Bitcoin value bounces back after Silk Road shock

Bitcoin value bounces back after Silk Road shock

Virtual currency bitcoin has seen its value bounce back after an initial heavy fall in the wake of the FBI's take-down of the Silk Road online marketplace.

As news broke that the Silk Road had been shut down and its founder, Ross William Ulbricht, arrested, bitcoin - which is used to buy and sell illegal goods such as drugs on the site - saw its value fall by as much as 20% from $140 to $109 on the Mt. Gox exchange.

However, at the time of writing, bitcoin - which is notoriously volatile - has bounced back to around $128. Patrick Muck, the Bitcoin Foundation lawyer told Wired that "Over time the value of bitcoin will be determined by its useful purposes. Day to day price fluctuations based on events in the news are not really an effective or accurate measure of the value of the system."

The FBI arrested Ulbricht in San Francisco yesterday, seizing the site he set up two years ago, its servers and around 26,000 - $3.6 million - in bitcoins from the 29 year old. It is now trawling servers for information such as transaction details and has also obtained a court order enabling it to examine bitcoin wallets on the site.



According to the criminal complaint against Ulbricht - AKA Dread Pirate Roberts - the site has generated sales revenue totalling over 9.5 million bitcoins during its short existence. There are currently only around 11.78 million coins in existence.

At bitcoin's current value, the 9.5 million which flowed through the Silk Road equates to around $1.2 billion, while the 600,000 bitcoin which Ulbricht charged in commission is worth around $80 million.

Bitcoin was the only form of payment accepted on the Silk Road, with the site essentially operating an internal bank where every user had to hold an account. These accounts - nearly a million were registered - had bitcoin addresses stored on wallets marinated on servers controlled by the site.

Once the wallets were loaded with currency, they could be used to buy from vendors on the site, with Ulbricht charging a commission of between eight per cent and 15%.

To process transactions, the site used a "tumbler" which "sends all payments through a complex, semi-random series of dummy transactions,...making it nearly impossible to link your payment with any coins leaving the site," says the Silk Road wiki.

The Silk Road was predominantly used to buy and sell drugs - in September there were nearly 13,000 listings for "controlled substances". However, other goods and services were also listed, including tutorials on hacking ATMs, stolen credit card data, and hitmen for hire.

Read the full complaint:Download the document now 3.3 mb (PDF File)

Comments: (5)

A Finextra member
A Finextra member 03 October, 2013, 17:02Be the first to give this comment the thumbs up 0 likes

So......Patrick Muck, the Bitcoin Foundation lawyer told Wired that "Over time the value of bitcoin will be determined by its useful purposes".

I guess it depends what you happen to call 'useful'......  drugs and arms dealing??? I should koko!!!!

Call me old fashioned..... but dont currencies normally have a value that is predicated on the trust and confidence that 'the market'  imbues them with?

If you look at the string of related finextra articles below this one - i am absolutely  stunned that anyone has any confidence in the Bitcoin as a currency or any belief in its longevity..... It is constantly going to be used for 'dark' transactions.... more incidents to follow, until eventually the bitcoin goes to pieces? 

Brett King
Brett King - Moven - New York 03 October, 2013, 21:51Be the first to give this comment the thumbs up 0 likes

I think it is fair to point out that Bitcoin's trading volume was 972,867 in the last 24hrs, which would mean Silk Road contributed around 10 days of total trading value\volume to the Bitcoin economy which has been going for 6 years.

A Finextra member
A Finextra member 04 October, 2013, 14:52Be the first to give this comment the thumbs up 0 likes

It always amusing to see how phenomenally strongly people react as if bitcoin facilitated crimes that weren't possible with old fashioned cash. If anything a global public ledger is a lot less useful for illicit activity than physical mediums of exchange. Can you imagine if the government decided that every cash transaction had to have the bill id be publicly recorded when it changed hands? Pretty sure it would not just be bleeding heart liberals that would take issue with that. 

https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX

 

A Finextra member
A Finextra member 12 October, 2013, 08:56Be the first to give this comment the thumbs up 0 likes

If confidence in a currency (especially fiat currencies) is essential for them to maintain their value then what happens as and when market confidence is eroded too far  eg when players like Dwolla start to drop out?

https://www.finextra.com/news/fullstory.aspx?newsitemid=25313

A Finextra member
A Finextra member 12 October, 2013, 15:14Be the first to give this comment the thumbs up 0 likes

Many people get too distracted by and place, IMHO undue significance on, the price, without seeing that is not critical to the functionality of the system as a trustless p2p payment mechanism. This includes bitcoin advocates.  

Sure, the price flucutations get people interested and drive speculation when the value goes up and also adoption but regardless of price, the system is still a way of transferring value which is unique in several aspects.

The US regulatory stance is isolating that country from all the innovation arising from this development. In Germany on the other hand where the policy is more inclusive one exchange has gone into a formal partnership with a high street bank.

 

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