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[source]*exitevent.com/privacy-tor-btc-and-what-the-silk-road-crackdown-means-to-you-131112.asp[/source]
For over two years, denizens of the darker parts of the Internet have conducted various transactions on an area of the Internet called Silk Road. Silk Road served as an online black market for anything and everything nefarious you could possibly imagine. Think of it as an Ebay for everything illegal. Services and products sold included: Drugs, Hitmen, Weapons, Paraphernalia, Child Pornography and Forgeries - to name the basics.
Silk Road was supposed to be completely anonymous, until the FBI shut down the site and arrested Ross William Ulbricht, the 29-year-old creator of Silk Road.
Ulbricht's story is a lesson and shocking reminder about digital privacy to any of the two-billion-plus users of the Internet worldwide. First off, let's dive into the technology behind Silk Road and the TOR Network. TOR itself is short for “The Onion Network” and is required to access marketplaces and sites like Silk Road. Sites like these are part of the “Deep Web” which are sites that are not indexed or searchable by search engines like Google. TOR provides users a method for accessing areas of the internet in total anonymity through a combination of computer networking and cryptographic techniques.
How it Works
Whenever you type in a website's address, you send small amounts of data called packets through your network to your ISP. Your ISP then relays these packets out to wherever they are attempting to reach on the internet and allows for the exchange of data back and forth. If you want to watch where someone is spending their time on the internet, packets of data are your trail of breadcrumbs that you can monitor using a network tool like Wireshark
Wireshark and similar network tools work by allowing someone to listen to what's being sent over a network by analyzing inbound and outbound traffic. Analyzing packets over ethernet or wifi gives you access to any data being sent or received in a network. Keep in mind that anything sent over an unsecured connection is generally sent plain text. This includes all of your cookies, passwords, and other personal information. Having access to this sort of data can lead to fun pranks or, alternatively, your credit card information.
Other exploits like Firesheep make it as simple as installing a Firefox extension to obtain access to someone's data. Firesheep is one of the many reasons why many popular websites and browsers have switched to incorporating HTTPS for security purposes.
When you access ExitEvent.com from your browser, your computer and ExitEvent's server exchange data and packets back and forth. They perform what's called a “handshake sequence” that ensures data is being sent properly between both parties. All of this can be traced backwards to either your router or your computer itself by using your IP address. Your IP address serves as a digital fingerprint of your computer as you surf the Internet.
Hypothetically let's say you came into several gold bars through shady means and needed to sell them online. If someone decided to track you down because they wanted their bars back, with the proper tools they could trace network traffic back to the source “fingerprint” or IP address of your gold bar sale posts.
TOR uses a networking principle called Onion Routing to make this near impossible to trace.
Onion Routing works by layering different cryptographic protocols along with de-routing your traffic and sending it through a network of other computers to make it harder to trace. Whenever you enter a website's address on TOR, your traffic is bounced across different networks between your initial and final requests. The initial request for a site knows that you entered the request, and the final request gets you to whatever resource you are looking for.
Every exchange of data in between only requires a portion of the necessary data, and makes it nigh impossible to determine if you were the one asking for specific data. By using TOR, your traffic could have gone through anywhere from one to thousands of different routers and networks. Each with no full path to trace backwards. Monitoring data between the start and stop points thereby becomes a monumental task.
Since 2007, the NSA had been attempting with little to no success to crack TOR.
Why It's Important
TOR is not solely used for hiring hitmen and buying illegal drugs anonymously online.
TOR changed the anonymity game for the internet by creating a method to access the Internet that makes it extremely difficult to track online movements. In recent years, the network has been crucial behind the scenes, as whistleblowers have used it to leak documents and exchange information anonymously without compromising their security online. Snowden used TOR to leak documents about PRISM to the Guardian earlier this year.
TOR is required to access certain areas of the Internet like Silk Road, due to the nefarious or illegal services being bartered. The entire ecosystem of such a marketplace only works if everyone is hiding behind a mantle of anonymity. Every marketplace both digital and physical has to have a currency, and Silk Road's currency of choice was Bitcoin.
Bitcoin is peer-to-peer distributed digital currency used throughout the internet. Bitcoin has its own index and is accepted currency for almost any service you can think of throughout the world. I'm not joking when I say any service, you can even order flowers and pay for plastic surgery with Bitcoin.
Bitcoin is a form of decentralized currency that was built using cryptographic principles. The two easiest ways of obtaining Bitcoins are to either invest using an exchange or by mining them yourself. Mining, in modern day terms, is not exactly the same as it was for speculators of old.
Being a decentralized currency, there is no governing body issuing new currency or dictating how much currency should be in circulation. Rather, a built-in algorithm handles all the heavy lifting.
Working on the principles of controlled supply to ensure stable prices, the algorithm dictates that there will never be greater than 21 million BTCs in circulation at any given time. Bitcoin miners work by using computer hardware to solve complicated mathematical problems as part of a “block” that holds data on bitcoins. Roughly 6 blocks are created every hour and will geometrically decrease every four years. Check out this chart for a visual representation .
Every time a block is solved, it is verified by everyone else on the network attempting to mine the same section. Those who solve the block receive new bitcoins for their efforts. Included in the solved block is the necessary information to receive the reward and the address of the next block that needs to be solved.
As bitcoin is peer-to-peer, the network recalculates the difficulty of the mathematical problems based on the built-in algorithm and the total number of miners. Falsely solving blocks or introducing fake currency into the system is near impossible, as every block is validated by other members of the network as a whole. Any blocks that do not meet the required specifications of a solved block are rejected by the network as a whole. Bitcoin transactions can be tediously difficult to trace provided you take the appropriate steps to ensure anonymity.
Bitcoin represents a revolution and disruption in the classical ways we think about money. The history is a little interesting, tracing back to this white paper released in 2008 by someone calling himself Satoshi Nakamoto. Nakamoto came entirely out of nowhere, a virtual ghost with a real-world solution to digital currency. After initially releasing the paper online, he remained active in the development of bitcoin until passing the torch to current lead developer Gavin Andresen in 2010.
Interestingly enough, even Andresen has no idea who this recluse is. He (or they) simply provided a brilliant solution to a real world economic problem.
That real world economic problem happened to be extremely financially lucrative. Some statistics on Silk Road taken from leaked court documents and other sources:
In July 2013, there were 959,079 registered users on the network.
Over two years of operating, Silk Road generated upwards of 9.5 Million BTC in sales.
Exchanging to (at its highest point) over 2.1 BILLION dollars in trafficked money.
Silk Road netted a commission of 614,305 BTC, meaning approx $80-100 million.
Keep in mind that 44 years ago, the first EVER transfer of data between two computers happened.
The Crackdown
Clearly Ross William Ulbricht had a tidy sum of cash after operating Silk Road for over two years. Ulbricht was also a digital phantom, just like Satoshi Nakamoto, escaping the long arm of multiple three-letter organizations by hiding online. He masqueraded around the internet under the handle “Dread Pirate Roberts” in homage to the cult classic, The Princess Bride. Plus, his LinkedIn profile photo is just so charming.
So how did Ulbricht slip up after years of staying anonymous? By breaking a core rule of Internet anonymity: Posting online using personal information.
Seven months ago, Ulbricht asked a specific question about the TOR network on Stack Overflow, and after submission quickly changed it to “Frosty”.
Users immediately identified him as Dread Pirate Roberts and he deleted the comments. This is a screenshot of some of the hidden comments that are now purged from the initial post. This specific information, along with a scattered trail of a digital footprint, resulted in the FBI arresting Ulbricht on October 2nd in a San Francisco Public Library.
Running Silk Road is not the only crime he is being charged with. This year, a user called “FriendlyChemist” attempted to blackmail Ulbricht saying that he had identifying proof of thousands of Silk Road users, and he demanded $500,000. Ulbricht then hired another user for $150,000 (1,670 BTC at the time) to murder “FriendlyChemist”. According to thecourt documents, officials could not find anyone matching the necessary description killed during that time period.
Post-Arrest, Bitcoin prices have only continued to rise, most recently hitting a second-record high on October 21st at $191.30 to 1 BTC. This increase in value amusingly enough only further profits the FBI, who seized several Bitcoin Wallets associated with Ulbricht. This sum was most recently evaluated at $28.5 million dollars, or 144,000 BTC.
As all transactions are public, here is a link to the specific wallet they seized. Fortunate early adopters have had windfalls of immense amounts.
Whether Bitcoins are simply a risky investment or here to stay, no one can argue that some have definitely profited off of their creation. The shutdown of Silk Road will probably not prevent further nefarious uses of the TOR network, as there are several other viable alternatives in existence.
However, TOR is one of many safeguards absolutely crucial the continued existence of protecting the privacy of any user online. Only time will tell if the Deep Web's economy will grow or fall. I for one, wonder what our marketplaces will be like on the 88th anniversary of two computers connecting when it hits in 2057.