But he also had a more serious, political side that he got from his father, a passionate advocate for free markets and entrepreneurs who had built his own jewelry business. His father had been a competitive debater and urged Erik to follow in his footsteps, given Erik’s smooth way with words. Erik, though, had discovered that he could not convincingly argue a point he did not believe in, and so he threw himself into advocating for the ideas he did believe in.
After the financial crisis, Erik became particularly fascinated by the role that central banks played in maintaining government power. He came to believe that it was only through printing money that governments were able to pay for their budgets and wars. Monetary policy had been one of the issues he was most passionate about when he joined the Free State Project. But when he discovered Bitcoin, he saw a shortcut to achieving his goal of a world without government power. Erik had largely abandoned his efforts to find a new job and went deeper into credit card debt so that he could spend his time evangelizing for Bitcoin.
“You don’t have to try to vote your way into changing the world,” he would tell anyone who listened. “If Bitcoin works, then it will change the entire world in a decade, without asking for anyone’s permission.”
Meeting Roger in person, Erik immediately detected that they shared more than just basic libertarian politics. They both occupied a more idealistic place on the libertarian spectrum, less interested in reducing taxes and more interested in stopping government-sponsored wars—looking up to the same thinkers who had motivated Ross Ulbricht. At the same time, neither Roger nor Erik was the type of anarchist-leaning libertarian who fought against authority figures and societal expectations of all kinds. Both men always looked presentable—usually clad in slacks and polo shirts—and generally approached conversation with a respectful and deferential tone.
At the conference, the two men had commiserated about the fact that even in the libertarian world, where Bitcoin should have had the easiest time winning fans, it had been slow going. Both of them had run up against lots of libertarians who doubted the American dollar, but did not see Bitcoin as a more stable or solid alternative.
The problem for many libertarians was their ingrained belief that money had to be backed by something with real value, like gold. One of the patron saints of gold bugs, the economist Carl Menger, had argued that all successful money arose from commodities that had some intrinsic value, even before they become money. From this perspective, Bitcoin appeared to have no chance—there was no independent demand for these virtual tokens on the blockchain. But Erik argued that it was the very virtual nature of Bitcoin that made it so valuable. Unlike gold, it could be easily and quickly transferred anywhere in the world, while still having the qualities of divisibility and verifiability that had made gold a successful currency for so many years.
By the time they left New York, Erik and Roger had hatched a plan to start winning over some of the libertarian doubters. Their goal was to get some actual Bitcoins into the hands of all of the fifteen thousand or so people in the Free State Project. Roger offered to donate the coins himself. It took some negotiations with the board of the Free State Project. Given its concern about privacy, the organization didn’t want to hand over the e-mails of members. But Roger offered to send the board the coins so that it could send the coins out itself. To deliver the coins—0.01 Bitcoin for each person—Roger and Erik used a new program that Erik had been developing with a programmer he knew in Colorado.
Part of the goal was to show how Bitcoin could allow transactions that were not possible, or at best not easy, in the traditional financial system. Roger transferred his donation from Japan to New Hampshire without any fees or wait. Meanwhile, the size of the payments sent to each member was small enough that the fees involved in sending such a payment, using PayPal or a check, would have been greater than the payment itself. On top of that, the Free State Project could send the money to its members without needing any personal information—showing that this was, indeed, digital cash.
The whole thing was worked out by the beginning of October and, as part of the deal, the Free State Project began accepting donations in Bitcoin. The announcement from the Free State Project made the board members sound like converts: “Our eyes are on the long-term, the future, and Bitcoin is very exciting for our project and human freedom in general.”
BITCOIN HAD THE good fortune of hitting hard times at a moment when there was a renewed willingness to rethink the foundations of the existing financial system.
On one side of the spectrum, the 2012 presidential campaign of Ron Paul was gaining steam in the fall of 2011, thanks in no small part to his discussion of the Federal Reserve and monetary policy. He argued that the central bank had encouraged the real estate bubble with low interest rates, and had done more damage by printing money after the crisis hit. Around the time that Erik was selling the Free State Project on Bitcoin, Paul likened the Fed’s money printing to a drug addiction. He warned that if it wasn’t reined in, the central bank would do itself in.
“The Federal Reserve will close themselves down eventually when they destroy money,” Paul said on the campaign trail.
Meanwhile, a month after the Bitcoin conference, protesters took over Zuccotti Park in Manhattan and began what became known as Occupy Wall Street, taking aim at the government’s decision to bail out the big banks but not the rest of the population. The Bitcoin forum was full of people talking about their experiences visiting Zuccotti Park and other Occupy encampments around the country to advertise the role that a decentralized currency could play in bringing down the banks. The people who had been attending the New York Bitcoin Meetup went to Zuccotti Park with flyers and cards offering an introduction to Bitcoin. Soon enough, a few branches of the Occupy movement began accepting Bitcoin donations. The anticorporate Occupy sentiment was even more widespread in the European Bitcoin community, where libertarianism had less of a foothold. An anarchist bar in a hip neighborhood of Berlin, Room 77, had been one of the first establishments to accept Bitcoin and it became a regular gathering spot for many of the European Bitcoin developers who were working with Gavin Andresen.
The different communities where Bitcoin was winning support were not always in agreement about what kind of future they were working toward. For many members of the Free State Project and the Ron Paul campaign, the problem was the excessive role of the government, which had created a subservient population that didn’t know how to take care of itself. The Occupy Wall Street crowd was often OK with government, as long as it was serving the interests of the people, not of corporations and banks.
But in the wake of the financial crisis and the Iraq War, these people and movements generally shared a desire to take power and resources back from society’s ruling institutions and return them to individuals. Both Occupy Wall Street and the Free State Project were ostensibly leaderless organizations that eschewed new power hierarchies.
Political scientist Mark Lilla has written about the onset, after the financial crisis, of a libertarian age, in which the shared values are “the sanctity of the individual, the priority of freedom, distrust of public authority, tolerance.”
These principles, Lilla said, have been enough to bring together
small-government fundamentalists on the American right, anarchists on the European and Latin American left, democratization prophets, civil liberties absolutists, human rights crusaders, neoliberal growth evangelists, rogue hackers, gun fanatics, porn manufacturers, and Chicago School economists the world over.
Few things occupied the common ground of this new political territory better than Bitcoin, which put power in the hands of the people using the technology, potentially obviating overpaid executives and meddling bureaucrats.
Not everyone in the Bitcoin world partook in the politicization of the technology, particularly among the developers. Gavin was generally sympathetic to libertarian ideas, but he also knew that some people did get lucky advantages in life—thanks to better educa
tional systems and family situations—and it was these people with built-in advantages who tended to do best when government went away. He was also skeptical that political arguing did much to change people’s beliefs. Jed McCaleb, meanwhile, openly chastised fellow Bitcoiners for their emphasis on the “libertarian, going to replace all other currencies, take over the world stuff.”
“That just turns people off,” he said. “The only important thing for people to know is that it is better than what people use now for online payments.”
But the people ignoring Jed’s advice ended up giving Bitcoin momentum at a time when it was otherwise lacking. Roger alone bought tens of thousands of coins in 2011, when the price was falling, single-handedly helping to keep the price above zero (and establishing the foundation for a future fortune). As Erik would joke, no one would be stupid enough to invest in a project as experimental as Bitcoin without some noneconomic motive for doing so.
“Who the hell is going to put their money into something so completely wacky?” Erik would say, with a self-disparagement that was somewhat unusual for such an ideological partisan. “You have to have an ulterior motive.”
What’s more, at a time when ideology was a major national talking point, the principles that were becoming attached to Bitcoin were helping it to win public attention, as a symbol of the new politics taking root in America.
THE IDEOLOGICAL UNDERPINNINGS of Bitcoin helped it win new followers, but the growing adoption of Bitcoin was also serving as a real-world test for these big ideas—and it didn’t always bear out the hopeful assumptions of the followers.
Bitcoin had succeeded in its goal of giving its users control over their own money, without requiring a bank or any middleman to conduct transactions. But all the money that had piled up in Mt. Gox and MyBitcoin suggested that even among the small group who had chosen to buy Bitcoin, many people were not actually interested in having total control over their own money. Even the firmest advocates for Bitcoin’s self-empowering potential, like Roger Ver, were entrusting coins to Mt. Gox and MyBitcoin, rather than holding the coins in their own addresses. And they were paying the price in lost and stolen coins. This raised questions about whether people really wanted, or were capable of taking advantage of, the decentralization that Bitcoin was offering. People may have trusted the code underlying Bitcoin, but they didn’t necessarily trust themselves to deal with that code in the right way—and so they turned to outside experts to secure their money and make it easily available.
Meanwhile, the services that had become so popular in the Bitcoin community helped explain why governments and centralized authorities, like regulators, were often granted power in the real world. When people entrust money to financial institutions, they generally don’t have the expertise or time to make sure the institution is doing its job. In most cases, it is much more efficient for people to band together and pool resources to ensure that their banks and exchanges are on the straight and narrow. Thus were created government agencies like the Federal Deposit Insurance Corporation, which backs up American bank accounts against losses, and checks to make sure that banks aren’t putting deposits in danger.
Many libertarians and anarchists argued that the good in humans, or in the market, could do the job of regulators, ensuring that bad companies did not survive. But the Bitcoin experience suggested that the penalties meted out by the market are often imposed only after the bad deeds were done and do not serve as a deterrent. When it came down to it, in each case of big theft, Bitcoin users eventually went to government authorities to seek redress—the same authorities that Bitcoin had been designed, at least partly, to obviate. Mark Karpeles reported the Mt. Gox hack to the Japanese police and MyBitcoin users went to the FBI’s cybercrime unit. Also not surprisingly, the police in these cases hinted that the Bitcoiners had created the mess and could clean it up themselves.
CHAPTER 11
November 2011
Success was also testing the big ambitions and grand ideas with which Ross Ulbricht had started Silk Road.
After getting overwhelmed by new users in June 2011, he had brought the site back online, but on a more limited basis—with new registrations halted. His friend Richard, who had been helping him write the site’s code, asked him: “Have you ever thought about doing something legitimate, something legal?”
Ross, in fact, had considered alternatives, and he began collaborating with Richard on a Bitcoin exchange—not a silly idea given the troubles that Mt. Gox was having. They began designing a prototype for their exchange while Ross continued running Silk Road.
In the fall, Ross was forced to consider his options seriously after a friend of his ex-girlfriend—the only other person who knew about his involvement with Silk Road—posted a revealing message on Ross’s Facebook page: “I’m sure the authorities would be very interested in your drug-running site.”
Ross immediately deleted the post and unfriended the woman who had posted it. But he was terrified and went over to Richard’s house to talk with the only other person who knew his secret.
“You’ve got to shut the site down,” Richard told him, after Ross had arrived and explained what had happened. “This is all they need. Once they see this, they can get a warrant and it’s over. This is not worth going to prison over.”
Ross told Richard that he had, in fact, already sold the site to someone else, but Richard could tell Ross was still very shaken. And there was good reason for him to be: Ross had not sold the site. He lied to Richard as one part of his effort to cover his tracks. He was, in fact, still firmly in charge of Silk Road.
Looking at the numbers made it easy to see why Silk Road was a hard business to turn away from. In August alone, the site had generated $30,000 in commissions. There was so much business that in September Ross hired his first staff member to help him out—a user of the site who went by the name chronicpain.
More was involved than the money, though. Ross’s site was actually accomplishing the big things he’d been dreaming about a year before—fulfilling both his ego and his ideals. On the Silk Road forums, he was able to give his grandiose aspirations free rein:
“We’ve drawn a line in the sand and are staring down our enemies. Like it or not, if you are participating here, you are standing on that line with us. This is not about making money. This is about winning a war. Look how far we’ve come in 8 short months. We are JUST getting started.”
The notion that a site dedicated to selling heroin and forged passports was a moral cause would seem to many in the outside world an exceedingly bold claim. But for Ross, Silk Road was an application of the ideas advanced by the philosophers and economists whom Roger Ver and Erik Voorhees also loved—the ones who prized freedom above all else. According to this moral code, people should be allowed to do anything they please as long as it didn’t hurt others. Freeing people from the constraints that held them back was an achievement of the highest order, even when all that it allowed was a junkie to get his fix.
The emphasis on freedom did not mean that Silk Road was an entirely lawless place. If a product, such as child porn, required the victimization of someone else, it was banned from the site—and immediately removed by Ross—following the one rule that all the anarchists and libertarians tended to agree on. When Ross created a category called forgeries, there were also limits: “Sellers may not list forgeries of any privately issued documents such as diplomas/certifications, tickets or receipts,” he wrote on the Silk Road forums. But documents created by governments were fair game.
The success of Silk Road was certainly offering Ross a freedom unlike anything he had experienced before. In late 2011, he sold his pickup truck and moved to Sydney, Australia, where his sister lived. All he needed for his job was his Samsung laptop. He would fit in his work around trips to Bondi beach, where he surfed and hung out with a crew of friends he quickly fell in with. As always, his cool gravelly voice and good looks made it easy for him to meet women. But he had, by now, learned his lesson about discus
sing Silk Road with anyone. When people asked what he did for a living, he would explain that he was working on a Bitcoin exchange. But for someone involved in such a bold and transgressive enterprise, Ross was a surprisingly fragile and sensitive soul. After a day of walking around Sydney with a girl he liked, just before the New Year, Ross explained how difficult his double life was becoming in the one forum where it was possible—the diary on his computer.
“Our conversation was somewhat deep,” he wrote of his walk with the girl. “I felt compelled to reveal myself to her. It was terrible. I told her I have secrets. She already knows I work with Bitcoin which is also terrible. I’m so stupid. Everyone knows I am working on a Bitcoin exchange. I always thought honesty was the best policy, and now I don’t know what to do. I should’ve just told everyone I am a freelance programmer or something, but I had to tell half truths. It felt wrong to lie completely so I tried to tell the truth without revealing the bad part, but now I am in a jam.”
It was, though, the norm for Ross to fluctuate between self-doubt and hubris. The unusual combination seemed to actually be one of the keys to his success. His self-reflectiveness led him to question everything and constantly rework his site, while his confidence kept him going when he got down on himself.
Keeping his spirits up was becoming easier in late 2011 because Silk Road had attracted a lively community of users. Ross had also found someone he trusted on the site—a vendor on Silk Road who became a staff member and went by the name Variety Jones. Ross described him as “the biggest and strongest willed character I had met through the site thus far.” Variety Jones, or vj, as Ross referred to him, pointed out flaws in the site’s design and helped Ross figure out how to fix them. More important, he became a sort of confidant and even a friend to Ross, helping him think through the best way to run the site, and to feel less lonely.
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