Silk Road takedown wasn't due to Bitcoins

04 Oct 2013

Even with the US federal government in shutdown, the Federal Bureau of Investigation still managed to take down the Silk Road marketplace selling drugs and other illegal items, arrest its operator and charge him - among other things - with hiring hitmen to take out those blackmailing him.

The Silk Road site is hosted as an Onion hidden service, hidden in The Onion Router (TOR) network. The payments were done using the crypto-currency Bitcoin, to the tune of 9.5 million BTC (about $1.14 billion) over the years. While there is no doubt that selling drugs and killing people is a bad thing, there is a valid question for cryptographers as to how the trail led to Dread Pirate Roberts, whose real name is Ross William Ulbricht.

Was it a trail of Bitcoins? Was it the TOR network? Perhaps the question that everyone is wondering is whether it vindicated the need for mass surveillance in cyberspace going forward.

There have been publications of attacks on the anonymity of Bitcoin, focusing on the change generated in transactions and tracing the trail from the exchange - where a name and address is needed when changing dollars into coins - to the transaction. However, most of the people in the know I have talked to say that Bitcoin, properly implemented, is anonymous. Yes, if you buy Bitcoins from an exchange and then immediately go and use it for something illicit, it would be easy to trace, but it should be impossible to trace if the coins were mined and if they were properly laundered and mixed through alt-coins and through mixing and gambling services first. A real world analogy would be buying narcotics with cash straight after withdrawing it from a bank and with brand new sequential notes, an act which only the dumbest of criminals would attempt.

The markets seem to have agreed. As SilkRoad was taken down, the value of BTC plummeted from around $130 per Bitcoin to $80 in extremely heavy volume. Just 24 hours later as I write this article, the value has got back to almost its pre-raid level.

I exchanged a few messages with the Grugq, who calls himself an information security pornstar and who shot to fame in a Forbes interview exposing the black market for zero-day vulnerabilities. He was confident that Dread Pirate Roberts was arrested not because of Bitcoins, but because of good old police work and a weakness in TOR protocol for hidden services.

A number of academic papers have been published this year focused on de-anonymizing TOR hidden services. One that the Grugq pointed out said that the protocol was fundamentally flawed and traffic analysis could be done to find a hidden server in as little as two days and with just $100 of Amazon EC2 cloud server costs.

But the clincher was how Ulbricht himself asked questions about TOR hidden services on crowdsourcing help site Stackoverflow.

According to the prosecution documents, the owner of Silkroad had asked a question about connecting to a TOR hidden service with a CURL script first with his real name, and then moments later changing it to a pseudonym, Frosty.

The fact that the Silk Road uses CURL and its encryption keys ended with [email protected] was a dead giveaway once he was a suspect.

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