Unlike credit cards or even Paypal transactions, virtual currency is not tied to a particular person.JIM URQUHART/Reuters/Corbis
A virtual currency, bitcoins do not rely on a central bank or financial institution. They're based on an open-source protocol and "mined" on computer servers. When the total number of bitcoins reaches 21 million, no more coins will be mined. Currently, there are about 11.7 million bitcoins in circulation, valued at about $138 each -- an amount that fluctuates.
That's a lot of virtual dough. And unlike credit cards or even Paypal transactions, bitcoins are not tied to a particular person, which makes them ideal for buying products or services that might be embarrassing or illegal.
In fact, black marketeers used bitcoins on the underground website Silk Road, which, until it was shut down by the FBI on Oct. 1, made up most of bitcoin transactions. According to the FBI, the number of bitcoins used on Silk Road between February 2011 and July 2013 came to 9.5 million, or $1.3 billion. Those sales generated some $79.8 million in commissions for the site. On the same day the site was shut down, the FBI also arrested its owner and proprietor, Ross William Ulbricht.
Silk Road is gone, but other sites take bitcoins and what you can buy with them might shock you. But buyer beware, said Sarah Mieklejohn, a graduate student at the University of California, San Diego, who conducted studies of bitcoin transactions. Bitcoins are not completely anonymous. Every bitcoin has in it the complete record of every transaction.
"We saw a lot of people deposit into their Silk Road accounts directly from [legal bitcoin exchanges] Coinbase or Mt.Gox," said Mieklejohn. "If I am law enforcement, and I can say definitively this transaction at Mt.Gox and led to this deposit into Silk Road, I can go to Mt.Gox and ask for the records."
Here are seven products people are buying with bitcoins. If you're shopping, watch your back.
Some of the more popular items bought and sold with Bitcoins on the Silk Road marketplace were controlled substances.Wikimedia Commons / Drug Enforcement Agency
According to the charges filed by the FBI, some of the more popular items bought and sold with bitcoins on the Silk Road marketplace were controlled substances -- everything from dime bags of marijuana to "5 kilograms and more of mixtures and substances containing a detectable amount of cocaine," the charges state.
Court documents from Maryland note that an undercover officer paid $27,000 for a kilo of coke. Most sales of drugs on Silk Road were much smaller, though, and it seems that users were willing to pay a slight premium for the convenience.
There are legitimate and not-so-legitimate merchants who take bitcoins for guns.Dirk Shadd/ZUMA Press/Corbis
While Silk Road didn't offer guns -- the site specifically banned them -- there are legitimate and not-so-legitimate merchants who take bitcoins. A quick search comes up with Bitcoin Gun Parts, and there have been reports of other gun dealers operating on the "Deep Web" -- sites accessible only via the Tor protocols: one called The Armory, which went live in March 2012 and was defunct only five months later, and a second called Black Market Reloaded. Discussion threads on Reddit are reporting that BMR has had technical problems over the last few days -- possibly because of a large influx of new users.
The anonymous, virtual nature of the bitcoin currency means it's harder to prove money was exchanged for sex. iStockPhoto
It was probably only a matter of time before escort agencies embraced bitcoins, with their relative anonymity. In September of this year, Passion VIP, an escort agency in Birmingham, England, said it would accept bitcoins as payment. While billed as the first escort agency to accept bitcoins, individual escorts seem to have been accepting them in a few cases. There's a big plus here for clients and sellers: the transaction doesn't show up on credit cards and the virtual nature of the currency means it's harder to prove money was actually exchanged for sex. There are also a few sex shops, including Calladora, that take them, for those who are easily embarrassed.
Given the mind-set of most hackers, it's only natural that the ones selling malicious software would turn to Bitcoin.iStockPhoto
Another category of items on Silk Road were hacking tools. It's been a long time since most hacks were lone operations; malware and spyware went commercial years ago. The federal indictment against Silk Road says there were 22 methods of hacking ATMs available on the site. Given the mind-set of most hackers, it's only natural that the ones selling malicious software would turn to bitcoins.
The fake passport Daniel Craig used in Casino Royale is now displayed at the National Motor Museum in Beaulieu, Hampshire, UK.Wikimedia Commons, user Morio
According to the Federal indictment, there were 169 listings for "forgeries" -- fake licenses, passports and even utility bills and insurance records. This market, however, probably wasn't geared to underage drinkers. There are other "novelty" identification vendors who take bitcoin as well, such as The Nov Boss.
There is more than one way to hire a hit man.iStockPhoto
Silk Road didn't sell murder directly -- there was no listing for "contract killings, cheap" or "cleaners" a la Harvey Keitel's character in Pulp Fiction. But there was at least one "connect" list offered that included "Hit Men (10+ Countries)."
This laser powers up to two watts, enough to burn holes in many materials.BitLaser
Did you always want to build your own laser lab? You're in luck: BitLasers takes bitcoins. The prices are listed in dollars, euros and pounds, rather than bitcoins, but that's a function of the bitcoin's volatility. The laser pictured is a 445 nanometer (blue) laser with a power of up to two watts -- enough to burn holes in many materials.