Courtesy of Mish.
Last week, the FBI shut down the underground website known as “Silk Road” and confiscated the bitcoin wallet of Ross Ulbricht, the site operator, on drug charges.
The estimated value of Ulbricht’s bitcoin wallet is $80 million, but the FBI has been unable to crack the encryption code. Escrow accounts were not as protected. The FBI also seized (stole if you prefer) various escrow accounts, moving the funds to its own bitcoin wallet.
Bitcoin Background
On the off chance you do not know what bitcoin is or how it works, Wikipedia offers a history and description of bitcoin that is rather fascinating.
Also consider Mish Interview With “Bitcoin Jesus”
FBI Unable to Crack Bitcoin Security
With that background, please consider the Extreme Tech report FBI unable to seize 600,000 Bitcoins from Silk Road operator
Closing down the Silk Road and arresting its alleged operator has left the FBI in uncharted territory. After shuttering the hidden site, law enforcement went to work confiscating the money and materials belonging to supposed drug kingpin Ross Ulbricht, but this usually routine procedure is proving especially troublesome in this case. The cache of more than 600,000 bitcoins in Ulbricht’s personal fortune are still inaccessible to the FBI.
The only way to move Bitcoins out of a private wallet is to have the corresponding private key to authorize the transaction. The FBI has been unable to get through the encryption protecting Ulbricht’s wallet, leaving all those Bitcoins — amounting to roughly $80 million at current rates — out of reach. Based on publicly available data, this is about 5% of all Bitcoins in existence right now.
Funds held by users of the site, however, were not so well-protected. Before completing transactions on the Silk Road, users would load Bitcoins into an escrow account on the site. The agreed upon coins would only be transferred to the seller’s private wallet once the buyer had verified delivery of the goods. When the feds took over the Silk Road, there were over 26,000 Bitcoins in user accounts that were relatively easy to snatch up.
The FBI has transferred all 26,000-plus seized Bitcoins to its own personal wallet, but because Bitcoin transactions are tracked publicly, it didn’t take the internet long to find the FBI’s wallet address. Users have taken to transferring tiny fractions of a Bitcoin to the FBI with public comments attached decrying the war on drugs and the arrest of Ulbricht. Users have even helpfully tagged the wallet address as “Silkroad Seized Coins.”
While authorities have control of Ulbricht’s wallet, that’s not the same as having the funds. It’s akin to seizing a computer from a suspect with valuable data inside, but being unable to access it because strong encryption was used to prevent access. Ulbricht himself surely has the necessary information to unlock his wallet — otherwise there would be little use in accumulating $80 million worth of Bitcoins. It’s possible prosecutors will use the leverage they have on him to work out a deal that includes turning over the encryption keys.
“Silkroad Seized Coins”…
