potential
investors.
The
document underscored how
far Mt. Gox had risen in its
short life. The business was
worth $2 million by Jed’s
estimate:
“Mt.
Gox
is
generating revenue with very
low running costs and huge
potential
upside,”
the
document said. Jed told Mark
he was thinking of raising
about $200,000, mostly to
hire a lawyer to help deal
with the regulatory situation.
But as the headaches
continued to pile up, Jed got
more antsy. In January, a Mt.
Gox
user
named
Baron
managed to hack into Mt.
Gox
accounts
and
steal
around $45,000 worth of
Bitcoins and another type of
digital currency that Jed had
been using to transfer money
around.
When
Baron
deposited $45,000 back into
Mt. Gox to buy more
Bitcoins, Jed froze Baron’s
money.
The
incident
reinforced Jed’s belief that
Mt. Gox was a prime target
for hackers and that he had
neither the time nor the
security expertise to protect it
adequately.
Jed
wrote
to
Mark:
“Please
keep
all
this
confidential. I don’t want to
start a panic, and I’m not sure
I’ll do it yet, but I’m thinking
I might try to sell Mt. Gox.”
When Mark picked up the
conversation on the Internet
relay chat (IRC), Jed asked if
Mark would be interested in
purchasing the site and made
him an offer that was hard to
refuse. Mark would not have
to pay anything up front. All
he would have to give up was
50 percent of the company’s
revenues for the first six
months. Jed would continue
to hold 12 percent of the
company, but Mark could
have the rest. Jed’s fraction of
the company was designed to
be small enough to protect
him from legal liability if Mt.
Gox ran into problems in the
future.
Jed
and
Mark
were
outwardly
very
different
people. Mark was a large,
awkward Frenchman, while
Jed was a slight, suave
American. But both of them
were loners who tended to
skeptically watch the world
from afar and live mostly in
their own heads. Each was
the only child of a single
mother who had given him
self-confidence while also
making him skeptical about
traditional
sources
of
authority—a mixture of traits
that made for a good match
with Bitcoin at this point.
As the deal between the
two men progressed, the
strange legal limbo in which
Bitcoin existed colored every
step. Neither Mark nor Jed
used a lawyer. Instead they
drew up contracts themselves
and sent them back and forth.
After they had both signed
these contracts, Mark wrote
up
a
less-than-official-
looking certificate that said
that Jed officially owned
forty shares of Mt. Gox,
though it did not say how
many total shares existed.
Jed didn’t labor over the
deal because, even with all
the growth Mt. Gox had
experienced, the business still
had fewer than three thousand
customers, and was on track
to bring in only around
$100,000 in revenue for the
year.
Mark took ownership of
Mt.
Gox
using
the
corporation that also held his
web-hosting
business,
Tibanne Ltd.—named after
his orange-and-white tabby
cat.
By the time Mark and Jed
finished their deal, the price
of Bitcoin had shot above $1,
attracting a new wave of
media
attention.
It
also
attracted another big hacking
attack. At this point, of the 21
million Bitcoins that would
ever be released, one-fourth
were now out in the world,
worth around $5 million at
the $1 exchange rate. What’s
more, the number of daily
transactions was creeping
steadily upward.
The cause of this surge
was due, in no small part, to
the rise of another business
that was to pose an even
graver test to the foundation
of trust that Bitcoin was
trying to build.
THE POSSIBILITIES FOR using
Bitcoin in the real world had
not progressed much since
NewLibertyStandard’s offer
of SpongeBob SquarePants
stickers. Mark Karpeles was
still taking Bitcoin for his
web-hosting services and a
farmer in Massachusetts was
selling alpaca socks. But the
range of products available
for Bitcoin expanded in a
dramatic way a few days
before the price of Bitcoin
shot from around 50 cents to
above $1 for the first time,
when an unassuming post on
the Bitcoin forum heralded
the next wave of Bitcoin
commerce.
“Has anyone seen Silk
Road yet? It’s kind of like an
anonymous amazon.com. I
don’t think they have heroin
on there, but they are selling
other stuff.”
The posting was made by
someone who went by the
screenname altoid. In real
life, he was Ross Ulbricht, a
6-foot-2 surfer-cum-scientist
who had been planning Silk
Road for months when he put
his innocent-sounding post on
the forum.
For Ross, a fun-loving,
well-educated
twenty-six-
year-old, the creation of Silk
Road had begun in earnest in
July 2010 when he had sold a
cheap house in Pennsylvania
that he’d acquired while he
was a graduate student there.
With the $30,000 from the
sale, Ross rented a cabin
about an hour from his home
in Austin, Texas. He also
purchased
petri
dishes,
humidifiers,
and
thermometers,
along
with
peat, verm, gypsum, and a
copy of The Construction and
Operation
of
Clandestine
Drug Laboratories, by Jack
B. Nimble.
The
psychedelic
mushroom lab he set up in the
cabin was not created with
the intent of enabling Ross to
become a petty drug dealer.
He had much grander visions
of his life than that. From the
time he sold the house in
Pennsylvania, he knew he
wanted to set up a new kind
of online market, where
people could buy all the
things that aren’t available on
ordinary online markets.
This
unusual
and
dangerous business concept
was the product of the
idiosyncratic
mixture
of
influences that had shaped
Ross’s mind. His parents had
been hippies of sorts, taking
him on vacations to Costa
Rica, where his father taught
him to surf. His curiosity