FBI struggles to seize 600,000 Bitcoins from alleged Silk Road founder

http://www.theguardian.com/technology/2013/oct/07/fbi-bitcoin-silk-road-ross-ulbricht

by spindritf • 13 years ago

197 269 13 years ago

theguardian.com

Synaesthesia• 13 years ago

Good encryption is still uncrackable, unless you induce the owner to give up his passphrase.

nachteilig• 13 years ago

How much leverage does giving up $80 million in BTC give one in a plea deal?

sejje• 13 years ago

Depends how certain your guilt is, and how stiff the sentencing is.

bdcravens2• 13 years ago

How much leverage does 1 or 2 counts of murder-for-hire give the government in a plea deal?

betterunix5• 13 years ago

None at all. You'll be held in prison until you release the money, or else they will just ignore the money and convict you anyway.

kybernetyk• 13 years ago

Even if the FBI is not able to transfer the money, merely having possession of the wallet file itself is enough to prevent the coins being spent.

Yes ... if no backups exist.

gambiting2• 13 years ago

And as soon as someone spends any amount of bitcoins from one of these backups the copy held by FBI becomes invalid.

VMG2• 13 years ago

To be precise, transactions must explicitly state all output addresses, and the default behavior of the client is to transfer the "change" back to a new address owned by the party doing the transaction to increase anonymity. It is however possible to redirect the change back to the original address.

colkassad• 13 years ago

The thought exercises are fascinating. Say he has a completely trustworthy friend somewhere that the FBI is unaware of. Could he have that person spend a little, back up that copy again, and effectively keep that FBI from ever getting that money?

Also, surely a backup exists. What is an effective way to backup the wallet so that it can survive decades of prison time? Particularly if a trustworthy friend does not exist?

sschueller• 13 years ago

So the FBI needs to spend it as soon as possible?

Jonovono• 13 years ago

Why is that? So if I have several backups of my bitcoin wallet, and I spend from one of them, the others become invalid, so I'd have to keep updating them? Isn't it just a private key you are storing that would not ever change? So if they were able to get to the private key why would they not be able to spend even if he has spent some on the backup?

ikken• 13 years ago

.. and if it was not some kind of brain-wallet (supported by Electrum, etc.). If it was, then the wallet can be regenerated from memorized hash.

appleflaxen• 13 years ago

Right after the DPR bust there was a lot of discussion about how it was a death knell for bitcoin, but this is exactly why it's such a revolutionary type of technology: if DPR had any currency in a paper wallet, he could simply print it out, put it in a safe deposit box, and pick it up once he is out of prison.

For a currency to be so secure that a state cannot seize it from a citizen is unprecedented.

It will be fascinating to see how this plays out.

CompelTechnic• 13 years ago

If he uses a brain wallet, it would be even more secure. The ONLY possible way to seize the bitcoins would require him to comply. Another interesting bit is the fact that this might make him a billionaire by the time he's released from prison- just from the appreciation of bitcoin's value.

I have another curiosity about the FBI's intent to seize his bitcoins- is it fair to seize all of them? If half of these bitcoins were earned while bitcoins were only worth 1/10 of current value, should only 10% of that half be seized? This might be arguable in court.

Osmium• 13 years ago

I have another curiosity about the FBI's intent to seize his bitcoins- is it fair to seize all of them? If half of these bitcoins were earned while bitcoins were only worth 1/10 of current value, should only 10% of that half be seized? This might be arguable in court.

I'm fairly sure there must be precedent for this. It's not like Bitcoin is the only currency that undergoes inflation...

pflats• 13 years ago

If he had done the deal in a foreign currency, in gold, or for modern art, they'd still seize all of that, regardless of its current value. Bitcoins are no different, even if you're considering them a proxy for real dollars.

pessimizer• 13 years ago

If you steal money and invest it, should you be allowed to retain the capital gains?

And honestly, when it comes to America and drugs, I'm pretty sure that they have the legal authority to seize and sell the router at the coffee shop computer they traced him to once.

edit: humorous typo.

khafra• 13 years ago

It will be fascinating to see how this plays out.

The obvious way would be ambiguity about the final fate of his bitcoins, and centuries' worth of hacker legends about the lost treasure of the Dread Pirate Roberts.

imdsm• 13 years ago

centuries' worth of hacker legends about the lost treasure of the Dread Pirate Roberts

It is amazing to think that in a few hundreds years, quite possibly, bitcoin/a bitcoin derivative could be the "global" currency, and this wallet could actually be a lost treasure among people. Sometimes it's easy to think we're just in the here and now, but we are making history, we're in the future's past.

bradleyjg2• 13 years ago

He's accused of at least two capital crimes. What makes you think he'll ever get out prison?

I imagine that turning over the bitcoins will be a condition of the near inevitable plea bargain.

DennisP2• 13 years ago

Accused, not convicted, and if he's got funds in a brainwallet he can afford a team of good lawyers.

eterm• 13 years ago

"At current exchange rates, that represents slightly more than 5% of all bitcoins in circulation"

Why would exchange rate affect what percentage of bitcoins 600k are! This is terribly confused thought from the journalist:

600k bitcoins, that's "almost $80m".

$80m! But at current exchange rates that's "just over 5%!".

When sitting there are the actual numbers of bitcoins in his wallet and bitcoins in circulation...

salmonellaeater• 13 years ago

An FBI spokesperson said to Hill that the “$80m worth”

The FBI gave the number denominated in USD, so the journalist had to estimate the true number of BTC. The 600k is almost certainly calculated from that $80m number.

cle• 13 years ago

I believe the $80mil estimate is from the criminal complaint, which derived that estimate from the data they collected from the seized server. The complaint specified that from Feb 6, 2011 to July 23, 2013, Ulbricht collected 614,305 Bitcoins in commission, which is $84,159,785 at today's exchange rate on Mt. Gox.

So I'm pretty certain that the $80mil estimate is derived from the actual number of Bitcoins in commission that was logged on SR's server.

calinet63• 13 years ago

Chill, it's probably a typo.

They had it one phrasing and then the editor got on their back about no one knowing what 600k BTC means, so they started to add the dollar value, then put it in front but forgot to fix the circulation percentage to make sense.

This isn't unheard of, and they're probably not an idiot.

devcpp• 13 years ago

Also, a lot of it is probably in the hands of a few early miners (including Satoshi) who are never using it, and some more has been lost forever.

theboywho• 13 years ago

Also,

"An FBI spokesperson said to Hill that the “$80m worth” that Ulbricht had “was held separately and is encrypted”."

You can't "hold" bitcoin wallets. Anyone with the private key can spend the bitcoins without having to have the wallet. It would be funny if someone could transfer bitcoins the FBI "holds" to show them a wallet is not something unique that you can be the only one to have.

nwh• 13 years ago

I can't imagine they would let a password get in the way of this. Even with an encrypted wallet, the balances of the content addresses are available for viewing for convenience sake.

The reference client (I's not mentioned which wallet software) uses hundreds of thousands of rounds of key stretching, enough that on a GPU you're only getting a few attempts at the key. Might irritate them enough to crack out a good sized farm.

chiph• 13 years ago

Passwords are protected under his 5th amendment rights. The government would have to come up with a much stronger reason to force the password from him other than "we want it"

The interesting part is if he does have a backup, and if he does access the funds in there for his legal defense. Would his attorney consider that money to be tainted, and thus refuse to accept it?

rayiner2• 13 years ago

It's not settled that passwords are protected under the 5th amendment. The 11th circuit has so ruled (http://www.zdnet.com/blog/identity/landmark-decision-allows-...) but it's still up in the air everywhere else.

Nate75Sanders• 13 years ago

Problems in finance, like computer science, can often be solved through a layer of indirection.

njharman• 13 years ago

The 5th Amendment is mostly moot since we've allowed prosecutors to extort plea-bargains via ridiculously over-charging.

IgorPartola2• 13 years ago

Passwords are controversial under the 5th, but from the cases I followed, they are typically interpreted as a key to a safe, not as admission of guilt. As in, if your password is"YesITotallyDidIt", that is not an admission and is there fore not protected. The only things the 5th protects seem to be things you can say that can be directly used to convict you. Not giving the authorities with a warrant in hand your password seem to land you in jail indefinitely for contempt of court, which is likely as bad as what you will get if convicted.

Edit: I am not a lawyer.

rainforest• 13 years ago

What might be more interesting is if a conspirator is waiting to move the coins to another wallet at some point soon before LEOs can start bruteforcing/wrenching the password.

whyleyc2• 13 years ago

It's surely only a matter of time in this situation before the FBI start using rubber-hose cryptanalysis [1]

[1] Obligatory XKCD http://xkcd.com/538/

sp332• 13 years ago

That's actually illegal.

oleganza• 13 years ago

Killing citizens without court order is also illegal. And waterboarding in gitmo. And starting wars based on lies. And lying to congress by NSA. So many things are illegal, but those who are in charge of enforcing justice are doing them anyway.

harvestmoon• 13 years ago

It may be, but who knows if we'll ever find out about it?

whyleyc2• 13 years ago

Hitting someone with a wrench may well be, but leaning on them as part of a plea-bargain would not be.

It's naive to think that if the FBI want the private key they don't have legal ways of pressing you to hand it over.

CamperBob2• 13 years ago

It's not illegal if Uncle Sam does it!

TausAmmer• 13 years ago

Biggest thieves of the block, what else can be said.

27182818284• 13 years ago

I've had a question that I"m curious to hear the community's reaction on: Doesn't the FBI wanting to seize the bitcoins do more to legitimize the currency than anything thus far? Isn't it tantamount to saying "Yes, this is like dollars, francs, or another legitimate currency that we need to seize."

I'm wondering if that conversation has come up among management at FBI and what the outcome has been.

aroman• 13 years ago

That's what I thought as well. In fact, wouldn't their "cashing out" the Bitcoins be tantamount to an endorsement of Bitcoin? They're injecting money into the ecosystem and directly helping to circulate it.

That they are even trying to exchange the Bitcoins for USD is, at least in my mind, U.S. governmental approval of Bitcoins.

mseebach• 13 years ago

It's like any other asset with a market value. Collectible baseball cards have no inherent value to me (I'm not a baseball fan), they're just (mildly aesthetically attractive) pieces of paper. In that sense, they are similar to Bitcoin. That some people will pay several million dollars for them does not change that fact.

If a drug dealer settled all his transaction in baseball cards, the FBI would of course confiscate them.

racbart• 13 years ago

If he had a $1m car and the FBI wanted to seize it, would it legitimize cars as a currency?

Cthulhu_3• 13 years ago

It definitely wouldn't if it was $80 m in cocaine; the FBI would confiscate it and have to hand it over to the DEA to have it destroyed.

Whether or not the FBI wants to seize it and spend it in some way, or just to seize it so it can't be spent by DPR or anyone anymore is up for debate. I'm not actually sure what the laws are regarding money or possessions seized from criminals over there.

jlgreco• 13 years ago

It would legitimize the (uncontroversial) assertion that cars have worth.

300bps6• 13 years ago

If Ross Ulbricht is really the guy who ran this site, why in the world was he doing his work from San Francisco? His alleged job was the pinnacle of "work anywhere". He took so many precautions to keep his identity secret that he must've known that his activities would at some point gather focused attention from the authorities.

Living in San Francisco allowed the feds to pick them up on their lunch hour. Even just hopping the border to Mexico would've required them to get international cooperation and extradite him.

He'd likely be a free man if he were in Croatia or Kazakhstan.

jpwagner• 13 years ago

  so many precautions

read up on some of the police work the feds did. this guy was careless.

300bps6• 13 years ago

I read the entire thing and I think what you said is the easy but not necessarily accurate conclusion. The site was in business since February of 2011. The operator of the site was careful enough that they successfully ran the world's largest black market website for over 2.5 years. Doesn't really align with a characterization of "careless".

Sure, he re-used a few login names but I don't know how many people could've successfully gone without doing that over a 2.5 year period. I think it's more accurate to say he "wasn't perfectly careful" than it is to say he was careless.

madaxe2• 13 years ago

Unless:

a) He's Ross "Patsy" Ulbricht

b) He wanted to be caught, and set some mighty precedents.

or...

c) He's sloppy.

neals• 13 years ago

I couldn't (easily) live in another place than where I live right now. I have friends, contracts I know where to get my things.

Maybe he's like me.

sillysaurus2• 13 years ago

And now he'll be living in prison. Though in fairness, the US would've probably extradited him from wherever he was worldwide anyway.

aestra7• 13 years ago

Croatia? SERIOUSLY? Croatia is a member of NATO, for one.

300bps6• 13 years ago

Croatia? SERIOUSLY? Croatia is a member of NATO, for one.

For two, there is no extradition treaty between the U.S. and Croatia. For three, the only reason I listed Croatia was because it is so often referenced as a place to flee if the U.S. government is after you:

http://nakedlaw.avvo.com/crime/how-to-rob-a-bank-and-flee-th...

http://www.policymic.com/articles/48417/where-is-edward-snow...

http://www.dailyfinance.com/2013/06/11/best-countries-no-ext...

Hopefully that's enough - I invite you to use Google to decrease the level of your incredulity in regard to Croatia being a haven to hide from the U.S. It might not be the best place but a lot of people seem to think it is.

chaz• 13 years ago

Likely just lulled himself into a false sense of security. He believed his own story that his precautions were sufficient and effective, and that he could just walk amongst the public and never be caught.

aestra7• 13 years ago

There are a couple of reasons.

Living in San Francisco might have allowed him in hide in plain sight. Who is going to suspect a 20-somthing year old who lives in San Fran of running a multi million dollar drug business. He doesn't attract attention to himself, especially from his family and friends who are most likely to report any suspicious behavior of his to authorities. If he moved overseas and started buying mansions in cash, a red flag somewhere might have gone off. His family might start asking questions he didn't have the answers to. After all, the unabomber was only caught because of the suspicions of his sister in law and brother.

He might have thought of himself as immune to being found out, so it didn't occur to him to move. He was content where he was, and just stayed. Getting caught didn't even come to mind, because he was so confident in himself. He obviously was confident.

powertower2• 13 years ago

Having lots of Bitcoins means very little.

You actually have to convert them to cash first.

And that process becomes increasingly more difficult as you go from selling 1 to 10 to 100 to 1000 BTC.

At each step you lose more and more of your anonymity and safety...

Because you can't open up a MtGox account and offer 10k BTC to then cash out anonymously, nor create a localbitcoins account and use meatspace for this large amount without possibly getting robbed or killed.

Not to mention some of those transactions can be traced back via the chainblock after-the-fact, creating more problems for you as now the FEDs know it's SR related.

And that even does not bring up the fact that large transactions can easily cause BTC prices to go down dramatically, since the majority of upticks are based on small transactions that are fraudulently gaming the system.

I imagine DPR basically had little to no money and a lot of BitCoins he could not sell.

bsullivan013• 13 years ago

He'd likely be a free man if he were in Croatia or Kazakhstan.

In small countries with no culture of westerners living there long term he'd stand out like a sore thumb. In dictatorial countries they'd think he was a CIA operative and be tailed. Oh, and upon capture he'd be beaten until he told them every little secret, bitcoin passwords included.

So good old USA was better and SF is probably the best way for a guy "acting weird" and staying online all the time to hide. He should have retired a year ago. It's a like playing in a casino, you're bound to lose long term

ravingraven• 13 years ago

Croatia is pretty nice actually. But the "no extradition" days are over now that it joined the EU.

madaxe2• 13 years ago

Kazakhstan is not small.

http://overlapmaps.com/print.php?defaultZoom=2&defaultLat=39...

TaffeyLewis• 13 years ago

Your reply is downright silly and it seems youre someone who really doesn't travel much or know many people who do. Not every place outside the USA is automatically a totalitarian, xenophobic shithole where foreigners are so rare that they get stared at on the streets and followed by secret police.

I happen to be from Croatia and currently live in a less then touristy part of central America and guess what? While us western white folks aren't exactly saturating the local landscape, there are more than enough travelers/students/business people from the US and other Anglo countries here long term for us not really get considered that big of a deal.

Same rules apply to many other places I've been. There's lots of travel happening in the world these days and foreigners in developing countries are hardly a big wonder.

Ulbricht could have easily moved to a dozen different countries in central america, south america or eastern europe and southeast asia and comfortably stayed anonymous in any of them.

gexla• 13 years ago

To go along with "work anywhere" is "live anywhere." If you can live anywhere, then you will pick a place where you actually want to live. Croatia or Kazakhstan might be nice for a visit, but I doubt you would want to live in either of these places unless you had substantial roots there (you were born and raised there.)

Given there are so many independently wealthy people living in San Francisco, it must have its charm.

Edit: Edited city

betterunix5• 13 years ago

"He'd likely be a free man if he were in Croatia or Kazakhstan."

You think so? One of my college professors was jailed in Kazakhstan because he neglected to bribe one of the customs workers on his way out of the country. That professor had grown up in Kazakhstan and still managed to get screwed over by the government there -- even after he was released, he could not get his money back, as the authorities had "lost" it.

The reality is that there are benefits to living in a developed country, even the USA. I can understand why he would not have wanted to leave even though he was running SR, even with the risks of being caught.

rmc3• 13 years ago

He'd likely be a free man if he were in Croatia or Kazakhstan

You think Croatia or Kazakhstan don't have anti drug laws? You think they have stricter rules about police, law enforcement, or picking people up off the streets? You think those countries have nicer prisons and less corrupt judges and cops than USA?

mschuster912• 13 years ago

If you know the right people (and have an adequate amount of cash), then you can be damn safe in former Yugoslavia.

nether• 13 years ago

Crazy idea: he wanted to live in SF. It's a dream for many millennials to live in SF/NYC/Chicago, including me.

refurb• 13 years ago

You'd think his desire to stay out of prison would be stronger than his desire to live in SF.

atwebb2• 13 years ago

I'm trying to think of a better way to phrase this but: why?

JanezStupar• 13 years ago

Really good criminal would not spend his time making sure he does not get caught.

Good criminal spends his time preparing for when he gets caught.

kintamanimatt• 13 years ago

I don't understand this.

pault• 13 years ago

This is what I keep wondering. The caribbean coast of Venezuela has many expatriate enclaves where he could be living like a king with no possibility of extradition. That, along with hiring an FBI agent for a hit, makes me think he was not as clever as he was made out to be.

VexXtreme• 13 years ago

He'd likely be a free man if he were in Croatia or Kazakhstan.

You're talking out of your ass. As a person who was born in Croatia and lived there for almost 25 years I can tell you that Croatia has been extraditing people left and right for years now.

I don't know what kind of lawless country you're imagining, but in reality Croatia is subject to EU laws, cooperates with lots of international institutions, has very strict anti-drug laws and there is no way an international criminal of DPR's profile would ever be safe there. I've seen my friends go down and get criminal records over a few grams of weed... DPR would have someone knocking on his door as soon as his cover was blown.

Ex-soviet countries would be a much safer bet as they don't seem to want to cooperate with US authorities (Snowden et al). Central America might also be a good bet, but then you risk getting killed by the cartels for undermining their business model, if they ever find out who you are.

dllthomas• 13 years ago

My understanding is that the cartels care a lot more about distribution than retail, though my information is removed enough it could easily be flat out wrong...

Wingman4l7• 13 years ago

would've required them to get international cooperation and extradite him

This still applies. Of course it would just make them that much more pissed at you since they had to do more paperwork to nab you.

aestra7• 13 years ago

has very strict anti-drug laws.

I mentioned this in a reply below, but I'm an American who lived in Croatia for a little over a year. I lived there with a few other Americans. I'm not sure if any of this is true, but we were told Croatia has very strict anti-drug laws. We were told that if we were caught with any amount of drugs whatsoever we would be instantly deported, no questions asked. I wasn't sure if it was a "you better not do it" exaggeration warning or it was truth. Either way, once a police officer stopped a few other Americans I was living with on the street out of the blue and flat out asked them if they were carrying any drugs. I wasn't with them at the time, I only heard the story when they got home. They were obvious foreigners because they were speaking English to each other while walking down the street. I believe the officer also checked everyone's IDs and the papers we had to carry that showed we registered our address with the local police. Yes, as foreigners staying in Croatia we had to register with the local police.

nl• 13 years ago

Supposedly he lived in Bondi (Australia) for a while when he was building it[1].

I'm pretty sure he wasn't relying on his physical location to protect him.

[1] http://www.dailytelegraph.com.au/news/nsw/ross-william-ulbri...

dragonwriter5• 13 years ago

He'd likely be a free man if he were in Croatia or Kazakhstan.

Both narcotics trafficking and murder-for-hire are things for which the US has been known to send armed agents -- or actual military -- into foreign countries without coordination with the local government to capture people to be brought back to the US for trial.

Even just hopping the border to Mexico would've required them to get international cooperation and extradite him.

No, it wouldn't. See, e.g., United States v. Alvarez-Machain, 504 U.S. 655 (1992)

rayiner2• 13 years ago

The asset seizure issue with regards to bitcoin is interesting, but not unprecedented. A lot of the same issues that come up here come up in the more traditional context of seizing assets stashed in Bermuda, etc. You have Bermudan banks that won't allow access to assets without consent from the owner, and the question is whether giving that the owner can be forced to sign the consent form or whatever.

hippich• 13 years ago

AFAIK, if money stored in USD in the Bermuda bank account, when you wire these, it goes through US bank anyway and can be stopped there. And leaving country with $80 mil in cash would be hard.

bsullivan013• 13 years ago

after shuffling Ross from horrible prison to horrible prison and making his prison life miserable on purpose...

So Ross, how about you tell us the password and instead of 14 life sentences you get only 20 years?

mpyne3• 13 years ago

Yes, poor Ross, the guy only had twice as many people killed as Hans Reiser did...

stcredzero4• 13 years ago

Mr. Reiser was a bit more hands-on in his approach. Does it make sense for someone who has been fooled into thinking he's had people killed to be as guilty as someone who actually kills the people? It seems so, but I'm not sure what US law says about that.

yason2• 13 years ago

This is interesting as a more generic case: before criminals had to stash their money in a hide in case they got caught and into prison. Now they can convert the money into bitcoins and simply arrange that they can't unlock the wallet. Things that help:

- you can make indefinite copies of your locked wallet so TLA basically can't confiscate it

- you can protect your wallet with a secret (passphrase and/or a key) so that they can't unlock it

- you can distribute the secret among several people using one of the secret sharing protocols

- or hide it steganographically in an ordinary file while the TLA in question still can't prove it's there

amalag• 13 years ago

Just imagine Breaking Bad with Bitcoins

fab13n3• 13 years ago

A noteworthy side-effects is that it dramatically increases the incentive to reform the 5th amendment (or reinterpret it, which is the usual cowardly way to achieve the same result).

From a strictly technical PoV, the concept of having several copies of the wallet, all equivalent, where whichever is spent first cancels the others, is very interesting and novel. It has a funny quantum physics vibe, too.

debacle2• 13 years ago

The government can't even pass a budget. Good luck passing an amendment.

anologwintermut• 13 years ago

If they really wanted the money, they might be able to offer him limited immunity against any evidence revealed while transferring the coins to their wallet. I.e they won't use his doing it as evidence in court that the Bitcoins were his or similar things. This removes the 5th amendment problem and since the goal was to confiscate his funds, not collect evidence, the government looses little.

praptak• 13 years ago

"interesting"? I'd say it is a game changer when it comes to stashing illegal profits.

betterunix5• 13 years ago

Not at all. The judge demands that you transfer the money to the government, you refuse, the judge puts you in jail for contempt of court. Nothing novel about it.

llamataboot• 13 years ago

What's overwhelmingly clear from this article is that either the feds, or at least the people they are sending to talk to the media, have really no idea how bitcoin works.

Saying "The Bureau is in a position equivalent to having seized a safe belonging to a suspect with no idea of the combination – and no hope of forcing it open any other way." is completely incorrect.

drcode7• 13 years ago

I'm not sure who said it first but the old dictum still holds: "It's easier to turn lead into gold than to steal a properly configured bitcoin wallet."

stcredzero4• 13 years ago

What's overwhelmingly clear from this article is that either the feds, or at least the people they are sending to talk to the media, have really no idea how bitcoin works.

Not so much. Everyone might have a clue, but their words could be mangled and/or placed in entirely the wrong context by clueless editors.

SeanDav• 13 years ago

I don't understand why possession of the wallet file means the FBI have seized his bitcoins (even if they can't access them yet)?

Surely you can make copies of your wallet and keep them in various secure locations?

fab13n3• 13 years ago

You understood; the journalist didn't.

It's scary to see how clueless mainstream journalists are, as soon as they touch a subject we're mildly knowledgeable about. Imagine the amount of BS they spread when talking about complex stuff such as macro-economics...

stormbrew• 13 years ago

Practically speaking I'm not sure it really matters. If he's unable to do anything with the backups himself until they can 'convince' him to give them the password, they will still probably eventually get the money. If someone else starts spending from that wallet address they'll probably be tracked down and charged with conspiracy or obstruction of some sort.

Basically as long as the money can't be spent for whatever reason it is effectively seized.

danielweber• 13 years ago

Even if the FBI is not able to transfer the money, merely having possession of the wallet file itself is enough to prevent the coins being spent.

Ugh, no. Having the file means you can transfer out the bitcoins. Anyone having the file can transfer out the bitcoins, so the FBI securing that wallet doesn't lock down those bitcoins.

The FBI cannot properly "seize" the bitcoins unless they use the wallet to transfer the coins to a fresh address they make and control. And I'm not sure that traditional seizure laws allow that, because AFAIK we've never had this scenario before.

noarchy• 13 years ago

If the FBI cannot manage to successfully steal these Bitcoins, then it might be quite the advertisement for the overall security of Bitcoins, no?

rdl• 13 years ago

Big question is whether turning over the passphrase would be "testimonial". I could see it being argued that it's a forgone conclusion he owns these bitcoins -- enough evidence to tie him to silk road, and evidence in the block chain showing those coins came from silk road.

(This is relevant due to the fifth amendment to the constitution. In many cases, turning over a password or combination is considered self incrimination and thus cannot be compelled by the state.)

lettergram• 13 years ago

The author doesn't really seem to understand what a Bitcoin Wallet is. First, I HIGHLY doubt that 600,000 Bitcoins would be in one Wallet. More likely, the bit coins would be spread between several thousand wallets. Second, even if the FBI was in possession of "the wallet" couldn't Ulbricht just access his backups else where?

alphydan• 13 years ago

As far as I can tell the seized address has 27k BTC about $4m USD at the moment (see https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5G... )

querulous• 13 years ago

those are apparently user funds that were in escrow or otherwise stored with silk road at the time of the seizure. his personal commissions are the funds being discussed here

gedrap• 13 years ago

What's is rather shocking is the kinds of mistakes he made.

Not some subtle but plain simple. Like using personal email to register on forums and promote SR and recruit people.

Using stackoverflow with personal email, again... Yes they are not some solid evidences, but made the FBIs life, to get the guy, much easier. You might say that it's easy for me to point out those mistakes but they are so basic and it's not that he was running some Nigerian type of scam, he must have been way more careful.

Or keep messages about the 'murder-for-hire'. Yeah it's rather obvious that no one got hired but good luck explaining this negotiation tactics to the judge. Plus he mentions $80k for other 'murder-for-hire'. I'm really curious how the thing with this 'murder' will end up. I mean he could have just simply deleted them just in case. It's not FB that it would stay forever...

powertower2• 13 years ago

I really don't think he predicted just how popular this service would become.

At that time it was probably nothing more than a side-project destinded to die off in 6 months.

drcode7• 13 years ago

Ross was a San Fran "startup" guy. Hey created an MVP product with the usual "fake it till you make it" attitude that is part of this culture. PG himself will happily tell you not to worry about lawyers and other distractions until your MVP is out the door.

This may work for a typical startup, but Ross was foolish enough to apply this advice to a criminal enterprise.

triplepoint217• 13 years ago

Amusing anecdote: I was at a pg talk last week, and afterwards someone in the audience came up and asked if SR being gone meant there was a market niche for a new startup.

pg's answer was that it was in no way worth the risk, there are lots of other things you can try without the large risk of ending up in jail.

mpyne3• 13 years ago

Unluckily for Ross, the "other murder-for-hire" was transacted with an undercover cop, which corroborates his later inducement for a second murder.

azsromej• 13 years ago

a walk on the lighter side: the bitcoin is inside the computer http://www.youtube.com/watch?v=zQGX3J6DAGw

cphoton• 13 years ago

Can't they just use an old version of bitcoin and use the timing attack to find the passphrase?

EDIT: I mean exploting this bug: https://github.com/bitcoin/bitcoin/issues/2838

dlgeek• 13 years ago

I'm not a bit coin user, but that appears to be an attack on a "remote management" password for the client (it's about "RPC" or "remote procedure call" authentication), not for the wallet.

Wallets use a cryptographic key derivation function, this is against a plain text and configurable password. This would only be an issue if the wallet was loaded into the old version of the software at the time they attacked.

Ellipsis753• 13 years ago

"Even if the FBI is not able to transfer the money, merely having possession of the wallet file itself is enough to prevent the coins being spent."

Isn't this totally false? He could have easily made backups of the wallet and even given copies of it to others. I'd expect there's a whole bunch of ways that these bitcoins could still get spent?

joshstrange2• 13 years ago

Yes, it is wrong as many commenters on the site also point out. He could have multiple backups of his wallet file and spending the bitcoins out of one of his backups would invalidate the coins in the wallet the FBI has.

anton000• 13 years ago

He doesnt even need a copy of the wallet file.

If he stored the bitcoins in a single address, and he has the private key stashed somewhere, then even if the wallet file is deleted, it can be retrieved. This is how bitcoin works, if you have the ECDSA private key of a bitcoin address, you can spend those bitcoins without having the need for a wallet :)

drcode7• 13 years ago

The beauty is that NOT spending the 600K BTC is economically equivalent to giving a 600K gift to all other bitcoin owners. If the news ever came out that these coins are lost for all times, the exchange price for BTCs would most likely increase 600K/11M or about 5.5% in an instant.

(Of course, there's no way this could happen since we don't know what private keys are stored in Ross' head. Also this is based on the efficient market hypothesis and real world results have other complecting factors.)

darkarmani• 13 years ago

If you assume they won't be able to break the encryption or coerce him, then you should buy BTC now. If he ever gets out of prison, maybe he'll be able to unlock a backup copy and spend them, but that will be 20 years down the road.

nimble4• 13 years ago

This line of reasoning works when you have a fixed number of shares that represent ownership in something real, but I don't see how it works with bitcoins that have no intrinsic value. Bitcoins only hold value by inertia. People think they have value because they're accepted by other people because other people think they have value. I see no rational mechanism by which this feedback loop should jump 5% when 5% of bitcoins are lost.

rarw3• 13 years ago

The more interesting question regarding this seizure is whether the FBI can compell the creators of BitCoin to assist in decrypting what they have just seized. For example, there are a number of statutes that require those operating communications networks maintain the ability for the governemnt to access them regardless of the encryption or other security features being used. I don't know the corresponding baking law as well but it would not surprise me if the same laws that require banks to comply with seizing fund, blocking wire transfers, and tracking where money goes in the course of a criminal investigation could kick in here.

Certainly something like this would have a big effect on the BitCoin market. I'm interested to see what happens in the future.

scottcanoni• 13 years ago

Here are the bitcoins they were able to seize: http://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GN...

seniorsassycat• 13 years ago

This article makes it sound like all of DPR's bitcoins are in one wallet. If 5% of all bitcoins were being funneled into one bitcoin wallet couldn't people have discovered that wallet by analyzing all BTC transactions?

the_watcher• 13 years ago

How can the FBI "seize" his wallet as if it were a safe? Isn't the point of Bitcoin that it is digital, hence he would be able to access it if he could get to a computer? Or is there a way to physically control the wallet so that it can't be accessed elsewhere?

debacle2• 13 years ago

They seized a copy of his wallet that they don't have the key for.

If he has a copy and they can't get the keys, this seizure is meaningless. If he doesn't have a copy, or they can get the keys, the story changes.

joshdance• 13 years ago

Will having 5% of Bitcoin out of circulation cause any economic problems with the currency?

adventured• 13 years ago

No, it'll make all other bitcoins more valuable, so long as the market believes said bitcoins are permanently out of circulation (not likely though, as the Feds will auction / sell them off as they do with other seized assets).

ahi• 13 years ago

Does it matter? What would the FBI do with them?

ketralnis• 13 years ago

What do they do with seized foreign currencies? Presumably find some way to convert them to dollars

ChuckMcM• 13 years ago

Well if they are unable to seize them, then bitcoin will become more valuable to the black market. If they are, then some of its patina as a 'safe' stash will be lost. Of course even if they don't get them, they will be able to see if they are ever used right?

Swannie2• 13 years ago

Yea. That's what I'm thinking too. If you receive bitcoins from those address you're effectively doing the same as if you were collecting cash from watched boxes in a bank vault, and the cash was radio-actively tagged. (And therefore easily tracked.) Anyone handling a large quantity of those coins is suspect

But if someone got their hands on them and performed a huge laundry so that everyone has tainted coin history, then you might be ok.

whage• 13 years ago

Only I think that all this 'leaving a name here' / 'leaving a stupid trail there' seems just way too stupid for someone maintaining such a business for so long? I think there is a decent chance that all of this was staged and Mr. Ulbricht is just another puppet. All of it just sounds so hilarious.

thoughtsimple• 13 years ago

Why would anyone trust bitcoin values? If the US government wanted to crash the bitcoin market couldn't they just generate a few million bitcoins themselves and then dump them?

I don't think the NSA is going to care about spending a few 10's of millions of dollars on custom bitcoin hashing hardware. Unless people don't think the NSA can outdo some fly-by-night ASIC developers.

If the US government is truly concerned about bitcoin, it won't survive long.

gigq2• 13 years ago

There are only 3600 BTC per day being generated. They can't just generate a few million bitcoins. At best they could do a 51% attack and double spend bitcoin, which would cause problems but it's been done in other digital currencies and the currencies have still survived.

If they did amass a large volume of bitcoins and dumped them on the market the market would drop but like every other drop it would probably be temporary as people love buying cheap BTC when the market crashes (look at the crash after DPR was arrested, bounced back in hours).

ars• 13 years ago

There are only 3600 BTC per day being generated. They can't just generate a few million bitcoins.

They actually can. Generation speed is not adjusted real time, but only every few days. If you generate a mass very fast you can go over it. (And in fact historically it's always been over the expected number.)

stcredzero4• 13 years ago

So, one additional way to secure your bitcoins would be to have a "deadman's switch" machine with a copy of your wallet. If you don't enter a passphrase into the machine by a certain date, then it will transfer your wallet's contents to another "bugout" wallet. This invalidates the seized copy of your wallet. Companies that offer this service should also offer a feature that causes "anonymous donations" to appear in your legal defense fund.

flopunctro• 13 years ago

Companies that offer this service

You can't possibly trust any company with this kind of service. This is something you need to [learn how to] build yourself.

The concept of "deadman's switch" has an implicit component of "trust no one", IMHO.

stcredzero4• 13 years ago

You can't possibly trust any company with this kind of service.

That's a good point. However, the Swiss made a lot of money offering comparable services for many years. (Numbered bank accounts.) Also, there's a big difference between simply building such a service and having such a service that is well tested and reliably and securely hosted. It's also a relatively simple matter to test such a service with a small amount of money.

Such services seem highly valuable, but may require practical homomorphic encryption/computation schemes to be themselves practical.

javiercr• 13 years ago

It's funny that both DPR and Walter White made the same amount of money ($80M [1]).

[1] https://medium.com/p/fed0d03ab4c0

balls187• 13 years ago

Sounds like a job for the NSA.

FiloSottile• 13 years ago

A few high-security ways of storing bitcoins, such as a "brainwallet", a way of converting a bitcoin address into an easy-to-remember phrase, could still bypass their authority, but there is no indication at present that Ulbricht has used them.

A simple encrypted wallet would have the same level of security...

avty• 13 years ago

They'll just drug him with truth serums.

tomflack• 13 years ago

Partially related: Is it technically possible to "blacklist" the bitcoins that the FBI seized given a great enough consensus, to make their value effectively worthless?

FBI struggles to seize 600,000 Bitcoins from alleged Silk Road founder

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