The US government will auction $18 million worth of the virtual currency Bitcoin, which was seized by the FBI when it shut down the Silk Road online marketplace in October last year.
Silk Road, which operated on the so-called “dark net”, traded in drugs and other illegal goods.
Payments were made via crypto-currencies, to ensure anonymity.
The Bitcoins were seized during the arrest of Ross Ulbricht, the alleged mastermind behind Silk Road.
The US government will auction $18 million worth of the virtual currency Bitcoin seized by the FBI when it shut down the Silk Road
Ross Ulbricht, 29, who was known online by the pseudonym Dread Pirate Roberts, or DPR, is currently awaiting trial.
In a statement, the US Marshals Service, which is conducting the sale, said the 29,656.51306529 Bitcoins up for auction were those that had “resided on Silk Road servers”, but did not include the stash on Ross Ulbricht’s personal computers.
The US authority added that it would “not sell to any person who is acting on behalf of or in concert with the Silk Road and/or Ross William Ulbricht, and bidders will be required to so certify”.
Last year, Carnegie Mellon University estimated that over $1.22 million worth of trading took place on the Silk Road every month.
Prospective bidders will have to put forward a deposit of $200,000, and all offers must be made in cash.
Silk Road 2 says it has been hacked resulting in the loss of all its customers’ Bitcoins.
An administrator for the anonymous online marketplace said hackers had manipulated computer code enabling them to withdraw $2.7 million worth of the virtual currency.
It follows similar attacks on two exchanges that trade in Bitcoins earlier in the week.
Silk Road 2 is known for selling drugs and other illegal items.
The site is only accessible through Tor, a network that allows users to browse anonymously online. The virtual currency Bitcoin is often used in transactions as it also grants users a degree of anonymity.
The original Silk Road site was shut down by the FBI in 2013 but those behind it said they would start a new site and shortly afterwards Silk Road 2 appeared online.
In a statement posted on Silk Road 2 forums, the administrator of the site, known as Defcon, said: “We have been hacked.”
“Nobody is in danger, no information has been leaked, and server access was never obtained by the attacker.
“Our initial investigations indicate that a vendor exploited a recently discovered vulnerability in the Bitcoin protocol known as <<transaction malleability>> to repeatedly withdraw coins from our system until it was completely empty,” he said.
Silk Road 2 says it has been hacked resulting in the loss of all its customers’ Bitcoins
Transaction malleability involves someone changing the cryptographic code – known as a transaction hash – used to create an ID for the exchange of funds before it is recorded in the blockchain – a database of every transaction carried out in the currency.
This method can result in the system thinking a transaction has not been carried out when it has and therefore repeatedly paying out Bitcoins.
The two exchanges hit by attacks earlier in the week, MtGox and Bitstamp, had suspended transactions to prevent it happening again.
Defcon admitted that Silk Road 2 should have done the same.
“I should have taken MtGox and Bitstamp’s lead and disabled withdrawals as soon as the malleability issue was reported. I was slow to respond and too skeptical of the possible issue at hand,” he said in the forum posting.
On CoinDesk, a news site for digital currency, Danny Bradbury an expert on Silk Road, said that Bitcoin-based sites should put “Bitcoins under management in cold storage (i.e. stored offline) so that they could not be stolen by online attackers”.
Defcon said that all its customers’ Bitcoins were being stored online because of planned relaunches of some of the site’s features.
“In retrospect this was incredibly foolish, and I take full responsibility for this decision.”
Despite Defcon denying that he had “run with the gold”, several Silk Road 2 users questioned whether the operators of the site were involved or covering for people involved.
The site said as a result of the attack it would no longer host “escrow wallets” – an account where Bitcoins are held until goods ordered are delivered.
The chief executive of the company that runs the MtGox bitcoin exchange was confronted by an angry customer at the company’s headquarters in Tokyo this week.
Kolin Buges, a bitcoin trader from London, said he had travelled to Japan as he was unhappy at MtGox’s explanation for its recent problems on the site which prevented customers from making withdrawals.
He had 250 Bitcoins, worth $155,000 in his MtGox account.
“I want to get my Bitcoin back, or get MtGox to bring back public confidence that the company is solvent and people’s money [is] safe,” Kolin Buges told the Wall Street Journal.
One Bitcoin is currently trading for around $620, significantly lower than the $830 level it was at before news of the various attacks broke.
Bitcoin’s value has soared to over $900, after a US Senate committee hearing.
The committee was told that virtual currencies were a “legitimate financial service” with the same benefits and risks as other online payment systems.
The Homeland Security and Governmental Affairs Committee is exploring the “promises and risks” of Bitcoin for “government and society at large”.
The virtual currency has more than trebled in value since October.
The Senate hearing was prompted by the closure of the Silk Road website in October. The site, which sold drugs and other illegal goods, was shut down by the FBI.
Users of the site were required to pay for their transactions using bitcoins.
Representatives from the Department of Justice and financial regulator the Securities and Exchange Commission have been asked to provide their views about virtual currencies to the committee and submissions have been received from the FBI and the US Federal Reserve.
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us,” the chair of the committee, Senator Thomas Carper, said in opening remarks.
Bitcoin has more than trebled in value since October 2013
The FBI, in a letter to the committee released on Sunday, said that it recognized virtual currencies offered “legitimate financial services” but they could be “exploited by malicious actors”.
Jerry Brito, senior research fellow at George Mason University told Bloomberg: ”Two years ago it was alarm when Silk Road first came on the scene.
”Since then, Congress has been educating itself and understands that there are great potential benefits, and like any new technology there are going to be some challenges. But they see there is a balance to be struck here and they are generally positive on the technology.”
Trade in Bitcoin is small compared with that in countries’ official currencies. But since its creation in 2008, Bitcoin has become a popular way to pay for things online. There are currently more than 12 million bitcoins in existence according to Bitcoincharts, a website that provides financial information about the currency.
On one exchange site, Mt. Gox, the value of the currency rose to $900 on Monday before falling back to $727. This compares with a price of $200 in late October.
The closing down of Silk Road and hearings in front of US government committees have led some to believe that prices are increasing as investors think Bitcoin will gain more mainstream acceptance.
“Lots of factors are driving the price action in Bitcoin, including pure speculation,” said Garrick Hileman, an economic historian at the London School of Economics.
“Regulatory interest in Bitcoin also traditionally has a positive effect on the price of Bitcoin,” he added.
Jan Lambregts, head of financial market research at Rabobank, which does not trade in Bitcoin, said regulators were right to get involved.
“Looking at it from a distance, it very much looks like it could be a speculative bubble. It’s a small market, with a lot of interest in it, which is inflating and distorting the price,” he said.
“But you can see the concerns for governments – this is a currency outside their normal domain and which is not influenced by central banks.
“It may all be relatively small-scale now, but decisions taken now could have wider repercussions were such virtual currency experiments to be expanded in the future,” he added.
Ross Ulbricht, the alleged mastermind behind the online illegal drugs marketplace Silk Road, is too dangerous to be bailed, US prosecutors have said.
Ross Ulbricht, 29, was arrested this week and is charged with being the administrator of Silk Road site which has now been shut down.
He is also accused of trying to arrange the killing of one of the site’s users.
Ross Ulbricht was arrested this week and is charged with being the administrator of Silk Road site which has now been shut down
“We deny all charges and that is the end of the discussion at this point,” Ross Ulbricht’s lawyer said.
Ross Ulbricht appeared in a San Francisco court on Friday wearing a green T-shirt under red jail clothes and had his ankles shackled.
A request from Ross Ulbricht’s legal team for his bail hearing to be pushed back was granted – it will now take place on October 9.
Federal magistrate Joseph Spero asked Ross Ulbricht’s lawyer Brandon LeBlanc whether seeing the criminal indictment that included a murder-for-hire charge had “changed his calculus” on whether he thought Ulbricht would be granted bail.
As part of its criminal complaint, the FBI alleged that Ross Ulbricht had sought to pay a Silk Road user to kill another user who had threatened to expose details of the site’s users.
Prosecutors opposed the delay, arguing that Ross Ulbricht represented a danger to the community, and that there was a high likelihood that he may attempt to flee.
The Silk Road was a well-known destination on Tor, a so-called “dark web” service that anonymizes users, making it much more difficult for authorities to track locations.
The Silk Road sold a range of items, but was most famous for offering a host of illegal drugs, paid for using virtual currency Bitcoin.