I’m counting down the 2010s in Bitcoin. This is the story about 2011 in Bitcoin. Read about 2010 here.
In 2011, Bitcoin reached parity with the US Dollar on February 9 — the same month Silk Road, the online dark-net marketplace, went online.
Founded in 2011 by Ross Ulbricht, the Silk Road quickly made headlines and caught the attention of the U.S. government. Adrien Chen, the editor of gawker.com, scoured the marketplace to see what was there. She reportedly found 340 varieties of drugs, such as Afghani hash, sour 13 weed, ecstasy, tar heroin, LSD etcetera.
Bitcoin Magazine owner David Bailey at Bitcoin Conference 2019.
Silk Road’s terms of service forbade anything with a purpose of harming or defraud, including stolen credit cards, assassinations, and weapons of mass destruction.
Democratic Senators Charles Schumer of New York and Joe Manchin of West Virginia implored in June Attorney General Eric Holder and Drug Enforcement Administration head Michele Leonhart to shut down the Silk Road.
“The only method of payment for these illegal purchases is an untraceable peer-to-peer currency known as Bitcoins. After purchasing Bitcoins through an exchange, a user can create an account on Silk Road and start purchasing illegal drugs from individuals around the world and have them delivered to their homes within days,” the senators’ letter stated. “We urge you to take immediate action and shut down the Silk Road network.”
Casascius Physical Bitcoins
Physical Bitcoins were a thing in 2011. Mike Caldwell began selling Casascius coins, which became a symbol of bitcoins due to their photogenicism, before FinCEN notified him that his business as a money transmitter, and therefore he would need licenses. He decided instead to shutter the business. Caldwell released in September 2011 the first Casascius physical bitcoins. They had a 22 character private key inside the coin and 3,500 were produced.
The connection between bitcoin and alpacas likely began after a February 2011 post on Slashdot describing the goods and services available for bitcoins. Grass Hill Alpacas sold alpaca products for bitcoin, including alpaca socks. In 2011, the popular Bitcoin explainer video, “What is Bitcoin?” was released by WeUseCoins, in which alpaca socks earned a mention, because bitcoiners love alpaca socks.
Bitcoin Malware and Hacks
Cybercriminals unleashed in 2011 bitcoin mining malware into the world, which allow cybercriminals to exploit computing resources to mine bitcoins.
Mt. Gox sold March 6, 2011 to Mark Karpeles and Tibanne company. Not long after, the exchange revealed that the user details of 60,000 Mt Gox users had been compromised.
The Bitcoin price on Mt. Gox fell from $17 to 0.01 in minutes. The platform suspended trading. The exchange blamed the crash on a compromised user account, and Karpeles said the exchange would go offline to fix the problem.
On June 13, 2011, 25,000 bitcoins were reportedly stolen from BitcoinTalk forum member allinvain, who had his wallet.dat file, the file holding a user’s private keys, on his Windows machine. The sum at the time was worth $500,000.
“I am totally devastated today,” he wrote on BitcoinTalk. “I just woke up to see a very large chunk of my bitcoin balance gone.”
He added: “The theft occurred right after someone broke into my slush’s pool account. In a moment of sheer stupidity I did not think that maybe my whole system was compromised. I merely thought that someone brute forced my slush’s pool password.”
Bitomat, the first Polish Bitcoin exchange which went online in April 2011, swiftly lost 17,000 bitcoins it held on behalf of clients. The site went offline on July 26, 2011 and returned on July 31 bearing the message: “all data stored has been lost!, Including record concerning bitcoin portfolio and its backups (backups).” Mt. Gox bought Bitomat in August 2011 and compensated lost bitcoins.
On July 29, myBitcoin, an early Bitcoin wallet, shut down. The site went back online August 4, stating that their interface had been compromised to the tune of 150,000 bitcoins. Later on, the wallet stated that it had been compromised and that 51% of its total bitcoin holdings were stolen. It began re-issuing 49% of their customer balances.
Early U.S.-based exchange, Tradehill, launched in 2011 and would do business at Bitcoin.com before shuttering a year later, despite positive attention.
EFF Briefly Accepts Bitcoins
The Electronic Frontier Foundation (EFF) experimented in 2011 with bitcoin donations, though it removed the donation option on the EFF after deciding not to accept bitcoins. They cited several reasons.
“We don’t fully understand the complex legal issues involved with creating a new currency system,” wrote EFF. “Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that’s just in the U.S.”
Nearly two years later, EFF would reinstate bitcoin donations.
Read about 2010 here.