From The Atlantic:
The trial of the Silk Road founder reveals enormous flaws in the decentralized currency.
The trial of Ross Ulbricht, which began last week in Manhattan, doesn't lack for entertainment value. The 30-year-old is accused of founding and administering Silk Road, an online market that allowed users to buy and sell illegal drugs using bitcoin as currency. Founded in 2011, prosecutors allege that Silk Road generated $1.2 billion in revenue—including an estimated $80 million paid in commissions—until the FBI shut it down in 2013. Ulbricht has pled not guilty. But whatever the verdict, the legacy of Ulbricht's high-profile case may strike a blow against Bitcoin's future viability.
The idea behind Bitcoin is simple. Unlike modern fiat currencies like the U.S. dollar, Bitcoin has no supervising authority, no regulation, and no central bank. Users can use bitcoin to buy and sell goods anonymously without any outside interference. The idea has caught on. Created in 2009 by an unknown entity called "Satoshi Nakamoto," bitcoin has begun to enter the mainstream. Companies like Amazon, CVS, and Victoria's Secret now accept them as legal tender.
"Bitcoin is insanely traceable," Nicholas Weaver, a researcher at UC Berkeley's International Computer Science Institute told the Verge.
As an unregulated currency, Bitcoin appeared to be a natural fit for the illicit drug market. But while Bitcoin is anonymous, it isn't untraceable. When users convert bitcoins to hard currency, their name becomes linked to a "public blockchain" that comprises the entire transactional history of the bitcoin. This would be equivalent to a $20 bill containing a comprehensive history of every person who has touched it since emerging from the printing press. These public blockchains make it very easy for law enforcement officials, once users' identities are compromised, to understand the full extent of their illicit activity....MORE
