Crypto Currencies "They Call it Dark Side"

Arrests

          There have been arrests in the United States related to crypto-currency. A notable case was the arrest of Charlie Shrem, the CEO of BitInstant.

Fraud

          On August 6, 2013, Magistrate Judge Amos Mazzant of the Eastern District of Texas federal court ruled that because crypto-currency (expressly bitcoin) can be used as money (it can be used to purchase goods and services, pay for individual living expenses, and exchanged for conventional currencies), it is a currency or form of money. This ruling allowed for the SEC to have jurisdiction over cases of securities fraud involving crypto-currency.

         GBL, a Chinese bitcoin trading platform, suddenly shut down on October 26, 2013. Subscribers, unable to log in, lost up to $5 million worth of bitcoin.

         In February 2014, crypto-currency made national headlines due to the world's largest bitcoin exchange, Mt. Gox, declaring bankruptcy. The company stated that it had lost nearly $473 million of their customer's bitcoins likely due to theft. This was equivalent to approximately 750,000 bitcoins, or about 7% of all the bitcoins in existence. Due to this crisis, among other news, the price of a bitcoin fell from a high of about $1,160 in December to under $400 in February.

          On March 31, 2015, two now-former agents from the Drug Enforcement Administration and the U.S. Secret Service were charged with wire fraud, money laundering and other offenses for allegedly stealing bitcoin during the federal investigation of Silk Road, an underground illicit black market federal prosecutors shut down in 2013.

           On December 1, 2015, Homero Joshua Garza stands accused of securities fraud following his development of the crypto-currency known as Pay-coin. Garza was the owner of the now defunct GAW Miners website that sold mining equipment for crypto-currency. Garza is accused of masterminding an elaborate ponzi scheme under the guise of "cloud mining" with mining equipment hosted in a data center. Garza purported the cloud miners known as "hashlets" to be mining cryptocurrency within the Zenportal "cloud" when in fact there were no miners actively mining crypto-currency. Zenportal had over 10,000 users that had purchased hashlets to the tune of over 19 million U.S. dollars. GAW Miners was co-founded by Homero Joshua Garza and Stuart Fraser of Cantor Fitzgerald, a well known securities company.

Dark-net markets

           Cryptocurrency is also used in controversial settings in the form of online black markets, such as Silk Road. The original Silk Road was shut down in October 2013 and there have been two more versions in use since then; the current version being Silk Road 3.0. The successful format of Silk Road has been widely used in online dark markets, which has led to a subsequent decentralization of the online dark market. In the year following the initial shutdown of Silk Road, the number of prominent dark markets increased from four to twelve, while the amount of drug listings increased from 18,000 to 32,000.

         Darknet markets present growing challenges in regard to legality. Bitcoins and other forms of crypto-currency used in dark markets are not clearly or legally classified in almost all parts of the world. In the U.S., bitcoins are labelled as "virtual assets". This type of ambiguous classification puts mounting pressure on law enforcement agencies around the world to adapt to the shifting drug trade of dark markets.

        Since most darknet markets run through Tor, they can be found with relative ease on public domains. This means that their addresses can be found, as well as customer reviews and open forums pertaining to the drugs being sold on the market, all without incriminating any form of user. This kind of anonymity enables users on both sides of dark markets to escape the reaches of law enforcement. The result is that law enforcement adheres to a campaign of singling out individual markets and drug dealers to cut down supply. However, dealers and suppliers are able to stay one step ahead of law enforcement, who cannot keep up with the rapidly expanding and anonymous marketplaces of dark markets.