A drug dealer upsets the bitcoin market

BitcoinFBI’s closure of the Silk Road website has brought down Bitcoin, the electronic currency. U.S. authorities announced Wednesday the closure of Silk Road, a hub for drugs sold online, as well as the arrest of its leader. This news caused a sharp drop for bitcoin, an electronic currency very popular on the black market.

Established in 2011, Silk Road allowed users to buy and sell illegal drugs in a completely anonymous way. On Silk Road, there were no questions asked about banking accounts. Transactions were made using bitcoin, a decentralized electronic currency. This is both a monetary currency and a payment system. Designed in 2009, it is completely freed from the control of monetary institutions and can be used anywhere in the world. The Bitcoins are traded primarily on the Internet. Sites like Reddit or blog platform WordPress accept such payments. There are also a few institutions, such as bars or grocery stores that accept Bitcoins from their customers. In April 2013, the Bitcoin was valued at $2.5 billion (€1.8 billion).

The Bitcoins are also used in less legal ways. One advantage of this virtual currency is that it allows totally anonymous transactions. The seller does not know the buyer and viceversa, a boon for illegal trafficking of all kinds. On Silk Road, the users were asked to deposit to the site an amount of bitcoins that would be used for the purchase of drugs. The FBI announced that it had seized the equivalent of $4 million (€2.9 million) of Bitcoins and it closed down the Silk Road website. The authorities have, however, not been clear whether they will return the money to its owners. “I filled my account with thousands of Bitcoins five minutes before the closure of the site,” said one Silk Road user on Reddit. “It was not my money. Very dangerous people count on me. I’ll die if I do not get back this money,” said another user.

The arrest of William Ross Ulbricht, head of Silk Road, has rocked the Bitcoin market. In a few hours, its value has lost nearly 20% reaching a level of $500 million (€369 million). On the Bitcoin site Bitstamp, the value of a Bitcoin dropped from $125 dollars to $90 on Wednesday. However, on Thursday afternoon, the Bitcoin was trading at $110 (€81 euros). Asked by the Wired magazine, Patrick Muck, lawyer for Bitcoin Foundation, estimated that the closure of Silk Road will not have a long-term effect on the value of Bitcoin.

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