitcoin broker as well as co-founder of the popular group “Bitcoiniacs” said that despite the Silk Road arrest made Wednesday, it was one of their busiest days. Not a single person had been interested in selling their Bitcoins; They only wanted to buy them.
Dread Pirate Roberts, otherwise known as Ross Williams Ulbricht was the owner of the Silk Road Site and wracked up numerous criminal charges as a result of his dealings. Police took Ulbricht into custody in San Fransisco on Wednesday, accused of one count each of narcotics trafficking and computer hacking conspiracy, as well as money laundering conspiracy. As if that weren’t enough, it is rumored that Ulbricht actually tried to hire one of the users of his website to murder another, whom resided in White Rock B.C. Allegedly, this user had threatened Mr. Ulbricht, by saying he was going to turn over a list of names, which would expose the identity of everyone who had used the Silk Road sight.
When Ulbricht’s Friday bail hearing rolled around, his lawyers were able to get it moved up until Oct. 9.
Since its establishment in 2011, Silk Road has been known mainly for being a black market platform for illegal goods of almost every type. Not only could one conduct transactions involving drugs like heroin and ketamine, but illicit trade of weapons and malicious software have been prominent trades amongst vendors and users of the website.
The shutdown of Silk Road has captured plenty of media attention in the past, often times with mention of the on-line currency Bitcoins. Despite the fact that the site is no longer running, one can still access it through the use of Torsoftware. This is specially developed software that does the job keeping it’s users anonymous by encrypting and bouncing information through numerous relays so that it can not be traced.
Silk Road Scandal Effects will be Short Term
Bitcoin users in Canada are actually thankful for the shut down of the illicit Silk website, displeased with the amount of negative attention it had been bringing to the use of Bitcoin as an on-line currency.
According to Bitcoin Alliance of Canada founding member, Anthongy DiIorio, the Silk Road incident wasn’t that big of a deal in relation to Bitcoin. It was just one negative aspect that received a lot of media coverage. He added that Bitcoin is proving to be very resilient. He believes that despite the large impact many people thought Silk Road would have on Bitcoin, that it would soon be forgotten.
Not only can Bitcoins be exchanged from person to person on-line, but there are stores that exist where people can make actually physical transactions person to person. One such place is the Bitcoin Store , which is located in Vancouver. There are also on line resources to help connect users to bitcoin vendors.
Is Bitcoin too Volatile of a Currency?
Mt.Gox, which is one of the major bitcoin exchanges, showed Wednesday’s raid to send the price of bitcoin plummeting from $141 at the days start to a meager $109.70. Just three days later, the price had already almost made a full recovery, having climbed back up to approximately $139.
Fluctuations in price like these have gained Bitcoin a reputation amongst criticizers as being overly volitale. Such extreme variations have been seen in the value as a $13 price tag in January become $266 by the time April rolls around four short months later. Many people say that these huge and frequent fluctuations are something that is likely to even out over time. Being that the bitcoin currency has only been around since 2009 it may take a bit to mature into a regular and more consistent market. On this matter, Di lorio said that it is common to see extreme flucuations such as these in a such a young currency.
Bitcoinia is the term that’s been coined to describe the bitcoin economy. A fact about Bitconia that has been pointed out by the economist is that it relies mainly on its rate of exchange in relation to the U.S. Dollar. This is a major cause for the markets volatility.
One April 2013 article in the publication, written by Avent, states that almost anything that can be purchased with bitcoins is first priced in dollars, then the bitcoin price is set accordingly. He says that a what is lacked in Bitconia is internal supply chains, but he believes that it will soon change.
“The more transactions there are in Bitcoinia, the more entrepreneurs will want to hedge their exposure to foreign exchange volatility by paying suppliers or employees in the same currency they’re accepting as payment,” he wrote.
Silk Road’s Damaging Effects Won’t Last
With an already fragile reputation and having been previously involved with such illegal offenses as tax evasion and money laundering, many are wondering if the Bitcoin currency can with stand the blow of being connected to the crimes that led to Ulbricht’s arrest and the shut down of the Silk Road website.
From looking at the recent price fluctuations, some are quick to say that it is quite possible an end of the use of bitcoin as a virtual currency is likely in the future. However, if you ask many members of Canada’s bitcoin community you will find a different point of view. They feel that the shut down of Silk Road and the incarceration of it’s owner show that justice can be done to those who misuse the system, which in turn should strengthen Bitcoin’s image.
“Now that Silk Road is gone, bitcoin’s reputation is already enhanced,” says Di Iorio. “Nothing necessarily has to be done to untarnish this.”
Further supportive of the speculation that Bitcoin will recover from the Silk Road scandal can be seen by looking at the growing number of legitimate companies that are beginning to accept the bitcoin currency as payment. Such bigname websites as Reddit, WordPress publishing platform, and OkCupid on-line dating are amongst those on the list.
Last year Bitcoin-Central, a Europe based trade exchange, was given it’s own international bank ID when it became authorized to actually operate as a bank. It is now recognized as a registered payment provider similar to PayPal.
Furthermore, the infamous Winkelvoss twins, well known for their involvement in their feud with Facebook Tycoon Mark Suckerberg, are putting their heads together for a new project; Plans are underway for the development of a exchange-traded bitcoin fund . Their idea behind this it to create virtual marketplace where bitcoin currency can be traded in the same fashion as stocks.
What is a Bitcoin?
A bitcoin is much the same as a unit of any other currency. It can be traded for goods and services, or even U.S. Dollars. The difference is, the currency is considered to be the first digitized digital currency that is in no way controlled or monitored by the government. This means that bitcoins allow users to make purchases and transactions with complete anonymity, whether traditional currency, goods, or services are involved. Bitcoin transfers work like electronic transfers and can be sent to anywhere on the globe. The transfers use encryption protocols and specialized addresses to keep the bitcoin transaction anonymous.
So, where do bitcoins come from? The thousands of people who set up miners to run are responsible for generating the bitcoins that are circulated amongst the community. Some work individually while others choose to join groups known as mining pools. In turn, miners use powerful software to attempt solving different mathematical puzzles as part of series, or algorithms. The reward given every time a puzzle is solved successfully is a block of bitcoins. The miners then trade in the bitcoins they’ve received at which point they enter into circulation.
All transactions involved in the mining process must be validated and recorded in the bitcoin network. Validation can take a little time, so many users implement the option of including a small mining fee into their trades. This is usually a certain percentage of the bitcoin transaction being paid to the miner. An interesting fact about the algorithm that the marke runs on limits the number of bitcoins that can ever come into existence to 21 million. That’s only about 9.25 million more than are in circulation now.
Of the 11.75 million bitcoins in circulation, and amazing 9.5 million were generated in sales on the Silk Road website by itself. Although it was in existence for less than three years, the comissons alone added up to a staggering 600 thousand. The Federal Bureau of investigation estimated this ammount to be equal in value to $1.2 billion dollars in all transactions and another $80 million from the commissions in the civil forfeiture complaint filed against the site’s owner, Ross Williams Ulbricht. So far, the FBI has recovered 26,000 of the bitcoins from numerous Silk Road user accounts but none from Ulbricht.
A Long String of Bitcoin Scandals in the Past
The raid that caused the shutdown of the Silk Road website and lead to arrest may be big news now, but unfortunately, it is not the only incident of its kind connected to the bitcoin market. Some of you may be aware that in May of last year, the popular gaming league known as E-Sports entertainment league, or ESEA, owned up to having misused the bitcoin marketplace. They publicly apologized after making a surprising confession that they were guilty using their top of the line computing power to generate bitcoins without consent. In an effort to make up for their actions the ESEA has since made a donation of of $3,713 bitcoins to the American Cancer Society, and then matched that amount in another donation.
Trendon T. Shavers, AKA Pirateat40, manipulated the bitcoin economy by illegitimately collecting over 700 thousand bitcoins. He did this by launching a savings and trust scam where, after convincing hundreds of unsuspecting users to deposit the entirity of their funds, with the promise of a 7% return investment, then simply shut down the site and walked away with their bitcoins.
When he was forced to go to the court proceedings on the matter, he found himself faced with the fraud charges in which he had unlawfully gained possession of $4.5 million USD. He tried to use the defense that bitcoin trading wasn’t real life, it was just a game and there was no actually monetary value involved. The Texas judge, however, didn’t see things in the same light. He ruled that bitcoins should be seen the same as any other traditional currency and do have value. This led to the July decision made by the U.S. Securities and Exchange Commission to formally charge Trendon T. Shavers for his fraudulent activities.