Silk Road Closure Causes Sharp Drop In Bitcoin Value

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BTC goes from $142 to $118 after the FBI shuts down illegal online marketplace

The price of Bitcoin (BTC), the virtual currency based on an open-source, peer-to-peer Internet protocol, has dropped sharply following the closure of illegal ‘Dark Web’ marketplace Silk Road by the FBI, and the seizure of $3.6 million (£2.2m) worth of bitcoin.

According to bitcoincharts.com, the typical price of BTC went from $142 (£88) on Wednesday morning to approximately $118 (£73), before recovering slightly. At the time of writing, one Bitcoin was selling for about $129 (£78) – about 90 percent of the previous value.

Tainted money

On Wednesday, US authorities arrested Ross William Ulbricht, a US citizen who allegedly ran the Silk Road under the alias Dread Pirate Roberts. Before it was shut down, the website, hosted on the anonymous Tor network, used to sell everything from drugs and weapons to malware, forged documents and stolen credit card details.

silkroadseizeIt was long thought that bitcoins cannot be traced to establish their ownership. This had led to the popularity of the virtual currency among certain Internet subcultures, anarchists and real-world criminals, including the Silk Road traders. Despite the best efforts of the Bitcoin community to improve its reputation, almost every article about BTC includes a mention of the Silk Road.

In the last few months, several experts have suggested that anonymity of Bitcoin is an illusion, and with some effort, digital wallets can be connected to real individuals. Security researcher Brian Krebs mentions one such researcher – Sara Meiklejohn from the University of California, who will present a paper on Bitcoin anonymity at the Internet Measurement Conference in Barcelona in October.

The FBI claims that over 9.5 million bitcoins had been traded on the Silk Road since the site went live in 2011, constituting roughly 80 percent of all BTC currently in circulation. During Ulbricht’s arrest, law enforcement agencies confiscated 26,000 BTC, worth approximately $3.6 million – the largest ever seizure of virtual currency.

Security expert Garth Bruen told Reuters that Wednesday’s drop in price was likely caused by Silk Road traders getting rid of their virtual currency caches, ahead of further investigations by the FBI.

Bitcoin is currently about 10 percent down on its previous value, which seems to suggest substantial investor confidence, amongst a community using Bitcoin for legitimate purposes.

It is expected that the money seized will not return to its owners and it may be that the seizure of 26,000 BTC could eventually raise the price of the remaining bitcoins, since their overall number is limited by design.

It remains unclear how the FBI managed to gain access to the servers on the anonymous Tor network. The episode could be linked to the earlier arrest of Eric Eoin Marques, believed to be the head of Freedom Hosting, the biggest service provider on Tor.

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