Will 'Silk Road' Bust Kill Bitcoin? 

Photographer: Tomohiro Ohsumi/Bloomberg

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Photographer: Tomohiro Ohsumi/Bloomberg

The eBay of the black market has met its demise. The U.S. Justice Department has shuttered Silk Road and indicted its alleged founder.

An online marketplace founded in 2011, Silk Road facilitated commerce in illegal goods and services, including narcotics, counterfeit currency and hacking services, with payments processed in the digital currency Bitcoin. Perhaps not coincidentally, the price of Bitcoin fell to about $119 at 3 p.m. EDT, down from $145 at the end of September.

Source: Bitcoincharts.com

Source: Bitcoincharts.com

About 600,000 bitcoins worth about $1.2 billion have been exchanged on Silk Road, which prosecutors called "the most sophisticated and extensive criminal marketplace on the Internet." The feds seized 26,000 bitcoins -- worth about $3.6 million -- from the Silk Road in what prosecutors called the largest bitcoin haul in history.

Ross William Ulbricht, 29, known on Silk Road as “Dread Pirate Roberts,” was arrested yesterday in San Francisco and charged with narcotics-trafficking conspiracy, computer-hacking conspiracy and money-laundering conspiracy. Ulbricht calls himself an "investment adviser and entrepreneur" on his Linkedin profile, but prosecutors said his activities included making a death threat against a Silk Road user who had threatened to reveal information about the site.

While the feds celebrated, Silk Road travelers took to Reddit where they are freaking out about lost money, unconsummated drug deals and the declining value of Bitcoin.

What will Silk Road's end mean for the popular crypto-currency? Before Bitcoin was sufficiently mainstream to constitute nonprofit donations or warrant its own exchange-traded fund, it was best known for its utility (and ubiquity) on Silk Road. Bitcoin's association with illicit trade was once central to its identity -- and is still an impetus to government scrutiny.

But Bitcoin no longer needs Silk Road. For one thing, there are other online marketplaces where Bitcoin could be used illegally. Perhaps more important, as Reuters reported yesterday, in the three months ended in June, Bitcoin startups raised almost $12 million from venture capital investors. Bitcoin may still be high-risk, but a customer base of legit startups and fewer drug lords probably bodes well.

(Kirsten Salyer is the social media editor of Bloomberg View. Follow her on Twitter.)

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