It’s been ten years since Ross Ulbricht, a darknet market, “The Silk Road”, was seized. In total, the US government holds more than 205,000 Bitcoin. Much of the Silk Road-connected Bitcoin will be liquidated in the next year. But why now? What does the US government have in store for us? Let’s take a look at what’s happening and the Silk Roads auction history.
US Wants To Sell Silk Road Bitcoin For $1.18 Billion
Although the US government loves to bash the use of Bitcoin and cryptocurrencies, they are the largest holders of the currency. They reportedly hold more than 1% of Bitcoin’s current circulating supply.
That being said, it seems they’re cashing in as they recently sold 9,861 BTC for a total of $215 million on March 14, 2023. They’ve also released a report that they’ll be selling a further 41,490.72 Bitcoin over four batches during the next calendar year. At Bitcoin’s current price of $28,400, that’s more than $1.18 billion.
Almost immediately after the US released the statement, Tron founder Justin Sun offered to purchase it all at a 10% discount.
In his tweet, he claimed that he only wanted to “minimize the impact on Bitcoin” though professionals don’t believe this will impact the price of Bitcoin. That being said It is unclear at the moment whether the government would accept Sun’s request amid his legal dispute.
But, the Silk Road seized nearly a decade ago. So one might ask why the Government has held onto the tokens until this point and why the US Government would like to sell the tokens now.
Finding The Stash: The Silk Road
The Silk Road was an infamous online darknet marketplace that operated from 2011 to 2013, providing a platform for anonymous transactions of illegal goods and services, including drugs, weapons, counterfeit items, and hacking tools. It was accessible through the Tor network, which allowed users to remain anonymous and untraceable, and transactions were conducted using cryptocurrency, mainly Bitcoin.
The Silk Road was shut down by the FBI in 2013, and its founder, Ross Ulbricht, was arrested and sentenced to life imprisonment without parole for drug trafficking, money laundering, and computer hacking.
Ross Ulbricht was arrested by the FBI in a public library in October 2013. The FBI had been investigating the Silk Road for several years and had been tracking Ulbricht’s online activity through various means. Unfortunately, Ross failed to follow some simple OpSec guidelines that he encouraged those using the market to follow.
One of the key pieces of evidence that led to Ulbricht’s arrest was his use of his personal email address on the Silk Road forums and in other online activities related to the site. The FBI was able to trace this email address to Ulbricht and eventually located him in the public library, where he was using a laptop to administer the Silk Road site.
In addition to this, the FBI also seized a number of other items from Ulbricht’s laptop, including chat logs and other incriminating evidence that further linked him to the operation of the Silk Road. This evidence was used against Ulbricht in court, and he was eventually found guilty on charges of drug trafficking, money laundering, and computer hacking.
The Silk Road became a symbol of the challenges posed by illicit activities on the dark web and the difficulty of law enforcement in combating them. Due to its size, alternative darknet markets like Silk Road 2.0, AlphaBay, and World Market sprung up. Since Silk Roads’ closure, we’ve seen the darknet market turn into a multi-billion dollar business, with most taking lessons and inspiration from their predecessor.
Silk Road Bitcoin Auction 1
During the initial seizure, the FBI confiscated 26,000 Bitcoins (worth over $3.6 million at the time). The FBI explained that “We will download the Bitcoin and store them, we will hold them until the judicial process is over.”
A few months later, the FBI found a further 144,000 bitcoins, worth ($28.5 million at the time) meaning Ross held atleast 1.5% of the total Bitcoin circulation in 2013. It took a while for the FBI to cash in on these funds, but on the 27th of June 2014, the U.S. Marshals Service sold 29,657 Bitcoins. By holding these coins from the time of his arrest, to the auction, they amassed a whopping $18 million for the tokens. It was Tim Drapper who won the auction, and claimed he had “Probably the best deal anyone will get,” Only a small tail of what was to come.
Silk Road Bitcoin Auction 3-5
A further 50,000 Bitcoins were sold for roughly $18.1 million (as Bitcoin slumped over the previous few months.) The US Marshall services confirmed that
“The U.S. Marshals Service is confirming that the recent bitcoin auction resulted in two winning bidders. One bidder won 19 blocks, totalling 48,000 bitcoins, and the other won one block of 2,000 bitcoins. Because SecondMarket has voluntarily come forward, we can confirm that it was the winner of 48,000 bitcoins, and the transfer of those bitcoins was completed Monday.”
By March 2015, the US Marshals Service sold a further 50,000 Bitcoins at $270 each, claiming a further $13.5 million from their Silk Road takedown victory.
By November 2015, Ross had received his two life sentences without the possibility of parole and sat in a federal prison. The US Marshalls then sold what they considered to be “Bitcoins in Final Silk Road Auction.”
The last of the 44,341 Bitcoins were split between four winners and bagged a further $14.6 million. If you’ve been keeping track, the government made a total of $64.2 million from the Silk Road Bitcoin.
Individual X and James Zhong Makes The IRS Rich
In November 2020, the crypto world were in a frenzy as they watched a Bitcoin wallet containing 70,411.46 Bitcoin move their funds for the first time since 2013. This led to many speculating that Satoshi had returned and other theories. A couple of days later, the IRS released a statement claiming, “We’ve just seized $1bn in bitcoin stolen from Silk Road by ‘Individual X’ hacker.”
Although Ross Ulbricht was the man who brought darknet markets into fashion, he didn’t do a great job in his website coding. As a result, in May 2012, Individual X managed to take control of the backend of the Silk Road and emptied 70,411.46 (which was only worth $350K at the time) from the website’s hot wallets. It took seven years for the FBI and CCU to trace the funds to the hacker.
It’s far from clear how the IRS tracked down the hacker, why the investigation took more than seven years, or exactly what legal means the IRS used to persuade Individual X to turn over the money. The individual has still not been named to this day.
This handed a further $1 Billion in Bitcoin to the IRS. However, Individual X was not the only man to hack into the Silk Road. Just a few months ago, another individual by the name of James Zhong was captured with ties to the darknet market.
According to the DOJ’s report, in 2012, Zhong found and exploited a vulnerability in the dark web marketplace’s website. The exploit allowed Zhong to deposit Bitcoin and then withdraw more funds than he’d deposited.
Zhong never cashed in on the 53,500 Bitcoins (which was worth $3.36 Billion at the time of his arrest), and instead hid the wallet. The feds found the wallet “on a circuit board in the bottom of a popcorn tin.”
This has led to the opportunity of cashing in $1.18 Billion in Bitcoin.
Conclusions: They’re Just Cashing In
The US Marshall Service has held onto the Bitcoins for quite some time and hasn’t sold them. However, with a recent surge in cryptocurrencies, and various market conditions, now is as good of a time to cash in as ever. This does beg the question of whether the US is planning on cracking down further with crypto regulation.
What are your thoughts? Let us know in the comment section below.
Hey there, I’m a dark web geek who’s been around for the last 8 years. More precisely, I’m livedarknet’s senior content writer who’s been writing about darknet marketplaces, tutorials, and cybersecurity stuff for educational purposes.