American Kingpin

by Nick Bilton

  This tax worked out really well for the little guys, who ended up paying pennies for each transaction. But the dealers who were moving the largest volumes of drugs were being forced to pay massive commissions. To get around the fee, some of the top dealers had started doing side deals off the site, in which the Silk Road got nothing.

  So the Dread Pirate Roberts and Variety Jones had a plan. They penned a “State of the Road” address, announcing that the commission rates were going to change. “Now, instead of charging a flat commission,” Ross wrote in a letter to the site’s users, “we will charge a higher amount for low priced items and a lower amount for high priced items, similar to how eBay does it.” The announcement went on to explain that the site would take a 10 percent commission on orders less than $50 and 1.5 percent for orders more than $1,000, with a few other fees in-between, hopefully balancing out the scales of commissions. Ross ended his State of the Road address in the same way Fidel Castro ended a homily in 1962 after he had successfully led the Cuban revolution: “I believe our future is bright and we will emerge victorious.”

  But not all of the buyers and sellers on the site agreed about this new future. Some were happy about the rate hike (especially those who hawked larger shipments of drugs), but others were furious, specifically the dealers who trafficked vast numbers of small doses. In a matter of minutes a chaotic debate ensued on the Silk Road forums.

  Ross was genuinely perplexed by the reaction. He was even hurt by the response. Didn’t these people realize that if it weren’t for him and his revolutionary ideas, there wouldn’t be a Silk Road? Didn’t they understand that he was putting his entire life at risk for them? If it weren’t for his work, they would all still be buying and selling drugs on the street, risking arrest or, worse, caught up in violent turf wars, being robbed, beaten, or even killed in a deal gone awry. And yet they had the audacity to complain about a small commission change. Didn’t they know that this entire thing couldn’t run itself? That this wasn’t a fudging nonprofit? It was a gosh darn business!

  Ross became so worked up over the backlash to the commission changes that he responded in a way that essentially told everyone on the site to go fuck themselves. “Whether you like it or not, I am the captain of this ship,” he shouted in response to the outcry. “If you don’t like the rules of the game, or you don’t trust your captain, you can get off the boat.”

  It was not the best pep talk for the troops.

  Thankfully, as time went by, the uproar simmered down and most people accepted the rate changes. But a select few disconsolate dealers were still unhappy. And rumors of what they were planning started making their way to Ross.

  “I suspect that several are talking about making backup plans to jump ship, or create competing sites,” DPR wrote to VJ in a chat. “I don’t want a mutiny.”

  So Variety Jones decided to venture to the lower decks of the site to mingle with the dealers and buyers, with the goal of finding out how many people were involved in the insurgency and whether an actual uprising might take place.

  It was around this time, on a late afternoon in mid-April, that an e-mail popped into the in-box of the Dread Pirate Roberts, with an obscure offer. “Mr. Silk Road, I am a great admirer of your work,” the message began, and then offered a brief explanation of who the sender was: a man who called himself Nob and said he had been smuggling drugs for decades in South America. The end of the letter was the best part.

  “I want to buy the site.”

  If a random offer to buy the site had landed in Ross’s in-box five months earlier, when stress was at its peak and his personal relationships at their lowest, he probably would have said yes without even a thought. Give me a bag of Bitcoin and it’s yours. Be careful: it isn’t house-trained yet. But today, in mid-April—even with the chatter about a potential riot on the site—how Ross felt about the future was very different.

  He was now running a real business. He had almost a dozen employees rewriting code, monitoring the forums, and dealing with support issues. Variety Jones was by his side helping to steer the ship, and Ross was starting to comprehend that the Silk Road was going to be bigger than anything he had ever imagined. More important, Ross had recently had an epiphany that this—this Web site, which had begun as a tiny dream—would be his life’s work.

  And what a magnum opus it was turning into.

  Still, Ross reasoned, it couldn’t hurt to reply to this Nob character, whoever he was, and see what he was willing to pay for the site. If this were a start-up in Silicon Valley, a financial offer would be one way to gauge its worth. After all, what was the worst that could happen? He could receive a lowball offer from Nob, and that would be the end of the conversation. Ross clicked the “reply” button on his computer, typed a very short eleven-word response, and hit “send.” “I’m open to the idea,” the e-mail said. “What did you have in mind?”

  As he waited for word from VJ about the mutiny, Ross went about his day, preparing for a camping trip he was about to go on with his old buddies from high school.

  Ross had returned to Texas a couple of weeks earlier. As he had promised Variety Jones, he was meditating in the early mornings or late afternoons, then working for a few hours on the site. To keep his sanity, and to keep his fears of law enforcement in check, he would socialize after work like any other normal programmer with a nine-to-five job. He went on hikes in the forest just outside Austin. He smoked some weed with his high school friends and went rock climbing with others. And he had, thankfully, avoided running into Julia since he’d returned to the Lone Star State.

  A few days went by before Ross heard back from Nob. But the e-mail was perplexing. Nob said that in order to make an official offer to buy the Silk Road, he would need to see financials, including “monthly gross sales from the site, net sales, percentage charged to sellers, total sellers, total buyers, site maintenance and upgrade costs (?), salaries for the administrator and monitors.”

  Ha! That’s never going to happen!

  There were only two people on earth who had seen those numbers; one was named Dread Pirate Roberts and the other was Ross Ulbricht. Even Variety Jones didn’t know all those details.

  DPR politely declined to share the numbers with Nob, citing the risk that such sensitive information could easily fall into the hands of law enforcement. But still, he decided to throw out a potential sale price for the site to see if the buyer was even remotely interested in an acquisition. At the very least, it was titillating to ponder the value of his creation. Facebook was now being valued at around $80 billion; Twitter was worth some $10 billion, and that place was run like a clown car. Surely the Silk Road offered something that, if not quite at their value (yet), was at least in the range for the right buyer. “I think an offer for the entire operation would need to be 9 figures for me to consider it,” Ross wrote to Nob.

  As this conversation continued, Variety Jones returned with whispers in his ear and reports ready for the Dread Pirate Roberts. It seemed the rumors about the mutiny were indeed correct. A group of dealers on the site weren’t happy with the new commission fees and they were weighing what to do next.

  Option one for these mutineers, Ross learned, would be to jump ship to a new, much smaller competing Web site that had recently come on the scene called Black Market. Then there was option two: for those behind the rebellion to go off and literally build a competing drug site that had much lower fees. Or finally, the worst-case scenario was not too dissimilar to what happens daily in real-world businesses when a CEO is ousted by the board. In this scenario the dealers were talking about hacking into the site (given its massive security vulnerabilities) and commandeering the Silk Road.

  But more disconcerting than any of these options was the other piece of intelligence that Variety Jones had discovered during his reconnaissance mission. The problem, as VJ explained to DPR, wasn’t just that people were upset about the high commission fees on
the site. There was a much bigger issue looming. One that Ross could never have envisioned when he had the idea for the Silk Road years earlier.

  Chapter 27

  A BILLION DOLLARS?!

  Carl sat at his laptop reading the e-mail from the Dread Pirate Roberts. “It’s a tough question. This is more than a business to me, it’s a revolution and is becoming my life’s work,” it began, and then proclaimed a price: “I think an offer for the entire operation would need to be 9 figures for me to consider it.”

  Nine figures! Carl almost choked when he read that number. That could mean as low as $100 million or as high as $999 million, and he knew full well it wasn’t going to be on the low end of that spectrum. But he was also baffled at how big the Silk Road must be.

  Until now, everyone on the Baltimore task force and those inside the DEA had assumed the site was a relatively small operation, but this valuation seemed extraordinarily high. DEA agents had imagined that the site might be worth a few million. At the highest maybe—just maybe—Carl believed it was worth $25 million, tops. But nine figures?

  Now Carl was gleeful that he had to figure out how to respond to this high number.

  Carl had become particularly excitable as of late. He was almost erratic in his temperament, constantly flipping between a buzzing enthusiasm and an irritable stress about the case. These feelings were only exacerbated by the time he had to wait for DPR to respond to his e-mails, which was sometimes days.

  To relieve this stress, Carl sometimes exercised—well, sort of exercised. While he occasionally ran on the treadmill in the DEA office gym, he would also relieve stress by wrestling with his coworkers. As if they were in some sort of secret fight club, he would roll on the ground with other grown men as they tried to pin each other to the floor of the Baltimore offices of the DEA. Then, panting and breathless, it was back to his laptop to see if DPR had replied.

  Technically, by writing back to DPR, Carl was breaking protocol again. He had recently been given a talking-to by his boss, Nick, who said that whenever Carl spoke to DPR, he must liaise with the Baltimore team (which had been nicknamed the Marco Polo task force) and that he should run any correspondence by the higher-ups. But Special Agent Carl Force had been on the job fourteen years, and he hated two things: one was authority, and the other was authority from people younger than him (which included everyone on the Marco Polo task force).

  Nope. Not going to happen. Carl had zero interest in chatting with a drug lord by committee. So after mulling over the e-mail from DPR, he decided to go rogue and reply anyway.

  “I could pay nine figures but I am not sure Silk Road is worth that, as of now,” Carl wrote under his pseudonym Nob. And then he offered a proposal that he was sure would help capture the site’s leader. “I would like to do a spin-off for the major dealers called ‘Masters of the Silk Road,’” in which big vendors on the site can facilitate drug deals in the hundreds of kilos, or even tons, rather than in ounces. Nob assured DPR that he could help with this new Costco for drugs, if you will, because he knew smuggling routes all over the world. Finally, he offered the Dread Pirate Roberts an injection of $2 million for 20 percent ownership of this new “Masters of the Silk Road” operation.

  He hit “send” and then bounded into Nick’s office to tell him, with rebellious glee, what he had done. Nick, obviously, was incensed, responding to Carl’s confession with a fusillade of “Fuck you!” and “Fuck this!” and “Fuck that!”

  Carl didn’t give a shit what Nick thought. Sure, he was his boss, but Carl knew no one could fire him for something like this. That was the one benefit of the red tape that came with a government job; getting fired was often much harder than getting hired. As for those “mopes,” as Carl called them, over at HSI Baltimore, he could give even less of a shit what they were going to say.

  As far as he was concerned, Carl was talking directly to the leader of the Silk Road. And if his scheme worked, he’d develop a relationship with DPR. And if that worked, Agent Carl Force would have the Dread Pirate Roberts locked up in a matter of weeks. The founder of the Silk Road would be behind bars, and Agent Force would be lauded as the hero who caught him.

  Chapter 28

  THE ASPIRING BILLIONAIRE IN COSTA RICA

  Everything was so calm. The ocean, the air, the sky. Ross consumed it all in one gasp and felt happy to his core. It was early morning in Costa Rica, and the wind blew softly from the east, across the placid water where he sat bobbing on his surfboard.

  The looming mutiny that had been bubbling to the top of the Silk Road for the past few months had finally fizzled out, though some of those behind the insurrection had left for new, much smaller, competitors on the Dark Web.

  With those troublemakers gone, the site was now running relatively fluidly again—employees were toiling away under the direction of the captain, Dread Pirate Roberts—and it was continuing to grow at a staggering pace. Ross’s profits were multiplying by the second, quite literally, as the value of Bitcoins was dramatically increasing. It was as if he stuck a dollar bill in his pocket before he went to sleep and found two (or even three) dollars there the next day. As a result, his personal net worth was well into the tens of millions of dollars.

  He was tightening up security protocols too. To be sure that the people who worked for him had not been compromised by the cops, Ross made his closest advisers adopt a question-and-answer system that only those two people would know. So if he asked one of his employees, “How’s the weather?” the employee would have to reply with the exact phrase: “Boy, is it cold here in the Bahamas.” If the employee said something else, like “Oh, fine, how is it with you?” Ross would know something was amiss and could immediately shut down their account. Each employee had their own question and answer. “[If I say] can you recommend a good book?” Ross wrote to another underling, “you reply, ‘Anything by Rothbard.’”

  But more important than any of that was that Ross had finally figured out how to put the issue of Julia’s knowledge about the Silk Road to rest—something he would address once and for all when he returned to Texas in a couple of weeks.

  He had flown down to Costa Rica at the end of May to stay at the hidden plot of magic that his family owned there: a four-acre enclave called Casa Bambu at the southern tip of the country’s peninsula. Paradise with an Internet connection.

  This place was special to Ross for many reasons. When he wasn’t in Texas as a child, he had come of age here, exploring the jungles with his sister, sitting on the porch with his mother, listening to the howler monkeys, and learning how to surf on a mini foam surfboard with his father. But Ross loved Casa Bambu for a more salient reason: it had been one of the influences that led him to start the Silk Road. Twenty years earlier his parents had fallen in love with the area while on vacation and decided to build a family holiday home in the pasture. Ross’s dad (along with a few friends and locals) built four cabanas that made up a tranquil solar-powered Swiss Family Robinson retreat. The Ulbrichts rented the space to tourists part of the year, so paradise paid for itself, and then some. This accomplishment had made Ross want to pursue a similar goal of starting something from scratch.

  And boy, had he ever.

  Ross had confided in Variety Jones about some of his lofty earlier dreams and how they now seemed within reach. Specifically Ross shared a silent declaration he had made to himself in 2004, that by the time he was thirty years old, he would be worth $1 billion.

  For so long it had seemed he would fail dismally at that quest. Yet now, two months after he turned twenty-eight, the goal wasn’t so out of reach anymore. As Ross said to VJ in one of their long conversations, when he looked at the current trajectory of the Silk Road, if he calculated the future sales of the enterprise, “it could happen.” He could very well be a billionaire in two years.

  When Ross showed VJ the latest Excel spreadsheets outlining the revenue and projections of the Silk Road, VJ re
sponded with a shocked “Fuck me!” then added, “A hundred million is starting to look lite for 2012! On for a billion in 2013!”

  “Giddy up,” Ross replied.

  To get there, though, they would need to continue expanding. DPR and VJ had been experimenting with different ideas to grow the site, including a “4/20” contest where people could enter a raffle and win different illegal things, and some legal ones, including an all-expenses-paid vacation with some additional spending money.

  But Variety Jones and DPR both knew it wasn’t contests and the Silk Road alone that would get Ross to his coveted billionaire status. The site needed to diversify into other markets and to reach a larger set of customers. They discussed an entire genre of underground Web sites that would borrow from the Silk Road brand. SilkDigital could be for downloadable digital goods, like stolen software and tools for hackers. SilkPharma would be for pain meds, uppers, or downers. Maybe they could build a site for weapons, they reasoned. But these expansions would take work. So Ross had decided to come down to Costa Rica, to his parents’ patch of paradise, to focus on this exact problem.

  His mother and father didn’t have a clue what their son was working on. How can you look at your own flesh and blood, who was once a Boy Scout, then a physicist, who donated books to the local prison in his early twenties, and think, Oh, maybe he’s becoming one of the most notorious drug dealers alive? You can’t. It doesn’t enter the mind. When Lyn and Kirk looked at their son, they saw a brilliant and idealistic twenty-eight-year-old who spent so much time on the computer because he was trading stocks.

  Ross believed the day would come when the movement he’d launched would become unstoppable and prove to the U.S. government that the only way to win the war on drugs was to legalize them completely. Then, and only then, would the Dread Pirate Roberts be able to remove the mask, and Ross Ulbricht would step out onto the world’s stage and take a bow. His mother would proudly look at her son, the hero of the libertarian movement, a movement that had first been planted in Ross’s mind as a tiny seedling at his parents’ dinner-table discussions back in Austin.