Bitcoin Entrepreneur Linked to Silk Road Talks about his Prison Experience

Charlie Shrem, the co-founder of the now defunt bitcoin exchange, BitInstant, was released from prison a few months ago. He knowingly transmitted money used to facilitate criminal activities on Silkroad.

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Charlie Shrem, the founder of BitInstant shares his past and prison experience after being released.
Charlie Shrem, the founder of BitInstant shares his past and prison experience after being released.

Silkroad

Silkroad was a darknet marketplace where drug dealers bought and sold illicit drugs. Users of Silkroad used the cryptocurrency bitcoin to conduct transactions. The original Silkroad was shutdown in October 2013.

Charlie Shrem

All through his childhood, Shrem had a special interest in technology, computers to be precise. He was a geek.

The bitcoin entrepreneur began his entrepreneurship journey at quite an early age. At only 18 years old, he founded the Daily Checkout, an online platform where he sold refurbished goods.

It was during his college education that Shrem encountered the laissez-faire school of thought, and the possible elimination of government and third party intervention.

He then decided to put the economics theory to practice, through the cryptocurrency bitcoin.

Bitcoin is simply a digital currency that enables transactions to be carried out without government or third party intervention, exclusively used on the Silkroad website.

Shrem in an interview, revealed that he first heard about the concept of bitcoin on an online forum that he was a member of.

At that time, there wasn’t any website or anything, only a white paper referred to the research paper released under the pseudonym, Satoshi Nakimoto, which he said unveiled the concept.

Bitcoin Entrepreneur Linked to Silk Road Talks about his Prison Experience
Bitcoin Entrepreneur Linked to Silk Road Talks about his Prison Experience

Nevertheless, Shrem’s curiosity was awakened, and he, therefore, proceeded to purchase bitcoins. He bought a few thousand bitcoins that were not worth much that time.

Consequently, he brainstormed and finally found a way of making the purchasing of bitcoins much faster and accessible to consumers, that it became popular on Silkroad.

That marked the dawn of the Bitcointalk.org, through which he managed to launch BitInstant.

Charlie Shrem partnered with payment processors that had physical locations such as at Duane Reade, CVS, Walmart, Walgreens and even 7-11.

The online site enabled consumers to purchase small amounts of bitcoins, with an average ticket size costing about $300-500. They then charged a small fee for each transaction. Such transactions were of huge amounts on Silkroad.

The concept gained popularity and in a few months, BitInstant made millions of dollars also through Silkroad transactions.

People were able to purchase the bitcoins from all over the States. Tremendous growth was experienced and Shrem confessed to having transacted transactions worth a million dollars in one day, as Silkroad users grew by the day.

The lucrative growth definitely attracted investors. It caught the attention of investors like the Winklevoss twins and Roger Vere.

Shrem admitted during the interview that they experienced huge growth over a span of few months. However, he let success get to his head. He began to drink too much.

The fall of BitInstant was as rapid as its rise. In the period of March 2013, new legislation that defined and outlined what institutions were to be regarded as money transmitters.

BitInstant, with its cryptocurrency, was operating without a license hence had to shut down its dealings. Shrem said they could not risk operating illegally.

Several months later, when Shrem was traveling to Amsterdam to speak at a conference, he was intercepted at the JKF airport by dozens of law enforcement officials, among them the FBI, IRS, and DEA.

Silkroad Bitcoin Transactions

silkroad-bitcoin-transactions
Bitcoin Transactions

The police accused him to have knowingly facilitated bitcoin transactions to Robert Faiella, whose clients were using Silkroad.

Silkroad was an online website where drug dealers bought and sold illicit drugs using bitcoin.

Shrem’s undoing was that he knew of the illegal dealings, but did not file a single report with the United States Treasury Department about Faiella’s illicit activity on Silkroad.

He pleaded guilty when arraigned in court and was sentenced to serve two years in prison for indirectly helping to sell $1M in bitcoins to Silkroad users.

Shrem on podcast speaks of his prison experience. He says that it was no country club. Where he says one out of every ten inmates was a white-collar criminal; senator, judge, few law enforcement officials were among his group.

The fear Shrem says wasn’t as great as in the maximum security prisons as the inmates were non-violent.

The bitcoin entrepreneur confessed that behind bars, he found life difficult. There was no Google or internet, which the computer geek so much relied on.

The information went round by word of mouth. However, his firm belief in cryptocurrency was strengthened, even as Silkroad was no more, while in prison by one thing.

He says that prison also had its own form of currency, bartering mackerels, like bitcoins for Silkroad users then. This was because the inmates were not allowed any form of cash.

Now out of prison, bitcoin no longer has the hype as it had before. The rise of the bitcoin entrepreneur was as swift as his fall.

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Bitcoin, A Tool For Prosecuting Crimes

Bitcoin is an online digital currency that has for long been used by libertarians, computer scientists and even criminals as was the case in Silkroad. Just 3 yrs. ago, it seemed like anyone could use this cryptocurrency to make purchases without being tracked down by law enforcers. At that time people thought the digital currency was totally anonymous and FBI didn’t have a chance of finding out who was transacting it.

Bitcoin, A Tool For Prosecuting Crimes

However, Federal Bureau of Investigation agents and other law enforcement bodies had a rather different opinion. They found ingenious ways of seizing Bitcoin and even making arrests where possible. Ross Ulbricht, a 31-yr.-old Texan responsible for creating Silkroad was captured by cops. His Silkroad marketplace was estimated to have facilitated sale of narcotics worth $1 billion. The Silkroad creator was given a life sentence in 2015. Others criminals from various places around the world were also incarcerated for similar charges.

Though most people who use Bitcoin currency are law-abiding citizens motivated solely by privacy concerns, the anonymity it provides can also be a powerful tool for facilitating crime as was witnessed in Silkroad. Academic researchers helped create the data encryption and software systems which make Bitcoin possible, they are now helping authorities nab criminals such as those behind Silkroad.

Sarah Meiklejohn, a computer scientist at University College London, says that these experts operate in a new field incorporating aspects of economics, forensics and computer science. There aren’t many of such experts and they all know each other. She mentions when Bitcoin first emerged, law enforcers were “panicking,” with most officers thinking the technology was dangerous and making it difficult for them to perform their task.

But as arrests and convictions were slowly being made, with one example being the Silkroad case, there emerged a steady shift towards viewing cryptocurrency more as a tool for nabbing cybercrimes. FBI Assistant General Counsel, Brett Nigh, earlier said in an interview that even though Bitcoin operated in a new strange world, investigators could still follow the money without much ado.

This was evident in how the Silkroad investigations were carried out and Bitcoins seized. Investigators had collected every piece of data from Silkroad – from images and text describing Silkroad products to Bitcoin transactions on the blockchain.

Unlike standard money issued by Federal Reserve banks, cryptocurrency like Bitcoin doesn’t have any physical form or gold backing hence making it rather untraceable. This is why Silkroad managed to survive for many years before it was finally shut down. Created back in 2008 by a mysterious man named Satoshi Nakamoto, it has been labeled an “intellectual artifact” and modern frontier of economics.

Bitcoins are amounts associated with certain addresses, unique strings of letters and numbers. For instance, “1Ez69SnzzmePmZX3WpEzMKTrcBF2gpNQ55” represents almost 30,000 BTC seized from the Silkroad site. They were estimated to be worth nearly $20 million at the time. The U.S government auctioned off these Silkroad Bitcoins after seizing it.

Those Bitcoins have since been split up and changed hands several times, but there’s a consistent recording showing their every movement. Both past and present ownership is documented in a “blockchain,” this being a popular public ledger available across the internet.

The task of keeping this cryptocurrency running smoothly and preventing cheating is left to a volunteer workforce, known as Bitcoin miners. They crunch the numbers required to verify the transactions, and also apply a math calculation formula known as “proof of work” to ensure individual miners are honest.

The calculations needed to pass a Bitcoin transaction are so thorough that only specialized computers are used. However, all this effort doesn’t go unrewarded as the act of authenticating a 10-minute transaction chain earns the volunteer miner 25 new Bitcoins. This is how the cryptocurrency Bitcoin is minted.

cryptocurrency Bitcoin

Just like any other currency, the digital currency Bitcoin’s real-world value comes as people who use it to trade for products and services as was the case when Silkroad was still in operation. If you’re not already a miner, the only other way of acquiring Bitcoins is from somebody who owns them. Several companies have come up that sell Bitcoin at a fee, and also provide ATM machines where users can convert them into cash.

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