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The seizure of a web site that dealt arms using the bitcoin virtual currency has thrown a new spotlight on the controversial fiat. File photo of a twenty-five bitcoin.

Tomohiro Ohsumi, Bloomberg

Website bust puts pressure on Bitcoin users

  • Article by: Chris O’Brien
  • Los Angeles Times
  • October 4, 2013 - 3:10 PM

 

The once-obscure Bitcoin has been making news all year.

There have been stories about the wild swings in the virtual currency’s exchange rate, moves by financial regulators to shut down some Bitcoin-related businesses, and attempts by its boosters to gain more mainstream credibility.

But this week, the Bitcoin community was hit with a story potentially bigger than all the others: the seizure of the illicit Silk Road website and the arrest of its founder, Ross William Ulbricht, a 29-year-old former physics student from San Francisco.

For the past two years, Silk Road has been the boogeyman for Bitcoin critics. They pointed to the ability to buy drugs and guns on the site using Bitcoin as evidence that the virtual currency could enable terrorist and criminal activity.

The service gained widespread notoriety in 2011 when Sen. Charles Schumer, D-N.Y., singled it out as the poster child for how Bitcoin could potentially be misused.

“Literally, it allows buyers and users to sell illegal drugs online, including heroin, cocaine and meth, and users do sell by hiding their identities through a program that makes them virtually untraceable,” Schumer said at a June 2011 news conference calling for a crackdown on the service. “It’s a certifiable one-stop shop for illegal drugs that represents the most brazen attempt to peddle drugs online that we have ever seen. It’s more brazen than anything else by light-years.”

So, with the crackdown this week, it would seem like a dark day for the growing Bitcoin community. But several Bitcoin observers this week took a more nuanced view of the Silk Road story.

Adam Levine, editor-in-chief of the Let’s Talk Bitcoin blog and podcast, saw the arrest as part of Bitcoin’s natural evolution from renegade currency to mainstream adoption.

“When you tame the West, you’ve got to hang all the outlaws,” Levine said. “It’s an inevitable transitional phase. If Bitcoin is going to turn into a mainstream thing, this has to happen. The legitimate uses cannot be overshadowed by the illicit uses.”

The virtual currency was created in 2009 by a programmer using a pseudonym.

While the value of Bitcoin dropped sharply after the news of the arrest, from about $140 to $118, the currency recovered later in the day to $128, where it remained Thursday. A year ago, one Bitcoin traded for $14.

© 2014 Star Tribune