Bitcoin funding illegal drug trade, say US Senators

Bitcoin funding illegal drug trade, say US Senators

Politicians call for crackdown on crypto currency and Internet black market

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Two US Senators have written an open letter to the United States' Attorney General, asking federal authorities to crack down on "Silk Road," the Internet black market drug trade, and Bitcoin, the digital currency that funds it.

After reading the report on Silk Road, written by Gawker's Adrian Chen, democratic senators Charles Schumer and Joe Manchin wrote a letter to Attorney General Eric Holder, Reuters reports. The letter states:

"The only method of payment for these illegal purchases is an untraceable peer-to-peer currency known as Bitcoins. After purchasing Bitcoins through an exchange, a user can create an account on Silk Road and start purchasing illegal drugs from individuals around the world and have them delivered to their homes within days. We urge you to take immediate action and shut down the Silk Road network."

Silk Road is essentially the Amazon.com for illegal drugs on the Internet. Aside from being difficult to access, getting into Silk Road requires a user to circumvent watchful eyes using the anonymizing network TOR, monetary transactions are also shrouded in anonymity. You can't buy Silk Road drugs with credit cards, PayPal or NFC smartphone payments. The only way to score is by using the "crypto-currency" Bitcoin.

Bitcoins are peer-to-peer based and have no association with banks or governments, and like the BitTorrent technology that inspired their name, bitcoins are regulated by a network of other Bitcoin holders' computers. The free, open source Bitcoin software is available for Windows, OS X and Linux.

Bitcoins are stored in a digital wallet file, similar to those associated with online banking. There are also third party wallet services.

According to Gawker, one Bitcoin is worth about $8.67, but given that bitcoins do not operate using traditional currency regulations (like fiat currency, which has value only because of government regulation or law), the exchange rate fluctuates rapidly and unpredictably.

The biggest drive towards the use of Bitcoins on sites like Silk Road is that they supposedly cannot be traced. However, a member of the Bitcoin core development team told Gawker that "...because all Bitcoin transactions are recorded in a public log, though the identities of all the parties are anonymous, law enforcement could use sophisticated network analysis techniques to parse the transaction flow and track down individual Bitcoin users."

One of the Bitcoin exchange banks noted in Gawker's article, the Mt. Gox Bitcoin Exchange, could lead investigators to one of the sources. However, the link to the Mt. Gox Bitcoin Exchange is a weak one, especially since Silk Road can change its servers at will, yet remain accessible via TOR. Additionally, Bitcoin will be exceedingly difficult to shut down since as a P2P service it requires only two people running the free software to remain operational.

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