This week the federal government shut down Silk Road, the world's largest Bitcoin-based illicit drug marketplace. Patrick Murck is the general counsel for the Bitcoin Foundation, a non-profit organization that provides a public face for the virtual currency. We spoke Wednesday afternoon about how Silk Road's shutdown will affect public perception of Bitcoin. The transcript has been edited for length and clarity.
Timothy B. Lee: What implications does the shutdown of Silk Road have for the future of Bitcoin?
Patrick Murck: I think in general it's a positive thing. It demonstrates quite clearly that the illicit activity on the Bitcoin network is a tiny percent of what people use the currency for. If you believe that the useful purpose for Bitcoin was to conduct illicit activity, you'd expect the price to be zero without the Silk Road. And it's not. Last I checked, it was around $110. Clearly the market has spoken and there are greater uses than illicit activity.
So the Bitcoin community can move on from stories about Bitcoin facilitating anonymous transactions and move onto the real story which is Bitcoin creating opportunities for online commerce, a remittance lifeline for diaspora populations, financial inclusion for the global south. That's what people are investing in when they invest in Bitcoin right now. Those are the interesting stories and the interesting use cases.
But the shutdown of Silk Road doesn't mean an end to illegal transactions using Bitcoin, right? Couldn't other sites rise up to take Silk Road's place?
Sure, it's possible. But I can't imagine that many people would look at Bitcoin today and think if I need a way to move illicit funds around, that this would be an ideal system for it. It's private, not anonymous. There was this whole Bitcoin magical thinking that occurred in the early days that because of Bitcoin's unique properties, it's invulnerable to law enforcement. It was never true, and it's now been conclusively proven that it's not true.
Law enforcement through traditional methodologies was able to find someone who ran this illegal operation. Bitcoin didn't pose any sort of unique threat to the law enforcement community. You wonder if the law enforcement community would have been able to detect and intercede in this if the whole system was run on cash. The point being that Bitcoin is less desirable for the criminal element than other systems that are out there like cash or even a centralized virtual currency system.
Do you think there's a need for more tools, either legal or technological, to help law enforcement combat the kind of money laundering that Silk Road employed.
The first question is to identify instances of illicit behavior so you understand the problem you're trying to solve. Then do a gap analysis to see where the existing methodologies will fail. Once you have an understanding of the problem at hand, that's when you should have a conversation about what should be done to either build new tools or enhance the tools you have.
From the lifestyle the guy was living, you're seeing a lot of traditional methods for keeping illicit funds out of circulation. The Bitcoin industry and exchanges have adopted stringent "know your customer" methodologies and procedures. That seems to have prevented this person from cashing out significantly, which is exactly the point of these regulations. So it shows that the industry is taking these things seriously.