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: