Bitcoin and online drug markets seem to fit together perfectly and unfortunately, sometimes they are “too good” to be true. While there are handful of these sites which still appear to be legitimate and not based around a scam, a growing number of illegal drug marketplaces are randomly shutting down and taking millions in Bitcoins with them.

Following the Silk Road shutdown, a new site named Sheep Marketplace became a leading online drug marketplace and quickly grew into a replacement for the Silk Road. Many users continued to use Sheep Marketplace even after a new version of Silk Road was launched earlier this month.

Now, it appears as though the entire site was a scam, resulting in all of the buyers and sellers losing their money. According to users of the site which have been posting primarily on Reddit, Sheep Marketplace appeared to be functioning in an odd way for at least a week. Concerns regarding the legitimacy of the site came into play once the administrators at the marketplace decided to prevent vendors from withdrawing any of their Bitcoins from the site.

With many of these vendors seeing sales in the tens of thousands each month, being unable to withdraw that money was causing people to become worried, especially with how much money was lost after the Silk Road was brought to its knees. As more and more vendors posted about their suspicions, the entire Sheep Marketplace Forum was shutdown.

Even though the events leading up to today seemed to confirm that Sheep Marketplace was scamming its users, the smoking gun appears to have been found. Blockchain (a site which monitors Bitcoin transactions) has been tracking the movement of 39,918 Bitcoins, which is equivalent to $40 million. This is the same amount of money that was expected to be in Sheep Marketplace’s possession and the addresses present on this transaction match those of the website.

This means that more than $40 million worth of Bitcoin was stolen from users of the Sheep Marketplace.

Despite the transaction being just a fraction of the Bitcoins that are in circulation, it does show how risky these online drug marketplaces are. Though they may provide a safe haven for criminals, Sheep Marketplace and any other illegal shop that relies on Bitcoins is almost always going to be a potential scam. Some of the current illegal shops in operation, such as Silk Road 2.0, appear to be “safer” but as we have now seen with the Sheep Marketplace, Bitcoins are the perfect currency for scammers.

UPDATE 12/1/13:Now that vendors are incredibly upset about the Sheep Marketplace scam, the people in charge of the site have shutdown the store leaving a short note to users on the main page. The note suggests that a random vendor from the site was able to find a bug in the system and steal thousands of Bitcoins.

The amount mentioned in the note does not match the transfer amount and despite Sheep Marketplace claiming that users will receive their remaining Bitcoins if they have an emergency Bitcoin address enabled, no one has received anything thus far.

Since the administrators at Sheep Marketplace had lied for more than a week regarding what was happening, it seems unlikely that anyone will see their Bitcoins.

Message from Sheep Marketplace’s admin reads (spelling mistakes included):