Silk Road Bitcoin Auctioned Off to Guy Who Wants to Split Up California

When the FBI shut down illegal online marketplace the Silk Road, it seized a stash of 30,000 Bitcoin from the underground website and announced plans to auction the supply off. This week, venture capitalist and would-be California-splitter-upper Tim Draper won all of it, gaining an estimated $17.7 million in illicit cryptocurrency.

To qualify for the auction, the 45 bidders had to wire a $200,000 deposit to the U.S. Marshals, and bid with cash. They registered with government ID and the proper forms over email. The procedure was fairly routine, but the intangible blocks of items getting auctioned were unique: Bitcoin remains a controversial system, and the government hasn't auctioned anything like it before. Most of the rules for bidders were unremarkable, but there was one important caveat:

The USMS will not sell to any person who is acting on behalf of or in concert with the Silk Road and/or Ross William Ulbricht, and bidders will be required to so certify.

Ross William Ulbricht is currently awaiting trial, accused of running the Silk Road website as "Dread Pirate Roberts," the mysterious leader of a community that traded drugs and other black market products for Bitcoin. He has pled "not guilty" to the charges brought against him, but the USMS was not about to return Bitcoin to the man they suspect of having illegally amassed it in the first place.

Tim Draper is unlikely to return his new Bitcoin bonanza to the Silk Road community; Draper has ventures to capitalize. He's also the head of an (insane) initiative known as "Six Californias," dedicated to splitting California into six separate states. So the U.S. government may have taken money from a bunch of recreational drug users and inadvertently funded an even more contentious program (there's no indication that Draper plans to use the Bitcoin towards that project, but one can dream).

(Update: Draper plans to use his new bitcoin stash to increase liquidity in developing markets. He is partnering with Vaurum to provide a trading platform in emerging markets, with the goal of offering up Bitcoin as an alternative to weak local currencies. Vaurum's CEO Avish Bhama posted about it today.)

The decision to auction the Bitcoin bounty underlines that the government considers it property rather than a currency. The flush of investors interested in purchasing the supply indicates that Bitcoin continues to pique the interest of moneymakers, even after its mercurial year.

Sad you missed your chance for a Bitcoin haul? Just from looking at the USMS website, there are probably plenty of weird and wonderful items coming down the line. Last year, they auctioned off what they refer to as a "Russian Spy House" in New Jersey after they caught Russian spies living in it. Very The Americans: Season 16. [Silicon Angle]