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Ready for 'Orange is the New Black,' Bitcoin Edition Episode 2?


Bitcoin Tracker | Week 57

This week marked a big week of arrests and week two of the Silk Road trial — the case of the bitcoin online black marketplace — and the drama continues.

Ross Ulbricht, the 30-year-old creator of the site, is on trial for federal charges related to drug-trafficking, money-laundering and other criminal activities. While the trial continues, Silk Road 2.0 founder Brian Farrell was arrested for his role as a staff member for the site. And, Robert Faiella was sentenced to four years in prison for helping out the Silk Road website.

Last week, (Week 1), a few key details were unveiled. For one, Ulbricht’s lawyer claimed his client was framed by the real Dread Pirate Roberts — who the defense claims is bitcoin tycoon Mark Karpeles. Karpeles has publically denied the accusations to many media outlets.

But that’s for a jury to decide.

For those just catching up, Dread Pirate Roberts is the nickname of the ringleader of the site the Feds say was the home for the massive online illegal drug trade that brought in billions of dollars for selling heroin, cocaine and crystal meth. It’s also a name from "The Princess Bride," a classic book and movie, that’s about a case of mistaken identities. And that’s exactly what Ulbricht is trying to prove.

Calling Ulbricht “the perfect fall guy,” the defense admits that their client did start the Silk Road, but as an libertarian economic experiment, not to run an illegal drug trade. They claim Ulbricht backed out when the site got too big to handle, and before it became the site the federal government shut down in October 2013 — when Ulbricht was arrested. This came after two-year investigation that followed the bitcoin trial into the newest generation of cybercrime on the dark Web.

Along with Ulbricht being on trial, this case is also about Internet freedom, cybersecurity and what it means for how consumers buy/sell on the Internet. And of course, how they pay for those goods. Which in this case was all sort of bad stuff paid for with bitcoins.

Here’s the Silk Road Trial cliff notes, the summary of the key points of what’s happened so far:

  • The debate: The prosecutors called Ulbricht the “kingpin of a digital criminal empire,” but his defense attorney Joshua Dratel rebuked that claim saying, “on the Internet, everything is not what it seems.” He claims that after a few months Ulbricht ditched the site and handed it off to others. The defense is left to prove, that without unreasonable doubt, that Ulbricht was never the Dread Pirate Roberts.
  • The first witness: Homeland Security Investigations Special Agent Jared DerYeghiayan was called to testify. He was one of the undercover agents who busted Ulbricht. He told the jury he cracked into the Silk Road site and conducted more than 50 drug buys across 40 dealers in 10 countries. DerYeghiayan was the agent who trapped Ulbricht onto the backend side of the Silk Road site and got him to login the day of the arrest at a San Francisco public library.
  • The cross examination: Dratel got DerYeghiayan to reveal that Karpeles was in fact once the primary suspect. DerYeghiayan testified that he believes Karpeles used the site to manipulate the price of bitcoins while the site was launching. The defense presented evidence that suggested was registered by a company owned by Karpeles. But the defense’s plan was tossed out after U.S. District Judge Katherine Forrest ruled against the strategy that will likely be a setback for the defense.
  • The setback: “Mr. Ulbricht’s lawyers are no longer allowed to ask government witnesses whether they believed or suspected Mark Karpeles to be the real operator of Silk Road. …Ulbricht’s lawyers can only present facts about Karpeles that come from witnesses’ firsthand knowledge, not from witnesses getting information from secondhand sources, the judge said, according to The Wall Street Journal.
  • The hitman: According to the story, the former Eagle Scout, Ulbricht, after hearing that the administrator of Silk Road, Curtis Clark Green, was arrested by Federal Agents due to his connection with drug trafficking, decided to go the Sopranos route: hire a hitman. However, the hitman he hired this time, was a Federal agent.

Seems like a great plot for a Hollywood story, stay tuned for Episode 3 (or wait until the movie version hits Netflix).

Given those developments, perhaps it was the big investment in Coinbase this week from a bunch of banks that helped drive the price of bitcoin up from $203.25 to $229.97 according to the Bitcoin Price index.

As always, if you have any news you’d like to share, please send it our way at

On the Plus Side …

Despite the negative news, the dollars keep coming in. In a Series C financing round Coinbase received support from many major financial institutions. This is notable since it is the first time that financial institutions have made a major investment in a company related to cryptocurrencies.

  • Jan. 22, 2015 – Braintree merchants can now enable bitcoin payments through Coinbase.
  • Jan. 22, 2015 – A bitcoin peer-fundraising site, Lighthouse, which operates similar to Kickstarter, launched.
  • Jan. 21, 2015 – Coinbase announced a record-breaking investment round of $75 million from the New York Stock Exchange, USAA and BBVA who were joined by former Citigroup Chief, Vikram Pandit and former Thomson Reuters CEO Tom Glocer. These rather unexpected backers are hoping that the investment will lead to more transparency in bitcoin processing.
  • Jan. 20, 2015 – An innovator, Jan Vornberger, is working on the bitcoin Box which will allow bitcoin transactions to be completed without an Internet connection. This is supposed to make transactions between customers and merchants more direct by not having to go through the slow and often insecure, bitcoin network. Doesn’t that sort of sound a bit ironic?
  • Jan. 20, 2015 – In a rather surprising statement from a Federal Reserve VP, David Andolfatto, vice president and research director for the Federal Reserve Bank of St. Louis made the suggestion that bitcoin’s infrastructure and processes could be an inspiration for reform in the central bank.
  • Jan. 19, 2015 – Netagio, a bitcoin, GBP, USD and EUR marketplace launched a credit and debit card payment option for Netagio trading accounts.
  • Jan. 18, 2015 – Bitcoin microtransations startup, ChangeTip, now supports Facebook and enables people to send bitcoin tips over social media.

On the Dark Side …

As the trading value of bitcoin continues to be weak, banks in Great Britain are raising the alarm about bitcoin’s risk. As concerns about terrorism increase in Europe especially, it will be interesting to watch if the general option towards bitcoin sours. In the United States, it was a harsh week in the legal system for anyone associated with the production and operation of the Silk Road.

  • Jan. 20, 2015 – A computer security researcher in Berkeley, Nicholas Weaver, has traced about $3 million in payments directly from the Silk Road to Ross Ulbricht
  • Jan. 20, 2015 – Robert Faiella was sentenced to four years in prison for helping the Silk Road website.
  • Jan. 20, 2015 - The Silk Road 2.0 founder’s "right hand man," Brian Farrell was arrested in Washington state.
  • Jan. 17, 2015 – BBA, which represents the major British banks including Barclays, Lloyds and the Royal Bank of Scotland has questioned the British Chancellor’s attempts to make the U.K. a global center for Bitcoin and other virtual currencies, questioning the anonymity that the currencies give to users and the potential threat for them to be used for illegal purposes.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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