Agents at the Federal Bureau of Investigation are looking like children with a new puzzle toy after seizing the Bitcoin wallet of Ross Ulbricht, the webmaster of the infamous Silk Road website.
After the arrest of Ulbricht for allegedly running a website devoted to the distribution of recreational drugs, the FBI is now sitting around with his Bitcoin “wallet” trying to figure out how to de-encrypt and distribute the currency contained within. Bitcoin is a totally decentralized currency that requires no central banking authority in order to provide transactions between users.
In order to transfer Bitcoins out of a digital wallet, users need to know the wallet’s password. But these aren’t ordinary passwords. These are methods of cryptography that are virtually unhackable. The crypotography involved in securing bitcoins relies on multiple redundancies. One is public key cryptography, which requires users to authenticate a transaction directly, signing the transfer with your private key. The transaction logs are kept by everyone so you can always verify who the current owner of any group of coins is. It won’t be hard for people to know that the coins in the FBI’s seized wallet are tainted.
When Ulbricht was arrested, the FBI seized 26,000 Bitcoins belonging to customers of the Silk Road. The bureau also attempted to claim the nearly 600,000 Bitcoins that Ulbricht was holding and but have been stymied from the fact that they can’t crack the intense security required to open the digital wallet.
“The FBI has not been able to get to Ulbricht’s personal Bitcoin yet,” wrote Hill. An FBI spokesperson said to Hill that the “$80m worth” that Ulbricht had “was held separately and is encrypted”. At current exchange rates, that represents slightly more than 5% of all bitcoins in circulation.
Even if the FBI is not able to transfer the money, merely having possession of the wallet file itself is enough to prevent the coins being spent. The Bureau is in a position equivalent to having seized a safe belonging to a suspect with no idea of the combination – and no hope of forcing it open any other way.
How Bitcoin Works: