Senators call for crackdown on ‘Bitcoin’ as drug traffickers move in

By Stephen C. Webster
Thursday, June 9, 2011 13:53 EDT
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The Internet barter system known as “Bitcoin,” which makes it difficult for law enforcement to monitor online transactions, has raised the ire of two U.S. Senators who learned recently about a new website that lets Bitcoin users buy and sell illegal drugs.

In a letter to Attorney General Eric Holder and Drug Enforcement Agency (DEA) administrator Michele Leonhart, Sens. Charles Schumer (D-NY) and Joe Manchin (D-W.Va) called for action against the website “Silk Road,” which was the subject of a recent report by Gawker.

Silk Road lets buyers and sellers of illegal drugs exchange Bitcoins to complete transactions, and the seller ships their product by mail. Because of how Bitcoins are designed — as a peer-to-peer, decentralized substitute for real currency — both the buyer and seller are protected from scrutiny. Users simply purchase the coins, log on and place their orders.

An added wrinkle: the Silk Road site is only accessible to users on the “Tor” network, which funnels traffic through dozens of other computers and protects the user’s identity.

“Literally, it allows buyers and users to sell illegal drugs online, including heroin, cocaine, and meth, and users do sell by hiding their identities through a program that makes them virtually untraceable,” Schumer told reporters Sunday. “It’s a certifiable one-stop shop for illegal drugs that represents the most brazen attempt to peddle drugs online that we have ever seen. It’s more brazen than anything else by lightyears.”

Schumer went on to call Bitcoin “an online form of money laundering,” but it was not clear if he meant that for the currency as a whole or simply for those using Bitcoins for illegal activities.

“The only method of payment for these illegal purchases is an untraceable peer-to-peer currency known as Bitcoins,” the senators’ letter states. “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.”

Commenting to Reuters, a DEA spokesman said the agency is “constantly evaluating and analyzing new technologies and schemes perpetrated by drug trafficking networks.”

It was not clear if government agencies were looking to target just Silk Road or Bitcoin users as a whole. While using Bitcoins for illegal activities does meet the technical definition of money laundering, the crypto-currency was not designed specifically for that.

A growing number of smaller merchants have begun accepting Bitcoins, and at least one up-and-coming money transfer company, Dwolla, has declared themselves to be “Bitcoin friendly,” letting users plug their online credits directly into bank accounts.

Contacted by Raw Story, a Dwolla customer support agent said they had seen tremendous growth in recent weeks thanks to Bitcoin users. Conversely, their marketing director was hesitant to offer any official endorsement or even speak about Bitcoins on the record.

“Bitcoin is a really ambitious project,” Gavin Andresen, the technical director of Bitcoin.org, told Raw Story in an email exchange. ”[We are] trying to let people take back control of their money instead of trusting bureaucrats or bankers or politicians to keep it stable and safe. New technologies are always at least a little bit dangerous. [They] can usually be used for both good and bad (think of gunpowder or ChatRoulette), and are certainly dangerous to the status-quo that they replace (think of cars and buggy-whip-manufacturers).”

“Like the Internet, I expect its early years to be full of amazing successes and spectacular failures, and I don’t think anybody will be able to predict in advance what will succeed and what will fail,” he concluded.

Stephen C. Webster
Stephen C. Webster
Stephen C. Webster is the senior editor of Raw Story, and is based out of Austin, Texas. He previously worked as the associate editor of The Lone Star Iconoclast in Crawford, Texas, where he covered state politics and the peace movement’s resurgence at the start of the Iraq war. Webster has also contributed to publications such as True/Slant, Austin Monthly, The Dallas Business Journal, The Dallas Morning News, Fort Worth Weekly, The News Connection and others. Follow him on Twitter at @StephenCWebster.
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