Silk Road trial: 'Bad PR moment' for bitcoin as cryptocurrency becomes powerful prosecution tool

The Silk Road trial represents a "bad PR moment" for bitcoin, as the pseudonymous cryptocurrency becomes a complex and powerful tool for prosecutors to use to their advantage.

Speaking to IBTimes UK, Jared Marx, of Harris, Wiltshire & Grannis law firm, said bitcoin's complexity plays into the hands of the prosecution, whom he expects will attempt to convince the 12-person jury that an anonymous means of transferring money online without a bank is inherently tied to illegal activity.

"Bitcoin is a powerful tool for the prosecution... juries largely go with their guts, which is the brilliance of the jury system but also the challenge of it, a challenge for defendants when prosecutors have to address bitcoin or the Tor network and say 'oh doesn't this sound scary'," Marx said.

'Weird and sinister'

Entering its second week, the Silk Road trial sees Ross Ulbricht, 30, face charges of narcotics trafficking, computer hacking, money laundering, conspiracy to traffic fraudulent IDs and engaging in continuing criminal enterprise. If found guilty, he faces between 30 years and life in prison. He plead not guilty on all charges but his defence lawyer accepts Ulbricht did create the Silk Road website in 2011, before handing over the reins almost immediately.

"If I was the prosecutor, all I would worry about is telling the jury that you can send bitcoin and no one knows that it's you," Marx said, adding: "I suppose the prosecutors might do it to make it seem more sinister because it's weird. Weird and sinister seem different until you get used to it."

Marx, who advises companies on cryptocurrency legislation, believes the same is true of the Tor network, a computer browser that disguises the location of its users and was the only way to access the Silk Road website, where illegal drugs, counterfeit money and fake passports could be bought and sold with bitcoins.

He said: "The prosecutors will want to say: 'Hey, why are you trying to hide what you are doing unless you are wanting to break the law?'"

Between early 2011 and when it was shut down by the FBI in October 2013, Silk Road processed more than $1bn (£660m) of transactions for illegal goods, the prosecution claims. Silk Road only accepted payments in bitcoin, a cryptocurrency that can be traded online, does not have a central bank and is difficult - but not impossible - to trace back to its owner.

A bad PR moment

But, despite the shady nature of bitcoin transactions, Marx thinks the currency is mature enough to ride out the "bad PR moment" the Silk Road trial is causing it.

He said: "It's a bad PR moment for bitcoin as a brand because it's making bitcoin look like it's associated with illicit activity. But regulators have moved on and knew about Silk Road and bitcoin ages ago."

However, despite Marx's dismissal that bitcoin is not the focus of the trial, the currency and its blockchain - a public record of all transactions ever made - could provide crucial evidence for both the defence and prosecution. Computer security researcher Nicholas Weaver claims to have found several large transactions of bitcoins between wallets owned by Silk Road and Ulbricht.

More pseudonymous than anonymous, bitcoin transactions can be identified if the owner of a specific wallet is known, as the identification of each wallet never changes. Pointing a tool called Wallet Explorer at wallets belonging to Ulbricht and Silk Road - known because they were seized by the FBI - Weaver claims to have found large transactions between the two shortly before Ulbricht's arrest in October 2013.

"The defendant's situation is going from bad to worse," Weaver says of Ulbricht on Forbes. "I've already identified a 3,255 BTC [roughly $300,000 (£200,000) at the time] payment from Silk Road to Ulbricht. The prosecution can undoubtedly find many more."

Mumbo jumbo

The prosecution is yet to bring up specific bitcoin transactions in court and although these will undoubtedly form part of their case against Ulbricht, lawyers may have a tough time explaining the blockchain to the jury.

Judge Katherine Forrest has already raised concern that the Tor network "is mumbo jumbo to most people on the jury right now", adding: "There's room for clarity here."

As the trial began, the judge asked both the defence and prosecution to come up with a glossary of technical terms to help the jury understand each argument, but neither side could agree on how terms should be defined. Such a problem was when the prosecution wanted to call bitcoin a "currency" but the defence said it ought to be described as a "payment system".

Tor was also given two contradicting descriptions. During the trial's opening week, the prosecution repeatedly called it "a dark and secret part of the internet", whereas the defence pointed out Tor was originally developed by the US government as a tool for journalists, whistleblowers and others to communicate safely, among other legitimate uses.

The trial, which will also tackle the issues of transferred intent - can the owner of a website be responsible for the actions of its users? - is expected to last for another three to five weeks.