Silk Road Fallout Targets Bitcoin Exchanges

While the online marketplace known as Silk Road has been closed for some time—and some reports even suggest that a new version has cropped up to take its place—the fallout from said closure is still being felt. Recent reports suggest that United States authorities are increasingly looking to Bitcoin exchanges, as well as other businesses that deal in Bitcoin, for connections to the Silk Road marketplace.

At last report, the investigations in question are still in the earliest of stages, and may ultimately not reveal much of a connection between Bitcoin and Silk Road, though admittedly, this comes at a bad time for Bitcoin advocates, who have been eager to point out for some time now that Bitcoin is a legitimate form of online currency, not a front for illegal activity. Over the course of the winter, meanwhile, subpoenas went out from federal prosecutors in Manhattan to several Bitcoin exchanges, including the Mt. Gox exchange. The subpoenas in question, at last report, focused on materials used to solicit investors and a set of customer transaction logs, and seem to be focused on finding out if the exchanges in question processed transactions for the Silk Road marketplace.

While the subpoenas come at an unpleasant time for Bitcoin advocates, it isn't the only thing that's weighing on Bitcoin right now. The shutdown of the Mt. Gox exchange, in which the company saw 850,000 Bitcoins disappear—which reportedly represented about seven percent of the world's known supply of Bitcoin, valued at over $470 million at the time—likewise gave rise to concerns about the overall stability of Bitcoin. This was exacerbated by Bitcoin's lack of connection to a central bank, a development that makes some suspect its overall ability to recover from events like those of the Mt. Gox exchange.

Bitcoin's public image has seemed to suffer of late, between exchanges collapsing and the connections to Silk Road, but by like token, Bitcoin has also made some major strides. Yes, some will point at Bitcoin and say “But you could buy drugs with that!” These same people must also admit that the same people who could buy drugs with Bitcoin can also buy furniture or anything else over at Overstock.com, much in the same way said people could buy drugs or furniture with regular money.

It becomes a difficult balance to strike. We have a technology here that could well improve the economy overall and see some significant boosts in product sales as Bitcoins prove to be of sufficient value to trade for U.S. dollars or the like, or simply be used to buy goods and services outright. But we've also got the potential for it to be misused. Do we throw the baby out with the bathwater, so to speak, and cut off a potentially useful source of new trade in the midst of a still-fragile economic picture? Or do we address the end behavior as opposed to the means used to arrive at said behavior? Is it that Bitcoins help people buy drugs, or that Bitcoins don't buy drugs so much as people do? The answers to this question may well change the fate of online currency as we know it today.