How Ross Ulbricht Built an Online Drug Superstore With Bitcoins and Magic Mushrooms
The following is an excerpt from the new book Virtual Billions by Eric Geissinger (Prometheus Books, 2016):
At its height Silk Road listed over ten thousand illegal drugs for sale, along with a stunning variety of drug-related accessories and hard-to-purchase items—some legal, most not. Scales, syringes, bongs, and cocaine-sniffing devices (made of titanium) could be found, as well as alpaca socks, beef jerky, and good old-fashioned books. It wasn’t always about Moroccan hash or pure molly; the market for “traditional” goods and services lagged the illegal one by a factor of 100 to 1, but it was slowly increasing. This was Ross Ulbricht’s vision made real: a safe, automated, secure, and trusted online store. It was out of the reach of any government on Earth. There were no regulations except those imposed by Ross himself (no guns, no explosives, no child porn, no violent videos). Customers were happy. Honest vendors were happy. Sleazy vendors suffered from brutal customer feedback and were slowly winnowed out. A global community formed out of the Dark Web’s void; an example of the free market spontaneously generating life.
If only it were that easy.
Nothing about Silk Road was accidental—nor inevitable. Silk Road required a sophisticated suite of cryptographic utilities unavailable a few years before, Bitcoin being the most notable. It also required a specific type of person to envision the site, build it, troubleshoot it, guide it toward profitability, and oversee its operation over the course of two busy years. A smash-and-grab money-obsessed scam artist could have created something like Silk Road but would have stolen everyone’s bitcoins after six months. An entirely amoral web developer could have created something similar to Silk Road but without any limitations on what was being sold; blocks of malleable clay-like C-4 explosive could have been peddled, next to the most violent and filthy varieties of porn. Silk Road was far more “free” than the highly regulated American marketplace, but it too had boundaries and limitations, and it required a delicate balance to keep from spinning out of control. It also required a highly dedicated administrator, who even after becoming aware that the DEA and the FBI and the HSI (and probably a few more three-letter agencies) were hot on his trail nevertheless thought Silk Road important enough to risk significant jail time.
It wasn’t about money—near the end, Ross Ulbricht could have pulled out of Silk Road with a hundred million dollars’ worth of bitcoins. It wasn’t even about the War on Drugs, making explicit the “right” way to handle people’s innate desire for such chemicals. For Ross Ulbricht, Silk Road was an ideological test bed, a real-life implementation of libertarian principles and libertarian economic theory.
The major stumbling block for any new online drug superstore was getting past initial resistance and suspicion. From the start, people viewed Silk Road as a scam, or a possible scam, or something that would inevitably lead to participants being scammed (or Goxxed, as they now say, following the $600 million Mt. Gox Bitcoin swindle). Ross had a pretty good idea on how to get over this initial hump. From Ross’s journal, as revealed in court:
"I began working on a project that had been in my mind for over a year. I was calling it Underground Brokers, but eventually settled on Silk Road. The idea was to create a website where people could buy anything anonymously, with no trail whatsoever that could lead back to them. I had been studying the technology for a while, but needed a business model and strategy. I finally decided that I would produce mushrooms so that I could list them on the site for cheap to get people interested. I worked my ass off setting up a lab in a cabin out near Bastrop off the grid. In hindsight, this was a terrible idea and I would never repeat it, but I did it and produced several kilos of high quality shrooms."
Bastrop is a small town within easy driving distance of Austin which, crucially, borders Bastrop State Park, a protected pine forest well known on the Shroomery website (the oldest and most well-respected source for all things psilocybin) for, “Supporting P. cubensis during a wet spell. . . . You can [also] find Panaeolus cyanescens in the immediate area if the weather is right.” Ross’s lab consisted of a series of sterilized jars or glazed ceramic containers, supporting a substrate (a mix of flour and vermiculite, for example) injected with mushroom spores. Once the spores produced enough fungus to completely cover the substrate, it could be removed and put into a damp, humid location, either outdoors in a secret location in the forest or in an everyday aquarium equipped with a basic heating apparatus and a plentiful supply of clean water. Ross began mushroom production in the cabin and, as soon as he could, set up colonies in the wild, which he could safely harvest without much possibility of being caught.
Growing shrooms was a decided shock for Ross. It’s surely not how a former Eagle Scout imagined he would be putting his wilderness survival skills into practice. He had a bachelor’s degree, a master’s degree, and a successful academic track record. What was he doing coaxing mushrooms from spores? Ross accepted it as a necessary danger because he needed product for his fledgling site. Nobody was going to sign up for Silk Road until they saw, with their own eyes, another vendor take the first step and profit from it. Not only was Ross going to astroturf advertise his site, he was going to do the same to kick-start it. Silk Road’s first vendor was in fact Ross Ulbricht selling under a fictional ID, peddling home-grown shrooms at a low price, promptly packaging and shipping the incoming orders. Customers were happy and wrote rave reviews. Potential vendors saw the customer feedback, became envious of the shrooms salesman’s quick and safe profits, and took a small leap of faith: they signed up. And things worked out for them. It wasn’t a scam, existing only to steal bitcoins. Other vendors saw and joined. Silk Road had achieved critical mass.
The early growth of Silk Road was relatively slow and controlled, and Ross was able to handle the increase in site traffic and process most of the transactions directly. In early 2011 he wrote:
"Don’t know how to host my own site. Didn’t know how to run bitcoind. Got the basics of my site written. Only a few days after launch, I got my first signups, and then my first message. I was so excited I didn’t know what to do with myself. Little by little, people signed up, and vendors signed up, and then it happened. My first order. I’ll never forget it. The next couple of months, I sold about 10 lbs of shrooms through my site. Some orders were as small as a gram, and others were in the qp range. Before long, I completely sold out. Looking back on it, I maybe should have raised my prices more and stretched it out, but at least now I was all digital, no physical risk anymore. Before long, traffic started to build. People were taking notice, smart, interested people. Hackers."
The problem with a site attracting hackers is that hackers are interested not only in what the site has to offer but the site itself as a subject for exploitation or (at least) investigation. Ross had managed to cobble together a working site, but it wasn’t professionally done and had a number of serious vulnerabilities:
"Between answering messages, processing transactions, and updating the codebase to fix the constant security holes, I had very little time left in the day, and I had a girlfriend at this time! At some point, a hacker found some major flaws in my code. I sent it to him for review and he came back with basically “this is amateur shit.” I knew it too. I tried to work with him but I think he lost interest and since I wasn’t charging commission, I only had my shroom money to pay him with. Thankfully that quadrupled from bitcoin increasing in price, little did I know I could’ve cashed out at 8x higher for a total of 32x!"
It was a perfect time for the site to undergo necessary growing pains. Ross was lucky the hacker hadn’t done something underhanded, such as introduce a virus or bogus code into the site that could be later activated or accessed to compromise the entire operation. Instead, the hacker registered his disgust at the low quality of the code and faded away—he didn’t think it worth his time to fix it. It’s often the case that more effort is required to patch and correct an unstable codebase than to start over from scratch, which is what Ross eventually decided to do:
"I decided to rewrite the site as suggested by my benevolent hacker adviser. So, while still manually processing transactions and responding to a bigger and bigger message load, I began rewriting the site. At some point around this time, I also learned how to host my own site and was on my own servers. . . . I wanted control of my .onion domain . . . and that was yet another learning curve, configuring and running a LAMP server, oh joy! But I was loving it. My ideas were actually working. Sure it was a little crude, but it worked!"
Ross was no longer an amateur programmer. He had written a reasonably stable site using the correct tools, hosted on a Tor server under his control. All that was left was to switch the old site with the new; to point customers to the new server, leaving a link where the previous had lived. It wasn’t easy:
"The weekend of the switch was the peak of stress for me. Updating a live site to a whole new version is no easy task. You don’t realize how many little pieces lay on top of one another so it works just right (at least when you code poorly like my amateur ass was doing). So for about 48 hours it was stop and start on the switch, but I finally got there and it was working. It looked like I didn’t have to process the transactions manually anymore, but then the rot started. Some where, the site accounting wasn’t balancing, and I was losing hundreds of dollars every few hours. I started to panic. I tried everything I could think of, but couldn’t stop the bleeding. It was getting to be thousands of dollars and I was losing sleep and getting slow. I didn’t give up though. I rewrote the entire transaction processor from scratch and some how it worked. To this day I don’t know what the problem was. AND in addition to these stressors, Silk Road got its first press, the infamous Gawker article."
Before the site rewrite, Ross had been processing all the transactions himself; receiving bitcoins from customers for purchases and forwarding them to the vendor after the customers received their shipment. As the site grew larger, this payment flow became a serious liability and needed to be streamlined. That was the role of the transaction processor, which Ross created to automate the flow of money and free him from being intimately involved with every purchase made on the site. Just after the site was rewritten and made more sophisticated, the “Gawker article” was published on June 1, 2011, the first mainstream press coverage of Silk Road, and it (naturally) made hay with what they found there. The story was called “The Underground Website Where You Can Buy Any Drug Imaginable,” and included screenshots of cannabis and hash as well as a soothing interview with a laid-back programmer who had purchased ten tabs of LSD from the site, paid using Bitcoin, and had them delivered by mail.
Suddenly the world knew about Silk Road. Interest spiked. Traffic increased tenfold. College students all over the country saw the listings and quietly went insane. Members of the establishment were shocked and appalled and knew what to do about it. Senators Charles Schumer of New York and Joe Manchin of West Virginia had this to say:
“This audacious website should be shut down immediately,” Manchin said.
“Never before has a website so brazenly peddled illegal drugs online,” Schumer said. “By cracking down on the website immediately, we can help stop these drugs from flooding our streets.”
It’s amusing how Schumer’s response is a knee-jerk reaction straight from 1955. Logic, as well as a brief overview of the vendors, show that nearly all the drugs listed on Silk Road for American consumption in fact originated in America (to better avoid customs/ import inspections). If these drugs are “flooding our streets” we’re already underwater. Silk Road was a new distribution channel for existing drugs, and one obviously far safer than purchasing on street corners. What upset the two senators was the site’s audacious and brazen nature; ignored entirely was a simple question about what effect shutting down the site would have. Would it make a significant change in how many drugs were consumed? Would it increase or decrease overdoses or street violence and robberies? Nobody knew or cared. It was selling illegal drugs ergo it must be shut down.