Yesterday, the bitcoin world got some shocking news. Two undercover agents are being charged with a massive corruption scheme as part of their work investigating the Silk Road. While they were working to catch the Dread Pirate Roberts, they were also funneling thousands of bitcoin into private accounts. The affidavit is a remarkable journey through half a dozen different extortion schemes and confidence games, played out in the background of one of the biggest investigations the Bitcoin world has ever seen.

From selling information to outright extortion and theft

It's worth reading the entire thing if you have the time, but even the short version is pretty shocking. The complaint names two undercover agents, Secret Service agent Shaun Bridges and DEA agent Mark Force, who are accused of funneling millions of dollars into private bitcoin accounts, which were never reported or turned over to the authorities. The agents were running a number of schemes, from selling information to outright extortion and theft, and they don't seem to have been at all worried about repercussions. It's the kind of runaway law enforcement that the more paranoid dark web residents have been worried about all along — only this time, there's proof.

Observers are still sorting through the legal implications of the charges. Force and Bridges didn't testify at the Ulbricht trial, and their work seems to have been focused on other charges (like the Maryland contract killing) that still haven't gone to court. Still, Bridges' name turns up on a lot of Bitcoin-related court documents — including this seizure warrant for Mt. Gox's Dwolla account — and Ulbricht's lawyer has already called for a new trial based on the government's failure to reveal the corruption cases early enough.

Was a Secret Service agent behind a $5 million Silk Road heist?

But what's more remarkable is how familiar the two agents' alleged crimes are to anyone who's familiar with the dark web. These are common schemes in the Bitcoin world, whether it's stealing money from escrow accounts, looting an exchange, or plain old anonymous extortion. Remarkably, Force and Bridges seem to have seen that chaos as an opportunity rather than a problem. Investigating a world where major thefts go unprosecuted, the government says the agents dove in head first.

The biggest example is a major theft that took more than 20,000 bitcoin from the Silk Road on January 25, 2013. Monday's affidavit makes a strong case that the real culprit was Shaun Bridges, who was working for the Baltimore Silk Road Task Force at the time. Bridges had high-level access to the Silk Road, thanks to an informant who had turned over his administrator passwords to the task force. That's more than $5 million, even at today's rates, but outside of the bitcoin community, few people raised an eyebrow at the heist. Bitcoin services see thefts like this all the time, so the agents were able to keep the massive haul mostly under the radar.

The agents played off long-standing weaknesses in the Bitcoin ecosystem

A similar dynamic was at work when Force shook down payment services. In one of the most blatant thefts, Force ordered the Bitcoin exchange CoinMKT to freeze an individual customer's account, containing $300,000, only to transfer the funds into his personal account. It would be difficult to pull this off at a more established bank — there would be more legal muscle required, and more extensive documentation — but Bitcoin services are more accustomed to legal gray areas, and after a few high-profile money laundering cases, many are eager to stay on the authorities' good side. Notably, when Force tried to pull off a similar move against more established firm like Coinbase or a non-Bitcoin player like Venmo, he didn't get far.

In both these cases, the agents were playing off long-standing weaknesses in the Bitcoin ecosystem that criminals have been exploiting for years. In other cases, they simply exploited the norms of the community. Force's most egregious move was selling information about the investigation directly to Ulbricht. For $100,000, he gave Ulbricht the name that Mt. Gox founder Mark Karpeles had given to investigators looking for the real DPR — a turn of events Force seems to have completely fabricated. Of course, it was reckless of Ulbricht to pay $100,000 to a person he'd never met, with no way to verify that the information was real, but that was true of most of the people he did business with. The Silk Road was built on anonymity — anonymous payments in particular. Selling information anonymously is one step beyond selling substances anonymously, but it's not a big step. Force's play seems audacious for a DEA agent, but for a Silk Road operator, it was par for the course.

Like Ulbricht, Force and Bridges thought using bitcoin would keep them anonymous

The similarities carry through all the way to the end. When Force and Bridges were caught, it was because of many of the same blind spots that snared the Dread Pirate Roberts. Force used Tor to disguise his activity on the Silk Road, and communicated with Dread Pirate Roberts mostly over PGP — but he slipped into unencrypted communication a few times, which left agents with strong evidence. More importantly, he overestimated the anonymity of bitcoin itself. His transactions with Dread Pirate Roberts left clear impressions on the blockchain, which investigating agents follow in detail in the affidavit. Agents followed the January 25th heist the same way: tracing bitcoin from dummy account to dummy account, until they eventually found an account linked to law enforcement officers. Much like Ulbricht, Force and Bridges seem to have thought using bitcoin would keep them anonymous. By the time they found out otherwise, it was too late.

Of course, crooked cops using criminal tactics is nothing new. This is how powerful people behave when they aren't worried about getting caught. You can pick your metaphor — the wild west? a failed state? — but in 2013, the dark web looked like a place that the law could only barely reach. That promise was attractive to libertarian idealists and drug-market realists alike, but it also made it easy for undercover cops to execute some of the more ambitious corruption schemes in recent memory. Now that prosecutors are getting better at bitcoin investigations, that window is closing up, and it's slowly becoming clear that these schemes aren't as foolproof as they look. The remarkable thing is that, at least in this case, the cops seem to have been slower to catch on than the criminals.