The Silk Road Auction Legitimizes Bitcoin

Posted by: Evan Faggart June 28, 2014

Recently, the US Marshals have decided to auction off the bitcoins seized in the Silk Road bust that happened in late 2013. As of June 27, 2014, the bitcoins have been sold to the highest bidder. Though, at the time that this article is being written, the winner of those coins remains unknown. There are approximately 30 thousand bitcoins being sold in this auction; those coins equate to a huge amount of fiat, the dollar value of those coins is worth several million. However, the monetary value being exchanged in this auction is not really the main focus of the auction. The United States federal government’s action of selling off these bitcoins serves to further legitimize crypto-currency in the mainstream.

In the beginning, Bitcoin was unheard of in the mainstream media and in the white markets. The digital currency was confined to Dark Net Markets and online groups of hackers and hardcore tech enthusiasts. In 2009, no one would have even dreamed that Bitcoin would be where it is today. But the level of acknowledgement that Bitcoin has today, although great compared to Bitcoin awareness five years ago, is not very high in the mainstream. And mainstream acknowledgement and acceptance is precisely what Bitcoin needs in order to realize its full potential: the upheaval of the government monopolies on the issuance and regulation of the supply of money. The 2013 Silk Road raid put a damper on Bitcoins expansion by revealing to both the mainstream media and the governments of the world that a large part of Bitcoin’s economy was made up of the buying and selling of drugs. This fact pushed many potential Bitcoin users away from the community because they did not want to be associated in any way with the drug trade.

Thus, “bitcoins are used to buy and sell drugs!” became a go-to argument for critics of Bitcoin. It does not matter to them that the number one currency of choice for drug dealers and street gangs across the United States is the dollar; they only want to defame Bitcoin by any means necessary. Why would these people want so desperately to discourage anyone from using Bitcoin? They merely rely too heavily upon the current dominating monetary system. So it is no surprise that the biggest critics of Bitcoin are the world’s governments. Several central banks and national governments have come out and said that Bitcon should not be used for any reason due to the potential risks involved. Argentina has even gone so far as to passively threaten users of Bitcoin by reminding them that the digital currency does not comply with legal tender laws.

We can see, though, from this Silk Road Bitcoin auction, that the US government is starting to realize that owning and trading bitcoins is a real way to make legitimate profit, even if they are still afraid of Bitcoin’s impending substitution for government fiat currencies. They could have allowed the seized bitcoins to lie dormant if they truly believed that they were not viable currency. But no, they set up an auction so that they can make millions of dollars in profit off of them. So clearly they at least realize the arbitrage opportunities for the digital currency, if nothing else. Even if the federal government is still skeptical about Bitcoin, their auction still raised mainstream attention in the media, which will undoubtedly get more people interested in the Bitcoin community. Those people who do some research into Bitcoin as a result of the media coverage of the Silk Road Bitcoin auction may very well become convinced of Bitcoin’s viability and begin participating in the crypto economy.

Therefore, the result of this Bitcoin auction is really the legitimization of Bitcoin. This is happening simply because the United States government is now recognizing that Bitcoin has real value, and that they are cashing in on that value. Sure, the federal government is likely not deliberately spreading awareness about the legitimacy of Bitcoin, but they are still doing so in an indirect manner. By selling off these coins in the public eye, rather than doing it secretly, they are unknowingly contributing to the destruction of their own monopoly over the United States’ (and in some degrees the world’s) money supply. By bringing attention to the existence and the value of Bitcoin, displaying their pure incompetence by accidentally leaking the names of several potential bidders, and of course actually auctioning the bitcoins, they are encouraging the growth of Bitcoin. Additionally, the government is auctioning off seized property before a trial has even taken place, raising questions about the legality of such an auction. This situation also may shed some negative light on the US government. Essentially, the federal government has reaped short term profits while potentially sewing seeds that could lead to a long-term collapse in the existing monetary system.

The true enthusiasts of Bitcoin, not those who are merely using it as a new investment, but those who use it as a currency with the vision of tearing down the existing violent monopoly on the global money supply, know the potential implications of Bitcoin. For them, crypto-currency has been legitimate from the start. The rest of the world, of course, needs further convincing. So, although the world’s governments are actively working to prevent the spread of Bitcoin, or are trying to regulate it to a point where they defeat the purpose of Bitcoin’s creation, they inadvertently prove Bitcoin’s efficacy as a monetary system. They have not come close to destroying Bitcoin. No matter what any government has thrown at it, be it a slew of legislation or the persecution of Dark Net Market traders, Bitcoin is still present and it is constantly gaining in value.

The Silk Road auction is in a way an admittance of defeat from the United States government. Just like with the drug war, they know they can’t succeed; yet, they continue to wage the war because they know that they can reap huge profits from intervening in the drug market. We are seeing the same thing happen with Bitcoin. It is possible that they have realized that they cannot eradicate it completely– despite their attempts to do so– so they are taking advantage of their position as the federal government and are profiting from this Bitcoin auction. So while some may see the Silk Road bust and the seizure of those bitcoins as a defeat for both crypto-currency and Dark Net Markets, it truly is a sign of victory. The government is starting to fail in their attempts to regulate Bitcoin out of existence, so now they are falling back to their tried and true method of using their brute force to profit from something that they cannot control. Unfortunately for them, though, the blockchain technology is not benign like drugs are. The prohibition of drugs poses no serious threat to government, but Bitcoin threatens the very foundation of government force. With out a monopoly on money, the State will starve.

Updated: 2014-06-28