When the FBI shuttered Silk Road, a popular Bitcoin-backed online black market, the value of Bitcoin fell from over $141 to below $110. Nonetheless, the end of Silk Road represents a turning point– people will innovate to make Bitcoin more robust and decentralized than it ever has been.
In particular, Bitcoin threatens to redefine the concept of currency as we know it, and the aftermath of Silk Road’s fall proves it.
Other popular illicit marketplaces shut down after Silk Road’s demise, and the FBI caught several Silk Road drug dealers. Many prior users are paranoid of trusting new marketplaces, thinking they may just be DEA honeypots and that the NSA may have already cracked encryption technologies like PGP, rendering online anonymity futile.
Some speculate that Bitcoin, an anonymous digital currency introduced at the start of 2009, will have trouble rebounding from the loss of its biggest illegal marketplace. Some even believe that Silk Road’s collapse will accelerate the regulation of Bitcoin because it reveals how the currency’s anonymity encourages tax evasion.
That couldn’t be further from the case. People already see Bitcoin as a currency whose domain extends beyond the black market. Drug sales account for only about half a percent of all Bitcoin transactions, and some brick and mortar stores, like the forward-thinking Coupa Café in Palo Alto, now accept Bitcoin.
Silk Road’s fall made it clear that for Bitcoin to become truly anonymous, transactions need to be decentralized and untraceable. If that goal becomes a reality, Bitcoin can change the way governments and currencies work forever.
Some have already proposed new marketplace structures to counter Silk Road’s failures. Its centralized nature likely caused its eventual failure (along with Silk Road founder Ross Ulbricht’s carelessness), causing ideas like a “federated distributed social network” for Bitcoin trade to top startup incubator Y-Combinator’s news website.
Others are tackling deficiencies in Bitcoin itself by building more layers of privacy. Because Bitcoin transactions are public, some doubt the anonymity of Bitcoin transactions. In order to obscure the flow of Bitcoin, people often run Bitcoins through Bitcoin tumblers. Tumblers hide the true origin of your money by replacing your Bitcoins with a mixture of random Bitcoins with different transaction histories.
Silk Road used its own centralized tumbler, making it useless for privacy when it got compromised. Therefore, new systems like Zerocoin hope to ensure decentralized, untrackable Bitcoin transactions.
All signs point to the acceleration of Bitcoin becoming a truly untraceable currency.
Silk Road served not just as a black market, but also as a massive social experiment. It helped people explore the benefits of having a crowd-regulated drug market. Silk Road’s robust reviewing system and security features made it a prime place to buy substances with confidence in their purity. Many active Silk Road users heralded the service as a leader of safe drug use because the illegality of drugs prevents their regulation. It is impossible to distinguish between what street dealers claim they sell and their actual products, but by allowing online dealers to establish trust while maintaining anonymity, buyers could purchase and consume drugs more safely.
Silk Road also prompted people to discover the important features of anonymous marketplaces in general. In its wake, many are working to correct flaws in Silk Road and Bitcoin’s designs.
Inevitably, a more robust system will rise to meet the needs of the public. In the midst of the recent NSA fiasco, ever-shifting drug legality and financial turmoil in the wake of the recent U.S. government shutdown, Bitcoin has a chance to fundamentally change the way currency works.
By being government-independent, difficult to track and decentralizable, Bitcoin threatens to reduce trade to the mere exchange of data, making currency as unregulatable as MP3s.
Silk Road’s demise closely resembles the shutdown of pre-eminent BitTorrent piracy site, Oink’s Pink Palace (OiNK). In OiNK’s wake, a slew of alternatives arose, growing well beyond OiNK’s original size. One such site, what.cd, even implemented an open-source BitTorrent tracker that anyone can use to make a torrent site, showing just how difficult it is for governments to control how people use the web.
BitTorrent is reducing digital media to the exchange of data. Bitcoin is abstracting away the exchange of money, and in the same vein, emerging 3D printing technology may represent the digitization and eventual piracy of physical goods.
Where Silk Road fell, the Bitcoin market is split wide open for innovation, growth and rebirth. Whatever happens, the times, they are a-changin’, and count me excited to see what’s on the horizon.
Contact Omar Diab at firstname.lastname@example.org