Following the FBI shutdown of the clandestine Silk Road online marketplace has led to a noticeable drop in the value of the virtual online currency bitcoin. When police arrested the suspected website administrator Ross Ulbricht, investor confidence in the currency is shaken.
"When there's a big bust, that's going to knock people's confidence in investing," said Rik Ferguson, a senior researcher at security company Trend Micro, via BBC News. "The more a currency is associated with illegal activity, the more people will be nervous about using it."
Silk Road was a website that allowed its users to trade in illegal drugs using the virtual bitcoin currency as its way of making money from the transactions.
According to figures from Mt. Gox bitcoin exchange, the going rate for the virtual currency dropped more than $140 to around $110 before climbing back up to $123 once things had settled down a little bit.
Investors may have been concerned about the FBI's ability to confiscate bitcoins, according to Ferguson.
"Knowing that a currency could be seized or shut down could pressure people to look for alternative investment vehicles," he said.
According to Jerry Brito, George Mason University's technology policy director, the FBI was able to seize the bitcoins from the website by getting a hold of the encryption keys for them. The keys were made available through seized computer equipment. The FBI then transferred the bitcoins into an address controlled by the U.S. government according to the seizure orders.
Bitcoins are not gone by any means. The items still hold value as enough people believe they are worth something. There is a finite number of them and therefore there is a market. There are no registry for ownership of bitcoins which made them perfect for illegal transactions as people were able to keep their anonymity intact.
