Crypto (Part Two)

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Previously on Red Pilled America.

Many believe Bitcoin is dangerous because it lets criminals get away with dirty deeds, anonymously. President Trump is one of those people.

I'm Patrick Karelchi and this is Red Pilled America. It's our second episode looking into the cryptocurrency Bitcoin. In part one, we explained how we've been hearing a lot of concern about the new internet cash called Bitcoin. So we wanted to find out if it was really dangerous to America. To do this, we first needed to understand what money actually is.

So we started by delving into the origin of cash. Throughout history, people used all kinds of things as currency. Indians used shellwampum. Ethiopians used rock salt. Malaysians even used crocodile figurines.

And practically everyone used gold and silver. Each of these currencies had value, because the people agreed they had value. Eventually, gold and silver became one of the most universal forms of currency. But over time, even these precious metals became difficult to handle. The Federal Reserve began circulating money, with each bill representing a portion of gold held in our U.S.

Treasury. This gold-backed currency system was the norm for many years, until President Nixon dropped this so-called gold standard in 1971. And from then on, our paper money was backed by a promise from the U.S. government. By the early 80s, a small group of privacy enthusiasts began to form.

They were concerned about how the government could easily track every financial transaction. So they began developing this concept of an anonymous digital cash. outside of Big Brother's watchful eye. They called themselves cypherpunks. And by the late 90s, a few of them actually tried to market their digital cash idea.

But the demand for an internet currency wouldn't arise until the 2008 financial crisis. That's when a mysterious figure named Satoshi Nakamoto developed the idea for Bitcoin, an internet cash that could bypass the Federal Reserve. Satoshi's technology removed the need for banks by using a network of computers to automate the banking system's accounting function. But Bitcoin needed a large-scale test case to prove its utility. That would come with the launch of Silk Road, an anonymous marketplace on the dark web, a portion of the internet that is invisible to regular internet browsers and where anonymity is sacrosanct.

Curtis Green, an early Bitcoin enthusiast, was drawn to Silk Road's message boards because it was a hotspot for people interested in cryptocurrency. But Silk Road quickly became the eBay for selling illegal drugs, with Bitcoin as the currency. The administrator of the site eventually made Curtis a moderator of a new community message board that helped people on the site that were showing signs of self-harm. But Curtis would soon find out that by participating in Silk Road, he put his life in jeopardy.

In early 2011,, at about the time that Curtis Green became the moderator of Silk Road's harm reduction forum, news of the site's existence hit the media.

Pot, acid, cocaine, delivered right to the front door in a small, inconspicuous envelope from Silk Road. The transactions are anonymous and the website's owner claims untraceable. That is, if you can figure out how to get to the website. Adrian Chen wrote a piece about Silk Road for Gawker.com. Adrian Chen is in our New York bureau.

Adrian, welcome.

With all of the hoopla, the public was not only introduced to the site, we also met the Silk Road administrator for the very first time.

Google searches for the term Bitcoin dwarfed that of Silk Road. The first major test case for this new internet cache was undeniable. Bitcoin was a smashing success in the free market of the dark web. So it should come as no surprise that Bitcoin became a major target of our government, and Curtis would eventually find himself in the crosshairs.

Despite fire equipment nearby, Danny could do nothing as his daughter's house burned and his daughter and her husband lost their lives. Christians like you support Israel through the International Fellowship of Christians and Jews. It's this support that helps these survivors remain steadfast and strong. To hear more stories like this one and show your support for Israel, visit supportifcj.org. That's supportifcj.org.

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entrepreneurs and engineers describe the future they're going to build. once they solve a few problems. How do you build a drone delivery business from scratch? Our customers, they want us to do this unbelievably reliably in the storms, no matter what and hundreds of times a day. How do you turn a wild dream about a new kind of biology into a $10 billion company?

You can do whatever you want, whenever, and your life will be forever greater for having done it.

And this new technological innovation freaked the government out.

So what is blockchain? As you know by now, Bitcoin is internet cash, and blockchain is a technology that allows Bitcoin to be transferred from one person to another. Before Bitcoin arrived, if I wanted to transfer money to you from a distance, I needed to use a trusted third party, what we know of as a bank or a credit card company or PayPal. To illustrate this, let's take, for example, the many people that bought our awesome Red Pilled America baseball cap. To buy it, many of you went to redpilledamerica.com, clicked the shop button, selected the hat, went into your pocket or purse, pulled out your wallet, grabbed your debit card, and entered the number into our website.

You eventually clicked a button that told your bank to transfer a specific amount of money from your bank account to our bank account. Both of our banks were the trusted third parties that recorded this transaction by logging it into our account ledger or what we refer to as our bank statement. The process of buying this same hat works differently in the world of Bitcoin. Instead of a bank account, people that own some of this internet cash typically store it in a digital account called a Bitcoin wallet. That wallet can live on your computer, your smartphone, or a separate hard drive that's not connected to the internet.

Just like your bank account has a number, your Bitcoin wallet has a unique series of letters and numbers called a wallet address. When you send me Bitcoin to purchase our Red Pilled America hat, for example, there is no bank middleman that records the transaction. The transaction is instead performed by a decentralized system of computers and is recorded to the public ledger called the blockchain. This removes the middleman bank and the large fees they deduct with every purchase. The blockchain is basically one big banking statement for all Bitcoin transactions.

Since I don't have the luxury of drawing this out on a whiteboard, I'm going to explain how blockchain technology works through a visual analogy, without boring you with the technical details. This is how blockchain works.

Let's say I give you 100 Bitcoins. Now imagine that transaction is written down on a piece of paper. The paper is placed into a clear box. That box is sealed so that it can never be opened. And then the clear box is placed on a table that everyone can see.

Anyone can look into the clear box and see the amount of money that was exchanged, who sent it, and who received it. Following me? Then let's say that from the Bitcoins I gave you, you turn around and give 10 of those Bitcoins to a friend. That transaction is also recorded onto a piece of paper. That paper is placed into a different clear box.

That box is sealed so that it can never be opened. Then the second box is stacked like a Lego brick on top of the first box. Again, anyone can look into the first and second box and follow each transaction, but no one can open the boxes and make edits to the exchange. The transactions are immortalized in this blockchain. Next, your friend takes five of the Bitcoins that you gave him and turns around and gives them to me.

Again, that transaction is recorded onto a piece of paper. The paper is placed into a new clear box. That box is sealed so that it can never be opened. And the transaction inside can never be altered. And then this third box is stacked like a Lego brick on top of the second box, which is on top of the first box.

Every future transaction of these Bitcoins are recorded in a similar way and stacked on top of the last transaction. Anyone can look into every single clear box and follow each transaction, but no one can make a change to any of the past exchanges. That is the blockchain. It's a complete history of all transactions ever made with Bitcoin, and this history can never be changed or hacked. If you gave five Bitcoins to someone three years ago, you can go back to the blockchain and see that transaction forever.

This is, in effect, what the blockchain computer program does. It records and creates a history of every single Bitcoin transaction that has ever been made. And that history can be tracked and never be changed. It's permanent.

You may remember from part one that the very first Bitcoin transaction was when the founder of Bitcoin, Satoshi Nakamoto, sent 10 Bitcoins to the cypherpunk, Hal Finney. That exact transaction can still be seen in the blockchain. In fact, it's the very first Lego block in the long chain of Bitcoin transactions that have occurred ever since. By storing transactions in this fashion, the blockchain keeps track of how many Bitcoins everyone has, just like a bank statement keeps track of how much money you have in the bank. Now you may say, yuck, I don't want everyone knowing that seven years ago I purchased nose hair clippers from overstock.com for three Bitcoins.

Well, you don't have to worry about that. First, the blockchain doesn't record what you purchased unless you write it in as a note, kind of like writing in the memo section of a banking check. Second, the blockchain does not record the buyer's name or the seller's name in the transaction. It instead records the Bitcoin wallet address of the buyer and the Bitcoin wallet address of the seller. It's like recording the banking account numbers with no attached name to either account.

So the only practical way that someone would know that you bought nose hair clippers seven years ago with three Bitcoins is if the person knew your Bitcoin wallet address to tie you to the purchase. Otherwise, the transaction is anonymous. This is what Curtis meant when he said,

Two separate federal task forces were formed to find the mastermind behind Silk Road, one in Baltimore and another in New York. They included agents from the DOJ, FBI, Homeland Security, DEA, Secret Service, Treasury Department, and the Postal Inspector. That's how much the government feared the power of this new internet cache.

One of their primary objectives was to shut down not only Silk Road but also Bitcoin. The first time I ever heard the word Bitcoin was back in 2012, when I was a federal prosecutor at the U.S. Department of Justice. That's former Department of Justice prosecutor, Katie Hahn, giving a speech published in December 2018.. She led an investigation involving Silk Road.

By the time 2012 rolled along, Silk Road had become more than just an anonymous marketplace.

It had become a social gathering spot of libertarian-minded people with the Silk Road administrator as their spiritual leader. The purveyor of Silk Road no doubt recognized his growing prominence. And on February 5, 2012,, the Silk Road administrator announced his new name as Dread Pirate Roberts, or DPR for short.

He knew that there was a lot of illegal sales happening on Silk Road, but he rationalized his involvement with the fact that he was only an unpaid volunteer for the harm reduction forum. But that would change in November 2012, when DPR contacted Curtis and offered him a job.

After consulting with his wife and brother and convincing himself that he wasn't involved in the sale of drugs, he decided to take the job. As a paid employee, DPR required that Curtis send him a copy of his driver's license. He hesitated doing this, but eventually chalked it up to a normal procedure that any employer would require. So he sent DPR a picture of his license. Now, the purveyor of the world's biggest online illegal drug marketplace knew his name and where he lived.

As a customer service representative for the site, DPR gave Curtis administrator access to Silk Road. And this is the first time.

Since the start of the Swords of Iron War in Israel on October 7th, we have seen death and destruction in the Holy Land. For more than 40 years, the International Fellowship of Christians and Jews has been on the ground in Israel and within hours of the war starting and every day since, they've been feeding the hungry and protecting the vulnerable. The attacks continue in the north and the south in Israel, but there are resilient survivors who bravely share their stories in a series. the fellowship calls Faces of Iron. Survivors like Danny, whose beloved daughter and her husband were burned alive on October 7th.

Danny is a commander of the volunteer fire and rescue in his community. Despite fire equipment nearby, Danny could do nothing as his daughter's house burned and his daughter and her husband lost their lives. Christians like you support Israel through the International Fellowship of Christians and Jews. It's this support that helps these survivors remain steadfast and strong. To hear more stories like this one and show your support for Israel, visit supportifcj.org.

That's supportifcj.

org.

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once they solve a few problems. How do you build a drone delivery business from scratch? Our customers, they want us to do this unbelievably reliably in the storms, no matter what, and hundreds of times a day. How do you turn a wild dream about a new kind of biology into a $10 billion company?

You can do whatever you want, whenever, and your life will be forever greater for having done it.

On January 17, 2013,, Curtis received a strange package at his front doorstep.

The return address carried the name Knob. Curtis heard rumors about Knob from a Silk Road vendor. Knob was getting close with DPR and was looking to sell high quantities of illegal drugs to a Silk Road vendor. Why was Knob sending him a package? He thought.

He hesitated opening it, initially, just leaving it on a trash can, but ultimately his curiosity got the best of him and he grabbed a knife to open up the package. It was tightly wrapped, so he wrestled with it to pry it open. And when he did, the box burst open and a white powder caked his face. Within seconds, he felt his face go numb, but before he could react,

his door was hit with a battering ram and a full fleet of agents stormed his house. Curtis was being raided by a federal task force hunting for the captain of Silk Road.

Curtis says he hadn't ordered cocaine. He'd been set up, sort of. For a few weeks, a DEA agent by the name of Carl Force had infiltrated the Silk Road community under the username. Knob. Force was part of the federal task force based in Baltimore that was investigating Silk Road.

To DPR, Knob portrayed himself as a big-time drug trafficker connected to the mafia that was not looking for tiny sales like most of the site's vendors. It wasn't worth his time. He was looking to move kilos of cocaine. Knob got close to DPR and convinced the Silk Road administrator to help him find a buyer for his product. And DPR bit.

The Silk Road purveyor connected Knob with a site vendor, but that vendor must not have completely trusted the transaction. Because instead of having Knob mail the cocaine directly to their address, the Silk Road vendor had Knob send the cocaine to someone else. And that someone else was Curtis. Now the Utah grandfather was caught in the trap. When the task force raided Curtis' house, his computer was running and he was logged into Silk Road.

The federal agents likely assessed pretty quickly that he wasn't the person that asked for the shipment of cocaine. But the federal task force had hit a goldmine nonetheless. Because they could see that Curtis had administration privileges on the site. And this was a big deal, especially for someone that had bad intentions. You see, Silk Road operated a lot like eBay.

They used an escrow model to protect their buyers. When someone purchased something from Silk Road, the bitcoins weren't sent immediately to the seller. Instead, they were sent to Silk Road, where they sat in their bitcoin wallet in escrow. Once the buyer received the shipment, he sent a message to Silk Road that the package had arrived. And at that point, the money was sent from Silk Road's bitcoin wallet to the seller's bitcoin wallet.

So at any given time, there was a lot of internet cash sitting in the site's wallet waiting for shipments to be verified. And, as you may remember, in Curtis' new customer service role, he was responsible for mediating disputes between buyers and sellers. So he had control of the bitcoins that sat in the Silk Road wallet. After the agents interrogated Curtis, they arrested him and booked him in a local jail. During that time, DPR tried to contact Curtis, wondering why he hadn't been communicating with the customers.

But DPR's messages went unanswered.

So Dread, Pirate Roberts cut off Curtis' access to Silk Road. When he was released from jail, DEA agent Carl Force demanded Curtis contact DPR and regain access to the site. So Curtis did what he was told. I gave DPR this big, long-winded,

DPR needed to do something about this immediately, because the heist was massive, approximately 20,000 bitcoins. So to figure out how to handle this crisis, DPR turned to a trusted Silk Road administrator that he looked to as a mentor. After some back and forth, DPR came to the conclusion that Curtis needed to be terminated. So he decided to put a hit on Curtis. And who did he turn to?

to take him out? He contacted a mafia guy he knew, Knob, the same undercover DEA agent, Carl Force, that sent Curtis the cocaine. DPR agreed to pay Knob $80,000 for Curtis' assassination, with half up front and the other half when the job was complete. DPR wired Knob $40,000 from an anonymous wire transfer service called Technocash Limited. Once he received the money, Carl Force and other agents staged Curtis' death by physically torturing him to get a picture of Curtis authentically distressed.

Then they faked a picture of him dead. Carl Force then sent the image to DPR and, according to the Department of Justice, the Silk Road administrator wired the remaining $40,000 to Knob using the same anonymous wire transfer service.

Curtis was temporarily in the clear with Silk Road because DPR thought he successfully had him murdered. But Curtis now had perhaps an even bigger problem to deal with. He was being framed for the theft of roughly 20,000 bitcoins.

DPR asked Friendly Chemist to put him in contact with the Hell's Angels to see if he could work out something with them. And within a few days, a user named Red and White contacted DPR, claiming to be the Hell's Angels member that friended Friendly Chemist the illegal drugs. After a back and forth, DPR proposed hiring the Hell's Angel to kill Friendly Chemist, fearing he would follow through on his threats to release the names of Silk Road vendors and their customers. When the Hell's Angel gave DPR a cost of between $150,000 and $300,000 to kill Friendly Chemist, DPR responded, quote, Don't want to be a pain here, but the price seems high. Not long ago, I had a clean hit done for $80,000..

Are the prices you quoted the best you can do? End quote. The two agreed to $150,000 to murder Friendly Chemist, which at the time was roughly 1,670 bitcoins. So DPR paid Red and White in bitcoins and waited for confirmation of the murder. A day later, Red and White confirmed that he killed Friendly Chemist and followed up with a picture of the deceased.

But now there was another problem. Apparently, while the killers were torturing Friendly Chemist, he divulged that he was working with another user by the name of Tony76 and the pair were together ripping off other Silk Road vendors. DPR knew Tony76.. That user ripped off Silk Road customers a year earlier to the tune of hundreds of thousands of dollars. What luck it was for that scammer to fall into DPR's lap.

So Dread Pirate Roberts calls for a hit on Tony76 as well. But the Hells Angels, Red and White comes back with another complication. Tony76 lives with three other drug dealers, so taking him out alone would be hard. What to do? DPR decides to take them all out and he sends $500,000 worth of bitcoin to Red and White.

A week later, the Hells Angels, Red and White confirms the murder was completed with a message, quote, that problem was dealt with, end quote. And just like that, DPR ordered and paid for the assassination of a total of six people that were threatening his Silk Road empire. Apparently, Silk Road went from a high-minded libertarian marketplace to a bloodthirsty drug cartel.

Around this time, another Silk Road user named DeathFromAbove approached DPR, claiming that he'd reveal his identity to law enforcement unless he paid hundreds of thousands of dollars. DPR didn't bite. As you can see, DPR was constantly getting confronted with these kinds of situations. With the murders and the thwarting of extortion, it appeared that all of DPR's loose ends were tied up. But behind the scenes, the federal investigation was gaining steam.

By May 2013,, the federal task force from Baltimore and the one from New York had already been sharing notes. In parallel, the NSA quietly made bitcoin its number one priority and it began focusing on the digital currency. The agency's surveillance program was reportedly codenamed Monkey Rocket, and it targeted both bitcoin and another cryptocurrency called Liberty Reserve. The fruits of their labor became public in late May.

S. prosecutors have described Liberty Reserve as the financial hub of the cybercrime world. Based in Costa Rica, it's alleged the currency transfer and payment processing company allowed its customers to move money anonymously from one account to another via the internet with virtually no questions asked. U.S. Attorney for the Southern District of New York, Preet Bharara.

Carl. A few hours later, French Made followed up with DPR, claiming that his name was not Carl, but rather Carla Sophia. She claimed to have access to an insider of the federal investigation into Silk Road. This caught DPR's interest, and he began purchasing information from French Made with Bitcoin. Do you remember what we said about Bitcoin being the DNA of currency?

Well, anyway, we'll get to that later.

Even with a supposed insider feeding DPR information, the investigation began closing in on a suspect for Dread Pirate Roberts. Their suspect was living in San Francisco, and his name was Ross Ulbricht. But the task force didn't want to just arrest the guy. They wanted to try to catch him in the act of operating the Silk Road. By tracking his IP address, they learned that Ross often logged in at the Glen Park Library in San Francisco.

So a team of federal agents set up at the library, ready to pounce. And when they did, it set off a chain of events that showed that the technology driving Bitcoin could be viewed as the DNA of currency, and used to hunt down criminals.

Coming up on Part 3 of Crypto, who stole the Bitcoin from Silk Road?

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once they solve a few problems. I'm talking to people trying to figure out how to do things that no one on the planet knows how to do. From creating a drone delivery business to building a car that can truly drive itself. Listen to What's Your Problem on the iHeartRadio app or wherever you get your podcasts.