Bitcoins from Silk Road. Whose coins the US government is selling at auction.

Bitcoins from Silk Road. Whose coins the US government is selling at auction.

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Author: Robert Strickland (crypto-journalist)
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Bitcoins from Silk Road. Whose coins the US government is selling at auction.

The US government will sell confiscated bitcoins for about $115 million.


 


The US government owns bitcoins worth nearly $3 billion, and a significant portion of them is somehow linked to the confiscation of coins in the case of the first illegal online marketplace.

 

On January 25, the US government published an official notice informing of its intention to sell bitcoins amounting to around $115 million, confiscated during the investigation of the Silk Road drug trading internet platform case, which operated from 2011 to 2013.

US authorities stated that they plan to "dispose at the discretion of the Attorney General" of almost 2,875 bitcoins seized from former agent Sean Bridges and drug dealer Ryan Faras in 2021, as well as about 59 bitcoins that solely belonged to Faras. According to the publication, anyone wishing to declare "interest in confiscated property" can do so within 60 days.

  • Bitcoins from Silk Road

Silk Road was the first anonymous internet marketplace for trading prohibited goods, from drugs to counterfeit documents. The site used bitcoins for transactions between sellers and buyers and operated in the dark web, accessed through the anonymous Tor network. During Silk Road's operation, the turnover of drugs and other illegal goods through the platform reached $213 million at the Bitcoin exchange rate during its operation (on average, around $20 for 1 BTC).

In October 2013, Silk Road was shut down by operatives from the Federal Bureau of Investigation (FBI), the Drug Enforcement Administration (DEA), and the US Internal Revenue Service (IRS). The founder of Silk Road, Ross Ulbricht, also known by the pseudonym "Dread Pirate Roberts," was arrested and charged with drug trafficking, money laundering, and creating a criminal organization. In February 2015, he was sentenced to life imprisonment.

During the Silk Road case investigation, authorities confiscated 174,000 bitcoins from Ulbricht. However, these bitcoins later became the subject of other legal disputes.

  • Confiscated coins

The official notice states that the US government plans to sell two lots of bitcoins confiscated during the Silk Road case investigation. The first lot includes about 2,800 BTC, estimated at $129 million. The second, smaller lot includes 58 BTC, valued at approximately $3 million.

Both lots are connected to former agent Sean Bridges and drug dealer Ryan Faras, who were convicted, among other charges, of laundering bitcoins obtained on Silk Road but had no direct connection to the platform.

Sean Bridges was a US Secret Service agent and part of a task force investigating illegal activities on Silk Road. During the investigation, while the platform was still operational, he extorted money from Ulbricht under various pretexts to stop the investigation against him. In 2015, Bridges was arrested and sentenced to six years in prison. He was released in December 2021.

Just before serving his sentence for the crime related to Silk Road bitcoins, Bridges faced new charges of stealing approximately 1,600 BTC belonging to the US government. He admitted to using access to the government wallet and transferring funds to other exchanges. In total, Bridges had about 3,100 bitcoins confiscated, amounting to approximately $10.4 million.

Ryan Faras, who traded narcotics on several online platforms under the pseudonym Xanaxman, was arrested and sentenced to prison in 2018. According to the statement from the US Department of Justice, Faras received approximately 9,138 bitcoins through wallets associated with online marketplaces trading prohibited items. In dealings with investigators, Faras claimed to have used Silk Road, among other platforms.

After the verdict, the US government confiscated only 24 bitcoins from Faras. He claimed to have lost access to other bitcoins linked to his crimes. However, in 2020, while in prison, Faras contacted his father, handed over the key to a cryptocurrency wallet, and asked him to sell over 2,800 bitcoins. As a result, authorities seized more than 2,933 bitcoins from the Faras family, currently valued at around $115 million.

  • Other Episodes

In 2012, a hacker named James Chung discovered a vulnerability in the withdrawal processing system of Silk Road. Before it was fixed, Chung used it to steal over 50,000 bitcoins from the platform, amounting to about $1 million at that time.

Despite law enforcement's close attention to the details and figures involved in the Silk Road case, Chung managed to conceal his crime for ten years. According to CNBC's report, Chung led a luxurious lifestyle using the stolen bitcoins, buying expensive cars, homes, residing in luxurious hotels, and hosting parties.

However, in 2019, Chung made a mistake. He sent a small portion of these bitcoins to an exchange, where he underwent verification with his real personal information. FBI agents, who had been monitoring Chung for a long time, obtained a search warrant for his home.

During the search at Chung's house, a hardware wallet with stolen bitcoins and other valuables were discovered. The total value of the confiscated property amounted to about $3.36 billion. This confiscation became the second-largest in the history of the US Department of Justice.

In November 2022, Chung pleaded guilty to fraud, hacking, and robbing the Silk Road trading platform and was sentenced to one year in prison.

  • Auctions for Sale

In March 2023, the US Marshals Service (USMS) conducted a closed auction for confiscated bitcoins from James Chung. US authorities sold about 9,861 BTC out of the total 50,000 bitcoins, fetching over $215 million. Only registered participants who had deposited $200,000 were allowed to participate, with a minimum bid of $100,000.

The auction was divided into several lots of bitcoins, ranging from 100 to 1,000 coins. The government decided to sell only a portion of the confiscated bitcoins to avoid negative impacts on the cryptocurrency's value.

As of January 2024, the US authorities still hold about 41,000 bitcoins, in some way connected to the Silk Road case. At the current Bitcoin exchange rate of $40,000, selling the remaining coins could generate around $1.5 billion.

The US government owns a significant amount of bitcoins. According to the analytical platform Arkham, as of January 25, 2024, its balance is 69.37 thousand BTC, valued at approximately $2.758 billion.

The first official buyer of confiscated bitcoins was investor Tim Draper. In 2015, he successfully won the auction for the distribution of bitcoins from the first-ever illegal online marketplace Silk Road. Draper has never disclosed the exact rate at which he acquired the coins. He is an outspoken supporter of cryptocurrencies and predicts the price of the first cryptocurrency to rise to $250,000 in 2024.

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