With SilkRoad shutting down, and BitCoins being seized, what does this mean for bitcoin?

Over the past 2 days, it has come to light that the online market place SilkRoad has been seized by the FBI. Also, they have seized $3.5m worth of BitCoin (which must've been in Escrow). http://www.bbc.co.uk/news/technology-24381847 http://arstechnica.com/tech-policy/2013/10/feds-shut-down-silk-road-arrest-alleged-admin-dread-pirate-roberts/

What does this mean for the BitCoin cryptocurrency - can we expect a sudden increase in the value of a BitCoin? Or because BitCoins biggest source of transaction is shut down, will we see a sudden crash?

The above does not have to be strictly related to the amount that was seized - it can be influenced by peoples view of bitcoin after the seizure of the money.

Also, is BitCoin itself in trouble for "money laundering" or anything similar?

silk-road

rickyduck

Posted 2013-10-03T14:11:02.023

Reputation: 147

@murch I appreciate the response - however other questions that lead to discussion and future guessing such as http://bitcoin.stackexchange.com/questions/4998/how-much-would-it-cost-for-a-government-to-undermine-bitcoins?rq=1 have remained. This is quite a present question which does relate to real world situations right now, and can be answered with quite a solid response, especially from people invested in bitcoin. Yourself has answered part of my question aptly already.

– rickyduck – 2013-10-03T14:58:48.447

There have been too many big investments into the bitcoin space as that a seizure of $3.5m would rock the boat all that much. IMO Bitcoin has plenty of legitimate use-cases and as such will weather the shut-down of SilkRoad easily. (I'm probably not the only one that had been expecting the shut-down of SilkRoad sooner or later.) However, this question will lead mainly to discussion and future guessing, so I voted to close. The question would probably be a better fit for a forum such as for example BitcoinTalk. – Murch – 2013-10-03T14:58:54.993

1Sorry, I was just trying to push that in as an edit belatedly. Then let me try a better answer. :) – Murch – 2013-10-03T14:59:57.300

Answers

Bitcoin being seized

The bitcoins on SilkRoad have been seized by gaining access to the private keys of the SilkRoad's wallets. Government agencies have seized bitcoins once before in a similar fashion from a customer of SilkRoad. $3.6m are somewhere around 30k Bitcoin out of the around 11.75m currently existing. For comparison more than 500k BTC have been transmitted in the last 24h according to Blockchain.info. The amount that was seized is economically insignificant and as it probably will be held as evidence for the trial, will not have any influence on the bitcoin market itself.

SilkRoad being shut-down

Bitcoin has plenty of legitimate reasons to be used, so that this one illegal reason should not be all that important. Bitcoin is useful for/because:

International money transfers (superior speed, reduced cost, however you have the currency risk)
Faster and cheaper for shop owners compared to credit card payments
No exposure of credit-card information when online-shopping
Solves a bunch of problems for services such as porn merchants (no chargeback (buyer's remorse is a big problem for them), pseudonymity, fast, cheap, easy)

Bitcoin has started building a lobby (Bitcoin Foundation, Angle Investors, Investment Trusts, Exchange Traded Funds) and businesses (Exchanges, Webstores, Mining equipment manufacturers, Gambling) have been gathering investments, so that there is funded interest to keep bitcoin going.

I don't think that it was particularly unexpected to see SilkRoad shut down and don't think that it will be a bad thing for the bitcoin project. If anything, it might prove to be an opportunity for the bitcoin project to show that it has evolved beyond just shady use-cases.

Murch

Posted 2013-10-03T14:11:02.023

Reputation: 41 609

So with that in mind, I assume these results for mining profit is because of the $3.2m seizure of bitcoins in escrow? http://blockchain.info/charts/miners-operating-profit-margin

– rickyduck – 2013-10-03T16:06:25.760

1@rickyduck: Blockchain's estimate of profitability seems to be falling because difficulty has been rising lately (due to more mining capacity entering the market), and it's not clear whether their estimate reflects the availability of cheaper and more efficient mining hardware. I don't see how there's any connection between that graph and the Silk Road seizure. – Nate Eldredge – 2013-10-03T16:41:30.210

@rickyduck: Those two things have no connection. This Coindesk article has more details on the SilkRoad shutdown.

– Murch – 2013-10-03T23:23:03.677

@Murch thanks, please see my comment in trankvileator's answer below, to prevent duplicate. It highlights points in the coindesk article – rickyduck – 2013-10-04T08:12:01.007

1I think the BBC News article misses a point there: SilkRoad had been a focus in reports on Bitcoin for a long time and in the eye of the informed reader its shut-down doesn't represent a stronger association with illegal activity, but rather a reduction of that – in fact the case shows that all the fear-mongering about how Bitcoin represented a safe-haven for criminal activity was false. The traded value of Bitcoin is almost back to the height before the crash, so the dip was probably bitcoin users that had bought into Bitcoin solely to access SilkRoad dumping their stash. – Murch – 2013-10-04T10:05:26.360

One reddit user, TheBitcoinCatalog, had a very interesting realization:

for the first time the public can monitor the money that a government own.

I think that's a profound occurrence.

Colin Dean

Posted 2013-10-03T14:11:02.023

Reputation: 6 559

I just read an interesting blog article about a related observation. In the wake of the Silk Road bust, the US government has transferred a cache of Bitcoins to a government-controlled Bitcoin address. How long until they are stolen by a savvy employee?

– Murch – 2013-10-14T17:25:27.423

Heh. Very good point. – Colin Dean – 2013-10-15T03:23:01.110

3.5M $ in BTC it is nothing for the Bitcoin economy.

The current price is about 130$:

3500000$ / 130$ = 26923.07 BTC

The FBI took about 27k worth of BTC.

Each day, the network produces 3.6k new BTC:

25btc * 6 * 24h = 3600 BTC per day

Finally,

26923.07 BTC / ( 25 * 6 * 24 ) = 7.48 days

So the FBI took the network's total reward of a bit over a week.

As more bitcoins will be destroyed as far its price will rising up!

Edit: It was really nearby: Total: 29,657.48690986 BTC

trankvilezator

Posted 2013-10-03T14:11:02.023

Reputation: 41

Thanks for your answer. I understand now that it is a drop in the ocean relative to the full size. My question isn't solely based on the amount that was seized, also the fact that it was seized in the first place. This news article has also come to light: http://www.bbc.co.uk/news/technology-24381847 and mentions about investors being worried, is that unfounded?

– rickyduck – 2013-10-04T08:09:27.430

Investors should be worried but for other reasons, its their job to worry about things. Its still a risky investment before and after silkroad. The large impact the closure had on BTC was a surprise to me but it confirms that anything can rock the boat and BTC has a long way to becoming a "currency". With this event I look forward, there still to much noise in the system in the form of scams, casinos and too few useful applications. Just my two cents, btw Im trying to build something useful with BTC so I'm not only ranting... – Filip – 2013-10-04T14:42:18.443