By the time the F.B.I. shut down Silk Road—an online black market for illegal drugs, computer-hacking tools, and even contract killings earlier this week, the site had nearly a million registered users. The Web site refused all forms of payment except Bitcoin, a digital currency “designed to be as anonymous as cash,” according to a criminal complaint filed in the Southern District of New York against Ross Ulbricht, the site’s alleged creator and administrator. And at the time of the shutdown, Silk Road had processed sales totaling more than nine and a half million bitcoins—worth about 1.2 billion dollars at the time of the Ulbricht’s arrest in San Francisco on Tuesday, though the currency’s value has fluctuated widely.
Bitcoin first gained wide attention after a 2011 Gawker exposé of Silk Road named it as the drug bazaar’s currency of choice. That illicit association has dogged it ever since. In August, after the New York Department of Financial Services handed subpoenas to more than twenty Bitcoin companies, Benjamin Lawsky, state superintendent of financial services, wrote in a memo, “If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the virtual currency industry as a legitimate business enterprise.”
The shutdown of Silk Road, then, and Ulbricht’s arrest, offer chance to move on. “It’s a watershed moment for Bitcoin,” Marco Santori, the chairman of the regulatory-affairs committee of the Bitcoin Foundation, a nonprofit advocacy group, told me. “Bitcoin’s P.R. problem, with which it has struggled for the last year or so, is being addressed in a very direct way.”
Bitcoin lacks a central authority. Indeed, the fact that it stands apart from governments and banks is one of its selling points for many users. And its user base is a hodgepodge of crypto-anarchist ideologues and pragmatic business owners, of hackers and investors whose reasons for using the currency often seem at cross purposes.
In such an environment, all that is required for people to become representatives of the wider community “is for them simply to stand up and do it,” Adam Levine, editor-in-chief of Let’s Talk Bitcoin!, a podcast on the Bitcoin industry, told me recently. “And in the past, the people who have been doing it I’ve not been impressed by. I’ve felt like they have actually done damage.”
Increasingly, the Bitcoin Foundation serves as the respectable public face of the currency’s users. In August, Santori and other members met with representatives of several federal agencies in Washington, including high-level staffers from the F.D.I.C., the I.R.S., the Federal Reserve, the F.B.I., the Drug Enforcement Administration, and the Department of Homeland Security. At the meeting, the Bitcoin Foundation leaders hoped to assuage federal officials’s fears and doubts about Bitcoin’s nature and use.
For entrepreneurs and investors, the risks of Bitcoin are obvious. But so are the potential rewards of a digital currency that can serve as an easy-to-use payment system. Coinbase, a Bitcoin trading platform, has raised more than six million dollars in investments since its founding in June of last year; according to its Web site, it has two hundred and eighty-five thousand users and processes a hundred and eighty-three thousand transactions per month.
“It seems inevitable that regulation will be a part of mainstream legitimacy for Bitcoin,” Levine said. “The thought is, even if it changes it for the worse a little bit, it will gain much more in legitimacy.”
Between April and June of this year, investors poured twelve million dollars into Bitcoin startups, according to CB Insights, an investment-data firm. With the bugaboo of Silk Road banished, Bitcoin might soon acquire a relatively clean-cut image. That would allow cryptocurrency entrepreneurs to attract even more funding for companies built on what the Bitcoin Foundation considers the legitimate and valuable uses of Bitcoin—among them e-commerce, remittances, and financial empowerment for people in the Third World.
Not everyone feels that way. After news of the Silk Road shutdown broke, a Bitcoin sell-off began. “It’s estimated that Silk Road was responsible for a large amount of Bitcoin traffic, so the shutdown of Silk Road was similar to a stock crash in the Bitcoin space,” said Ashley Fulks, the president of Bitcoin Ventures, a Canadian company that has created a virtual-currency gift card.
At one point on Wednesday afternoon, the price of a single bitcoin, previously about a hundred and twenty-five dollars, dipped as low as seventy-five dollars on the Bulgaria-based BTC-E, a prominent cryptocurrency exchange, according to Bitcoin Charts, a Web site that provides financial data on the Bitcoin network. Savvy Bitcoin veterans expected the panic. What they didn’t expect was for the currency to regain its value so quickly. Already, the value of a bitcoin has rebounded to about a hundred and twenty dollars on BTC-E, as buyers snapped up cheap coins.
“As if there were any question before about whether there would still be Bitcoin use outside of Silk Road, the answer is yes, absolutely,” Santori, who works as a lawyer representing digital startups at Nesenoff & Miltenberg, LLP, told me.
It remains to be seen whether Bitcoin entrepreneurs can successfully rebrand the digital currency for the mainstream. That might not matter. Even if Bitcoin fails, people are already aware that digital currency not issued by a government or bank. Dozens of other digital currencies already exist. Coin Market, a new trading platform, allows users to buy and sell not only Bitcoin but six other popular digital monies.
“If Bitcoin has attributes that cause its downfall, for whatever reason, then I guarantee that the next batch of cryptocurrencies that come out will not have that problem,” Levine said, “because the prize for creating the thing that becomes the next Bitcoin is unfathomable.”
A pile of Bitcoin slugs sit in a box ready to be minted. Photograph by George Frey/Getty.
Brian Patrick Eha is an editor at Entrepreneur.com. He also writes on literature and culture for The American Reader, the Los Angeles Review of Books and other publications.
