The Silk Road seized and the downfall of Mt.Gox
Silk Road is the first modern darknet market. Derived from a historical network of trade routes, which started during the Han Dynasty (206 BC – 220 AD) between Europe, India, China, and countries on the Afro-Eurasian landmass. Started in February 2011, a booming online marketplace, and founded by Ross Ulbricht, a darknet market operator, known alias “Dread Pirate Roberts”. Ross as some article say American former drug trafficker, some people say he is a visionary who wants anonymity, maximize political freedom and independence, emphasizing freedom of choice, voluntary association, and individual judgment; they believe in every individual rights. He also has some business failures before Silk Road.
It produced millions of dollars in revenue, secret was simple: ensuring the anonymity of its buyers and sellers. You can access it through Tor, software that renders anonymous on the internet and as a tool for uncensored communication to Internet users. Primarily, buyers could register free, but there were a limited number of new seller accounts available; new sellers had to purchase an account thru an auction. Later, a fixed fee for each new seller account to mitigate the possibility of malicious individuals distributing tainted goods, the site had 10,000 products for sale by vendors[
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Bitcoin is the primary mode of payment, fiat to bitcoin then btc to Silk Road account, if there is a transaction the buyer’s btc will be escrow; when the buyer confirmed the legitimacy of the purchased, seller’s account will be credited. Despite its highly anonymous features, in October 2013 the U.S. Government shut it down. Intersection between the Bitcoin housed on the site, valued at tens of millions of U.S. dollars, and a key crime-fighting tool: the federal asset forfeiture program. As soon as the United States seized Silk Road, it also, by virtue of technological fiat (and, apparently, some clumsiness on the part of Ulbricht), seized the bitcoins housed therein. This included Ulbricht’s staggering personal bitcoin supply (about 150,000 BTC), accumulated through the healthy commission Silk Road took from all sales, as well as all of the bitcoins held by its many users or housed in the aforementioned escrow accounts (about 30,000 BTC). This meant that if a drug-seeking Silk Road user tried accessing the site after the shutdown, he would, to his likely dismay, be redirected to an FBI-generated shutdown notice. In addition, all of the bitcoins he may have stored on Silk Road would also be gone, seized by the government as part of efforts to forfeit all of the bitcoins held in Silk Road accounts. Short discussion by the federal asset forfeiture program[
read].
Silk Road Seize lessons: Ross was just clumsy: agreed to be interviewed by Forbes, under the show of the Dread Pirate Roberts, in the summer of 2013, revealing enough of himself to law enforcement to pierce Silk Road’s veil. As Michael Neilsen suggests, the claim that Bitcoin can be used anonymously—the claim that drove the very formation of Silk Road and other marketplaces that specialize in illegal goods—is a myth. “The block chain is public,” Neilsen argues, and “although Bitcoin addresses aren’t immediately associated with real-world identities, computer scientists have made a great deal of progress figuring out how to de-anonymize ‘anonymous’ social networks.
If FBI agents can trace the flow of the Silk Road bitcoins—or, simpler still, exploit civil forfeiture to make such tracing unnecessary—proponents of Bitcoin (particularly those who seek to use Bitcoin to facilitate criminal activity) will be forced to adjust accordingly. By virtue of the blockchain, the backbone of the Bitcoin ecosystem, Bitcoin may never be as anonymous or untraceable as it purports to be. Ironically, as Neilsen aptly suggests, Bitcoin is “perhaps the most open and transparent financial instrument the world has ever seen.” The Silk Road episode stands as evidence that existing legal structures such as asset forfeiture currently have the power to contain Bitcoin. U.S. Marshalls auction off the bitcoins from the Silk Road forfeiture, we are left to question whether this newfangled crypto-currency is any different, from a legal perspective, from an old fashioned pile of cash.
MtGox downfall. MtGox was a bitcoin exchange based in Shibuya, Tokyo, Japan, as the largest bitcoin intermediary and the world's leading bitcoin exchange. MTGox stands for "Magic: The Gathering Online eXchange” founded by Jed McCaleb, now the most controversial figure in cryptocurrency and hated due to its issue with XRP. The exchange handled millions of dollars’ worth of transactions a day, just like a traditional “forex” trading platform. When BTC is sent from one public key address to another (sender used private key), funds cannot be retrieved unless the receiver physically sends the funds back (using own private key). This feature of Bitcoin is the core of its almost-totally protected transaction system, while MtGox’s exchange system avoided this security feature for the sake of accessibility and speed. This arrangement, called a web wallet, is the similar as Silk Road, meaning the private keys is with MTGox, and the only thing keeping MtGox from stealing the funds was, ironically, the prevention of legal action on the basis of contract law or criminal law. It is considered “the worst of both worlds” since it joint the irreversibility of BTC transactions (once you sent your BTC to MtGox, only MtGox could ever send it back to you) with none of the highly developed regulatory protections of the traditional financial services system. Even though users “owned” the BTC they had sent to their MtGox wallets, their claim to ownership was secured only by a simple contract—the user agreement.
In early 2014 it dramatic collapse. In February 2014, Mt. Gox suspended trading, closed its website and exchange service, and filed for bankruptcy protection from creditors. In April 2014, the company began liquidation proceedings. The disappearance of more than $400 million worth of bitcoin from MtGox, and its subsequent collapse, many Bitcoin users left with no option other than to trust the traditional legal system for relief. Whether the collapse triggered by hacking or mismanagement, its effect on customers is the same: they are unable to retrieve their funds. Mizuho had been trying to shut down MtGox’s account for months before the collapse, and now that it is theoretically liable for the exchange’s errors, other banks who deal with Bitcoin businesses are proceeding cautiously. Bitcoin’s largest exchange and its customers have become involved in legal actions is clear evidence that the traditional legal system will continue to dominate dispute resolution for Bitcoin users.
Like Silk Road case, it proves that current legal tools like asset forfeiture can be adapted to Bitcoin’s supposedly cutting-edge usage, and MtGox case displays that bankruptcy and class actions can be applied to Bitcoin denominated business disputes. Some developers are moving forward with systems based on Ricardian contracts (“smart contracts”) and multi-signature cryptography, application of these technologies would be a peer-to-peer exchange.
Bitcoin, in order to continue its challenge to our old financial system, it must cope up with and react to our traditional legal structures; either that or it must progress beyond them. As Bitcoin grows in popularity, so does the law’s interest in being able to reach it just like Silk Road and MT.Gox.
Your thoughts? If you have more knowledge about these historical events, kindly reply. Let us learn together.
Sources:
Silk Road,
Ross,
Libertarianism,
Cyber-takings,
Lessons,
MTGox,
Jed,
FCK/YOU Money,
Meet the Dread Pirate Roberts,
Academic Exercise,
multi-billion dollar system
This topic is a challenged by TMAN:
All good dude. For more merits, tell me more about Silk Road and MTGox, give me a proper rundown on both including what MYGox stands for and who Ross is
Challenge accepted
It is a summary of what I have learned about Silk Road and Mt.Gox.
I do not own most of it.
Be Positive 
