Anonymous and untraceable. That’s been among the calling cards of bitcoin since Day 1. It is, in fact, what makes bitcoin so novel. It has all of the attributes of cash, but it’s digital. So, if that’s the case, how in the world did the Feds catch Dread Pirate Roberts, the guy who’s going to spend the rest of his life behind bars because the Feds traced all of the illegal activities found on Silk Road to him?
Ilhwan Yum, a senior director in the litigation consulting group of FTI Consulting, who also testified at the Silk Road trial, said the case wasn’t as complicated as many suggest — nor was the inner workings of Ross Ulbricht’s Silk Road. During the investigation, Yum was an agent in the FBI’s New York office, and in an interview with The Wall Street Journal, discussed his role in bringing Ulbricht to trial and how he was able to connect the dots of the bitcoin trail, which he claims wasn’t overly complicated.
As explained in the trial, WSJ reported that prosecutors described the “bitcoin tumbler” that was used in attempt to hide the bitcoin transactions on the Silk Road. But when Yum got involved with the site, he said he didn’t use the same system to protect his funds (on purpose) so he could connect a trail between Ulbricht and the Silk Road network. Or as WSJ reporter Samuel Rubenfeld put it: “Ulbricht may have had a complicated network to hide transactions within the Silk Road marketplace, but his extraction of funds from the network was easy to spot.”
During the trial, Yum said he transferred bitcoins from Ulbircht’s Dread Pirate Roberts account to a government bitcoin address — giving the FBI the evidence it needed to swoop in. Once the dots were connected, which linked Ulbricht to the Silk Road marketplace, the Feds had the evidence needed to bring Ulbricht to trial, and also a quick trial and a speedy conviction.
Prior to the FBI’s involvement, Yum said other agencies reviewed the case but the case wasn’t initially about targeting a bitcoin-funded site. The Feds targeted the illegal activity and soon found out the Silk Road was a site tangled in a web of bitcoin transactions. But instead of complicating the matters, it helped the Feds create a case and establish a mode of digital currency to target Ulbricht.
When asked about how a bitcoin blockchain works, Yum explained the technology doesn’t lend itself to remain anonymous anymore — which, Yum said, some people forget. Ulbricht must have been one of those people. To start, he explained, bitcoin blockchain is “an open book on every transaction that occurs with bitcoin.”
“I think a lot of people mix up bitcoin, and the concept of anonymity. Bitcoin itself is just a string of numbers and letters; the parties behind the transactions are hard to identify. The beauty of bitcoin is the blockchain helps every transaction seem legitimate. At the same time, you’re announcing every transaction conducted in bitcoin, which makes laundering more difficult,” Yum told the WSJ. “A lot of people compare bitcoin to virtual cash. Cash transactions are hard to track, but imagine if every serial number [on a bill] used in a transaction was recorded and announced to the public. Limited to that alone, you can’t track who made the transaction, but you can see a transaction happened.”
And that’s all the Feds and the prosecutors needed in the Silk Road case once they connected Ulbricht to the Dread Pirate Roberts username.
Yum explained that a person, like Ulbricht, would turn to a tumbler once they realize that bitcoins lack anonymity, so the tumbler is used to avoid creating connections between transactions. But even if it wasn’t being used for an illegal case (which the Silk Road was), Yum said the action could be compared to money laundering since there’s deliberate action to “hide the source or trail of money.”
So how did he crack the Silk Road bitcoin code?
Here’s how Yum explained the process (minus specific security details he has to protect):
Once the Feds were able to identify the activity that was occurring on the marketplace, Yum said the focus was on tracking the transactions — particularly once they realized that Ulbricht didn’t have a complicated measure in place to tumble the bitcoin transactions. Yum suspected that that the Dread Pirate Roberts didn’t attempt to tumble all the transactions since he didn’t think people could connect Ulbricht to the username. Ulbricht, of course, was wrong.
“Among the bitcoin he received to his laptop, over 88 percent of those transactions weren’t tumbled. They were sent directly from the marketplace to his wallet,” Yum said.
And that was Ulbricht’s fatal flaw that may land him behind bars for life. Either he thought he was too smart to be caught, or he took the shortcut — either way, it doesn’t seem the Feds had a hard time cracking the case. But Yum said this will likely not be the end of cryptocurrency-ran site investigations. Silk Road 2.0, for example, he said was launched in the Silk Road’s wake but was later taken down.
“There are plenty of other marketplaces that serve as alternatives to Silk Road. They’re all still using virtual currencies. They’re getting better at the underlying technology behind bitcoins, and on how to obfuscate transactions,” Yum said. “If your tumblering is successful in the middle of a transaction, you might be able to figure out who is sending and who is receiving money, but you can’t really have a solid link or money trail. If you are the organization behind the tumbler, you can see the trail. But without the back end, it’s hard to track.”
As we learned from the missteps of the Dread Pirate Roberts, aka Ross Ulbricht, bitcoins are not untraceable — even when tumbled. There’s always going to be some sort of link or trail that someone with a little investigative sense can use to track you down, like the FBI did with Ulbricht. Turns out, his plot to be the bitcoin mastermind behind the massive illegal drug ring wasn’t so solid and his plans to hide behind bitcoins weren’t so complicated (or foolproof). He’ll live and learn, but he’ll be living behind bars.
Bitcoin is trading down from last week’s price of$237.53 and is at $234.60 according to the PYMNTS.com Bitcoin Price index.
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