Bitcoin, Encryption, Drug Use, and the FBI's Own Bitcoin Wallet; What's the War on Drugs "Really" About?

Last week, the FBI shut down the underground website known as "Silk Road" and confiscated the bitcoin wallet of Ross Ulbricht, the site operator, on drug charges.

The estimated value of Ulbricht's bitcoin wallet is $80 million, but the FBI has been unable to crack the encryption code. Escrow accounts were not as protected. The FBI also seized (stole if you prefer) various escrow accounts, moving the funds to its own bitcoin wallet.

Bitcoin Background

On the off chance you do not know what bitcoin is or how it works, Wikipedia offers a history and description of bitcoin that is rather fascinating.

Also consider Mish Interview With "Bitcoin Jesus"

FBI Unable to Crack Bitcoin Security

With that background, please consider the Extreme Tech report FBI unable to seize 600,000 Bitcoins from Silk Road operator

Closing down the Silk Road and arresting its alleged operator has left the FBI in uncharted territory. After shuttering the hidden site, law enforcement went to work confiscating the money and materials belonging to supposed drug kingpin Ross Ulbricht, but this usually routine procedure is proving especially troublesome in this case. The cache of more than 600,000 bitcoins in Ulbricht’s personal fortune are still inaccessible to the FBI.

The only way to move Bitcoins out of a private wallet is to have the corresponding private key to authorize the transaction. The FBI has been unable to get through the encryption protecting Ulbricht’s wallet, leaving all those Bitcoins — amounting to roughly $80 million at current rates — out of reach. Based on publicly available data, this is about 5% of all Bitcoins in existence right now.

Funds held by users of the site, however, were not so well-protected. Before completing transactions on the Silk Road, users would load Bitcoins into an escrow account on the site. The agreed upon coins would only be transferred to the seller’s private wallet once the buyer had verified delivery of the goods. When the feds took over the Silk Road, there were over 26,000 Bitcoins in user accounts that were relatively easy to snatch up.

The FBI has transferred all 26,000-plus seized Bitcoins to its own personal wallet, but because Bitcoin transactions are tracked publicly, it didn’t take the internet long to find the FBI’s wallet address. Users have taken to transferring tiny fractions of a Bitcoin to the FBI with public comments attached decrying the war on drugs and the arrest of Ulbricht. Users have even helpfully tagged the wallet address as “Silkroad Seized Coins.”

While authorities have control of Ulbricht’s wallet, that’s not the same as having the funds. It’s akin to seizing a computer from a suspect with valuable data inside, but being unable to access it because strong encryption was used to prevent access. Ulbricht himself surely has the necessary information to unlock his wallet — otherwise there would be little use in accumulating $80 million worth of Bitcoins. It’s possible prosecutors will use the leverage they have on him to work out a deal that includes turning over the encryption keys.

"Silkroad Seized Coins"

As Extreme Tech reports, bitcoin users located the FBI's wallet and tagged it with the address Silkroad Seized Coins.

People are transferring bitcoins to the FBI's wallet along with statements. Many of the transactions are for 0.00000001 BTC.

According to Bitcoin Calculator, 1 bitcoin is worth about $134 at current prices.

0.00000001 BTC is worth less than a thousandth of a penny (worthless).

What's the Seizure Really About?

Pater Tenebrarun on the Acting Man blog gets to the heart of the matter in Bitcoin and the Silk Road Bust.

By now it is well known that the proprietor of the 'Silk Road' internet marketplace for drugs and other illicit products has been busted by the FBI. Of course, the idea that the State should prohibit drug use by adults is highly questionable. If one studies the history of legislation in this regard, it soon becomes clear that while these prohibitions have been variously dressed up in Puritan morality or appeals to the need to preserve the 'Volksgesundheit' (the peoples' health), these laws really were largely protectionist measures.

For instance, it is no coincidence that marihuana use became illegal around the time chemical concerns such as Du Pont de Nemours introduced artificial fibers. Making the plant that produces marihuana illegal at the same time removed the biggest competition to artificial fibers – hemp.

Similarly, drug prohibition leaves the field of supplying the population with various uppers and downers in the hands of the pharmaceutical industry, which is producing dangerous psychoactive medication by the wagon loads these days. What the long term consequences of feeding the population with various benzodiazepines and other types of psychoactive drugs that influence the serotonin, norepinephrine or dopamine balance in the brain (such as the infamous and widely prescribed antidepressant Prozac) are is not really known, but we do know that a great many mass murderers that have gone 'postal' in modern times have been taking such psychotropic drugs. 

Today here is a vast variety of anti-depressants, stimulants, 'mood stabilizers', anxiolytics and anti-psychotic drugs on the market that produce billions in profits for the pharmaceutical industry. We would wager that if the prohibition of currently criminalized drugs (most of which are produced by nature) were rescinded, this business would suffer a steep decline.

The senseless 'war on drugs' has not achieved a single one of its purported objectives. Drug use has not decreased because of it. However, it has had a huge cost both in terms of money and lives. So why is it continuing in spite of the crushing weight of evidence proving that it does more harm than good? That's simple: if you want to know why, follow the money.

A huge amount of money is made because certain drugs are illegal. If prohibition were rescinded, a major source of revenue for criminal cartels would dry up, and a great many minions of the State would see their jobs becoming redundant. Moreover, a major source of their funding would disappear as well, which is currently available to them via 'civil forfeiture'. As we pointed out previously, this pays inter alia for the militarization of the police, which these days can deploy a great many lethal toys as a result of this source of income.

In Prohibition: Up in Smoke we argued that the changing social mood could actually lead to an end of prohibition in spite of all the vested interests arrayed in favor of maintaining it.

The 'Dread Pirate' apparently believed in non-coerced free markets, which he cited as a major reason to open his online drug bazaar. What is perhaps not widely known is that he was actually not busted because of any weaknesses in the TOR-based 'dark web'. He simply made a number of stupid mistakes that allowed the authorities to track him down by employing standard investigative procedures.

For readers interested in the technical aspects of the bust, this article at 'The Verge' has more detail on the topic. As the Verge maintains, the 'Dread Pirate' may have been busted, but the 'Dark Web' lives on. Note here that the TOR network is not merely something that is exclusively used by criminals. For many a regime critic and political dissident living in an authoritarian regime the anonymity of the 'Dark Web' is a literally a life saver. Naturally, governments everywhere dislike it, regardless of whether they are democratic or authoritarian: they dislike it simply because it is not under their control. However, there seems nothing they can do about it short of shutting down the internet altogether.

War on Drugs, a Failure

As Tenebrarum points out, there is no reason at all to stop consenting adults from taking whatever drugs they want. Ironically, many prescribed drugs are far worse.

The background on Hemp is rather interesting. I wrote about hemp in regards to biofuels way back in 2006 in The Politics of Ethanol. Here is the pertinent information, copied from my 2006 article, from a MIT.EDU report on "Hemp and the Environment" (the MIT link no longer works).

Hemp and the Environment

An acre of hemp produces four times as much paper as an acre of trees. Every pot-smoking hippy in the country knows that. The problem is, why doesn’t anyone else? In this short article, I will attempt to educate you, the reader, of the many ways in which hemp can Save The Planet. No kidding.

Herbicides are also virtually unnecessary as the plants grow 6 to 16 feet tall in only 110 days. The complex root structure prevents erosion and decays quickly after harvest.

That’s all well and good, but what do you do with the hemp? Well, as I mentioned above, its great for making paper. That’s most of the reason that industrial hemp is illegal in the U.S. See, in the mid-1930’s, there were two industries that had just made breakthrough machines that would make paper productions much more cost-effective. One was the hemp industry, the other was DuPont. Coincidentally, the 1937 Marijuana Tax Act was passed, effectively making hemp illegal by charging transfers $1/ounce or, for unregistered dealers, $100/ounce, even for industrial grade hemp.

So, with hemp out of the way, DuPont was free to become the giant corporation that it is today, and to produce the great majority of the toxic sludge that contaminates our Northwestern and Southeastern rivers. Had hemp become our primary paper source, this pollution would have been vastly reduced, and here is why: Hemp means no deforestation, which results in less topsoil erosion, more oxygen, less carbon dioxide, less destruction of natural habitats, etc. Hemp paper is much easier to bleach, and does not require chlorine, which means no more thousands of tons of toxic sludge pouring into the water. Scientists in Sweden have developed a hemp-bleaching process that uses only natural enzymes and some pounding of the pulp.

Cotton, the other big evil, is grown on 3% of the world’s arable land and uses 26% (wow!) of the world’s pesticides and 7% of the world’s fertilizer annually. It requires heavy irrigation, depleting the water supply even as it poisons it. Many developing countries grow cotton as a cash crop, trying desperately to pay off foreign debt. While the country’s land and water is being destroyed, food crops are neglected, so the people go hungry.

Hemp can be used to make clothing that is, if treated properly, soft like cotton and far more durable, thus rendering cotton unnecessary. Adidas and Ralph Lauren already have hemp products, and Calvin Klein insists that hemp will hit the fashion industry full-force in the years to come.

While an acre of trees is about 60% cellulose, an acre of hemp is nearly 75%. How much hemp is necessary to meet current US energy needs? Somewhere between 10 million and 90 million acres, depending on how efficient the production is. Every year, the US government pays farmers (in cash or “kind”) to *not* farm what they call the “soil bank”, which happens to be about 90 million acres of farmland. The math is pretty simple.

Hemp seed oil is very similar to petroleum diesel fuel, and produces full engine power with reduced carbon monoxide and 75% less soot and particulates. Hemp stalk (different than the part that can make paper and textiles) can be converted into 500 gallons of methanol/acre.

It seems so simple, you must be saying. If this is true, why are we still using petroleum and paper and cotton? Well, there are corporations who sponsor politicians that have a reason to keep hemp down, like, the oil industry, etc.

So here we are. Hemp is still illegal, but numerous psychic drugs promoted by the health-care industry are readily available (at an insane price of course).

And some states like California have a three-strikes policy of prison for life, promoted by the unions who make inordinate sums of money as prison guards. 

US Incarceration

Wikipedia discloses the sorry story of US Incarceration.

The United States has the highest documented incarceration rate in the world. At year-end 2009, it was 743 adults incarcerated per 100,000 population.

According to the U.S. Bureau of Justice Statistics (BJS), 2,266,800 adults were incarcerated in U.S. federal and state prisons, and county jails at year-end 2011 – about 0.7% of adults in the U.S. resident population. Additionally, 4,814,200 adults at year-end 2011 were on probation or on parole.[11] In total, 6,977,700 adults were under correctional supervision (probation, parole, jail, or prison) in 2011 – about 2.9% of adults in the U.S. resident population.

In addition, there were 70,792 juveniles in juvenile detention in 2010.

Although debtor's prisons no longer exist in the United States, residents of some U.S. states can still be incarcerated for debt as of 2011.

What's the War on Drugs "Really" About?

One of the alleged reasons for the war on drugs is to prevent money from getting into the hands of terrorists. But if drugs were legal, prices would crash,  theft would plunge (drugs are expensive and addicts don't have the money),  and terrorists would not make anything off drugs. Millions in prisons would not be there, and the pension problem of states would be far less.

Clothes would be made out of hemp, which has fiber softer than cotton. Hemp plants and seeds can be converted into biofuel far better than corn (which requires high quantities of fertilizer and water, and needs to be replanted every year).

Yet the extremely costly war and economically asinine war on drugs continues. Why?

The unions, the religious-wrong, the plastic manufacturers like Du Pont, the fertilizer companies, and the economic fools all want it that way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com