Five properties a cartel was looking for
The drug trade has always had one problem. The money it makes cannot go into a bank without explaining where it came from, so for centuries that economy ran on cash, with a guard next to every sack (“Interlude. Why Drugs Came First”). Break bitcoin down into its properties and hold each one up against that problem, and you get a list that reads like a specification written by a cartel. A bank transfer can be disputed; a bitcoin, once sent, is gone for good. The bank does not see the payment, and no security officer will call to ask what the money was for. Money from Moscow arrives in Bangkok in ten minutes. A wallet takes a minute to open, without a passport, and you can open a thousand. And finally, bitcoin weighs nothing, and a million dollars fits into twelve words you can learn by heart (same interlude).
An honest person in a country with working banks needed almost none of this. He had a card that worked in any shop and a bank that would return his money if he was cheated. There were honest people the banks turned away too, like WikiLeaks after the 2010 blockade or people in countries with currency controls, and they really existed. But in 2011 the largest client with the most money, for whom bitcoin met a real need, was the trade that lived on cash (same interlude).
The demand was there before bitcoin
People were looking for money that works online and asks no questions long before 2009. In 1996 an American oncologist, Douglas Jackson, launched e-gold, a currency backed by grams of gold. In 2007 the US Department of Justice wrote in its indictment that it had become a favourite payment method for investment fraudsters, credit card thieves and sellers of child pornography, and a year later Jackson pleaded guilty to conspiracy to launder money. Liberty Reserve took e-gold's place, and by prosecutors' count more than six billion dollars of criminal money passed through it (chapter “The Spectre of Crypto Anarchy”).
E-gold and Liberty Reserve had an owner, a server and an address, which meant someone to arrest and something to switch off. Bitcoin had no owner. As early as 1988 Tim May warned in “The Crypto Anarchist Manifesto” that the state would point to drug dealers, and admitted that many of those fears would prove justified (same chapter).
Silk Road, where bitcoin found its market
In February 2011 Ross Ulbricht opened Silk Road, a shop in the hidden part of the internet reached through the Tor browser. The only way to pay was bitcoin. Tor hid who came into the shop, and bitcoin supplied what had not existed anywhere before 2009: money that does not pass through a bank and leaves no cardholder's name behind (chapter “The Dread Pirate Roberts”). After a Gawker article in June 2011, bitcoin made the news for the first time as money for drugs, and within days its price on Mt.Gox shot up to almost 32 dollars.
The FBI later calculated that more than 9.5 million bitcoins of revenue had passed through the shop, about 1.2 billion dollars at the exchange rate when it was shut down. Honest shops that took bitcoin could only dream of that kind of turnover. What start-up people call product–market fit happened to bitcoin here first (same chapter). In 2015 a court in New York found Ulbricht guilty on all seven counts.
Ransomware, and a ledger that remembers everything
For computer extortion the hard part was always the last step: getting paid without getting caught. In September 2013 CryptoLocker appeared; it encrypted files and demanded a ransom, payable among other ways in bitcoin, and by the US Department of Justice's count victims paid about 27 million dollars (chapter “Employee of the Month”). After that ransomware became an industry, with HR departments, probation periods and salaries paid in bitcoin.
In May 2021 Colonial Pipeline paid the extortionists 75 bitcoins, about 4.4 million dollars. A month later the Department of Justice announced it had recovered 63.7 bitcoins of that sum: investigators followed the chain of transfers to the wallet of one of the participants (same chapter). Bitcoin, sold as money that leaves no trace, turned out to be a record in which every transfer stays visible forever. That did not stop ransomware. By Chainalysis's count, victims paid ransomware gangs more than a billion dollars in 2023.
