- The big Deep Web story of the month: Ross William Ulbricht, the founder of Silk Road, was arrested on October 3 on drug trafficking charges. Considering that Ulbricht had reportedly accumulated a fortune of 600,000 Bitcoins, or $85 million USD for his services, it looks like we just witnessed a major precedent in the history of crime and punishment: the downfall of the first cyber drug kingpin. (At $85 million, Ulbricht would displace Frank Lucas for the #20 spot on Celebrity Net Worth's 20 Richest Drug Dealers list.)
- Not that Silk Road's demise is going to leave an unfilled void, of course: The Daily Beast just put out a story about the "Hitman Network". Hitmen paid in bitcoins: Yes, it is a reality. So is the ability to purchase firearms, including .50-caliber Barrett long-range rifles, without a background check.
- Edward Snowden also revealed this month that cracking Tor is one of the NSA's biggest priorities right now. So much irony here on all sides, starting with the fact that (1.) Tor was a U.S. Navy project that has been funded by the State Department for the sake of assisting dissidents in authoritarian countries everywhere, and (2.) Snowden himself may have inadvertently shined the spotlight on Tor. And in related news: WikiLeaks raised the money to pay for Snowden's defense in Bitcoins.
- Simon Johnson at M.I.T. recently proclaimed that backlash from the government and financial institutions will likely scare off investors, especially since Ulbricht's arrest.
- In response to the above, Slate just put out a piece noting that the value of a Bitcoin dropped from $145 to $110 after the Silk Road was taken down, but then returned to $140 as of this weekend.
As of right now, I'm on the fence about the economic viability of Bitcoin: There has been talk about Bitcoin's "inevitable demise" for some time - usually, this perspective comes from Keynesians like John Quiggin, who earlier this year claimed that Bitcoin was a "pure bubble" and used it to rail against the efficient markets hypothesis that he has denounced for years (ironically, he shares his pessimistic outlook with libertarian nutjobs like Alex Jones, though not for the same reasons). I think it's going to be interesting to see whether Bitcoin lives up to one of the promises of its proponents: Its supposed immunity to government control and currency manipulation. Because Bitcoin is backed by algorithms rather than precious metals, and the number in circulation is currently fixed at 21 million, inflation is supposedly fixed and immutable. But the problem is, this assumption still rests on the goodwill of the surprisingly small number of individuals who appear to control circulation (and as Richard Sylla points out, they could be modern-day incarnations of King Henry VIII, for all we know).
The more pressing issue, though, is the national security/law enforcement dimension: If the U.S. government is really trying to crack Tor, as Snowden has revealed, it's a safe bet that they're just as concerned about cracking Bitcoin (see an interesting discussion of this possibility here). And the FBI already has tried to seize Ulbricht's Bitcoin fortune, which more than irked the hacktivists of the world. Obviously, these events have highlighted - in a big way- that the Bitcoin trade just became a major concern to federal authorities this year. While economists and ideologues continue to debate whether Bitcoin has a future, the U.S. government has come to regard it as a resource that is dangerous when left too unregulated.
Either way, 2013 has been the year that Bitcoin truly became part of our lexicon - expect to hear lawmakers once again puzzle over how to handle it and drop the ball, exactly as they've done on almost all things cyber since forever. But at least Bitcoin's advocates are, for the most part, pragmatic folk who understand that being raging anti-establishment libertarians on the Internet doesn't pay off as much as playing the lobbying game on the Hill and K Street.
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