 So Matt, what if I told you it was possible to build a billion dollar business in just a couple of years with no venture capital money at all? Well Adam, I'd say you've either gotten very lucky or you've done something illegal. I think you knew the answer to that question because we have both just finished reading American Kingpin by Nick Bilton, which tells the story of Ross Albright and the Silk Road. Now if you haven't heard of the Silk Road, there was an anonymous online marketplace primarily used for buying and selling drugs. Yeah, you know the funny thing about the Silk Road is if you get rid of the legal activity, it's a pretty typical startup. It has all of the essential elements. You have an idealistic college-age founder, you have a company dealing with unmanageable growth, and then the emergence of a battle-worn mentor to bring the company through these tumultuous times. And of course you have outside government regulation. Now in this case it's not a questionable taxi service trying to get off the ground. It's selling illegal drugs, but the point still stands. Regardless, before we get into each of these elements, let's go all the way back to the beginning. We'll talk about the technology that made this possible, Bitcoin. Yes, so as the long-time listeners know, I am always on the lookout for disruptive technology and Bitcoin certainly fits the bill. Because the thing to remember is that the idea for buying and selling drugs on the internet wasn't really a novel one. The only issue was that you needed a way to exchange payment anonymously in a fashion that wouldn't get you arrested by feds showing up at your door. And Ross himself had had the idea for a while. But when Bitcoin came along, it was kind of embraced by this online libertarian community and people like Ross, you finally had a path forward to create something like a Silk Road. There's no doubt that Ross's libertarian views helped to shape the development of the Silk Road. Now these views came to co-last during his time at Penn State where he's attending weekly libertarian sessions where he really started to believe that a person should have the right to do whatever they want, including of course taking drugs, as long as it doesn't directly harm others. Yes, who would have thought that the Penn State Libertarian Group would provide the driving force to one of the great criminal enterprises of the 21st century. But as Nick Belton sort of lays out, Ross takes the libertarian lifestyle very seriously. He lives in this morty basement, he takes these ice cold showers like just to prove how self-sufficient he is, and he's very proud of the fact that all his clothes fit in two trash bags. And when you combine these libertarian leanings with the fact that Ross is really a pretty smart guy, you sort of see the kind of person coming together who'd be able to found something like the Silk Road and, you know, make it the Amazon of drugs. The only issue at this point is that Ross is also a nerdy college kid, and you kind of wonder how he's going to be able to handle, you know, a massive criminal enterprise. Yeah, there's no doubt there's a lot of differences between Ross and the ruthless strategist we see Jeff Bezos to be in the Everything Store. But in many ways, Ross Ulgrich's background was the perfect recipe to create the Silk Road. As you've mentioned Adam, he's extremely smart. He's idealistic about his libertarian views. And the other element people ignore is he's not a very good coder. This actually matters a whole lot because there are people at the time who could have built a site like the Silk Road, but they're highly paid software developers. They don't want to risk a lifetime in jail to do this thing. However, Ross is out of work. He's looking for purpose of his life. This is the perfect fit. Now in February 2011, he starts the site and he seeds it with his own batch of hallucinogenic mushrooms. Talk about perfect vertical integration going on here. He quickly finds the problem that a lot of startups find themselves in, which is he has unmanageable growth. Luckily, a hero will emerge to guide him through this path. Yes. So like Bill Campbell mentoring Ben Horitz and the hard thing about the hard things, Variety Jones, not his real name, appears to mentor Ross. Now Variety Jones is a very odd character. He's sort of a master of the criminal underworld. He's described as a marijuana sommelier, and yet he also possesses an awful lot of coding knowledge. But he arrives at the perfect time for Ross because the Silk Road is under attack. Buyers and sellers are flooding onto the platform, but with that comes hackers and they're really worried about people stealing all their bitcoins. But Variety Jones is sort of the adult voice in the room that helps steady the ship. And Variety and Ross sort of form this bond. They have this kinship where they're chatting at all hours on end. They really become quite good friends. And this is sort of a nice element to the story until we realize that the two of them are selling drugs to kids. Yeah, that was somewhat of a downer. But the interesting thing about Variety Jones is he has a flair for the dramatic. He decides to rebrand Ross as the Dread Pirate Roberts. Now this story comes from the Princess Bride where you have the Dread Pirate Roberts, or DPR for short, who is being taken over by new leaders all the time. So you could basically have whoever's leading the Silk Road behind the moniker of DPR and that change will continue throughout time with a clear chain of succession. Yes. And this would be helpful for Ross because he could potentially say that he ditched running the Silk Road and that some other DPR was running it if he was ever caught. Now Variety Jones is really the star of the story and he's just all about making money. He's in favor of selling just about anything on the site from drugs, weapons, even kidneys at one point get listed. The only thing Variety Jones doesn't want to sell interestingly is heroin. So he does have some sort of moral code. But Variety Jones is kind of pushed towards profit and making as much money as possible really contrasts with Ross's libertarian idealism and sort of starts to reveal some hypocrisies in Ross's views. Yeah, I think Ross really falls into the typical libertarian trap where he has a great philosophy but there's just no practicality to it. And it's really frustrating because I personally agree with a lot of the libertarian ideals that Ross probably also agrees with. Unfortunately, I just don't think it's right to sell someone heroin or pipe bomb. Yes. So Ross's logic is that if Person A wants to sell heroin to Person B, that's fine. They're both consenting adults, although actually kids are buying on the site, but they're supposed to be consenting adults who know exactly what they're doing and it's their own body and they can put substances into it. But in economics, we would say that Ross absolutely ignored the negative externalities of the situation. And that if you owe to eat from heroin, that doesn't just affect you. It affects people around you. And if there are health implications of your drug use, well that place is a burden on society at large. And so when you look at things like cigarettes, the reason we tax them so much, besides governments just looking to cash in, is supposed to be that we're factoring kind of the true price of the good and the fact that it imposes a negative externality on society that needs to be taken into account in the price and so people should pay more. But Ross completely ignores this. It's very convenient for him because it allows him to make an awful lot of bitcoins running his website. But he's really creating potentially a lot of social damage that would never be factored into a transaction cost on the Silk Road. Yeah. Now, of course the libertarians would argue that making drugs illegal makes it hard to collect these fees. Now, I want to get back to the core issue, which is that Ross sees a difference between morality and legality. He says, you know, just because something violates the law is not important, it only matters how it fits with your moral code. Adam, what's your take on this belief? Well, Ross certainly has no qualms about comparing himself to some of the great protesters in history, rightly or wrongly. But in general, I would argue that, yes, you know, just because something is legal or illegal does not mean it's moral or immoral. A good example of this is someone like Aaron Swartz who downloaded a bunch of paywalled academic journal articles with the intent to distribute them openly on the internet. Yeah, but how is Aaron different than somebody like Ross Ulbricht? Well, he's very different in that he did not, you know, sell drugs to kids. So that's one. And then the other thing is, I think you can argue that the value of this research being openly available, especially when that research was often publicly funded to begin with, outweighs the cost that, you know, J-storing could by having their servers, you know, hammered by Aaron downloading all these articles. Yeah, you know, evangelism just makes me uncomfortable even when I agree with the outcome, because this, you know, morality is so movable. Let's go back to the story a little bit. We think about how Ross is now growing his criminal empire, and he starts out with these idealistic views that he just wants people to have the freedom to do whatever they want. Well, pretty soon some of his underlings are stealing his bitcoins, and all of a sudden his philosophy morphs. And now he's calling out hits like a mafia don because he decides, well, that, you know, that's also in his personal philosophy now that he should be able to prevent that. Yes, fortunately, Ross is actually quite incompetent when it came to, like, sussing out scams and the like, and it's unlikely that anyone was actually killed as a result of his hits, although he did try and attempt them. You know, as Silk Road grows bigger, as you mentioned, you know, it starts to attract a lot more attention. There's this famous Gorka article by Adrian Chen that comes out that kind of reveals the Silk Road to the world, and soon after you have politicians like Chuck Schumer holding press conferences where they basically complain about the Silk Road and say it's violating every single federal law imaginable. And as a result of it, you know, the long arm of the law starts to kind of descend on the Silk Road, and you have all these different enforcement agencies vying to bring them down. And at this point, it looks like Ross and Variety Jones don't have really long to go. Yeah, you would think that they're about to be caught, but the only people more incompetent than Ross Ulbricht is the countless federal agents who are trying to pursue him. Yes, you really see how taxed all is hot at work in this book. Yeah, I mean, it's amazing that these guys are highly motivated. They talk over and over again about preventing the next 9-11, yet, you know, their interdepartmental squabbles just really come to dominate the conversation and the pursuit of the Silk Road. It's clear that the motivations aren't very well aligned because each group wants to bring the Silk Road to justice, and they want to get all of the glory. And because of this, they don't work together at all, and there's a lot of infighting that goes on. And honestly, Adam, it felt like another season of the wire. Yes, and not just because the Baltimore cops are involved too, but you have politicians making unrealistic demands that have been pushed down onto underlings, who are then squabbling among each other over who will get the glory of bringing down the Silk Road. One thing we haven't mentioned is that when Ross calls in his first hit, he does so because some bitcoins have been stolen from an employee. But this employee didn't actually steal the bitcoins. The employee had been found by cops, cops had taken over the account, and one of the cops had kind of stolen the bitcoins on the side, at which point Ross blames this employee who he doesn't know has been compromised. But amidst these kind of mishaps, you have a lot of old-fashioned police work going on, so a lot of just manually chasing down leads, tracking back packages, that kind of thing. Yeah, luckily, one cop is really able to separate himself from the rest, and this is Gary Alford, and he possesses an incredibly unique skill. He can use Google, he goes out and searches for the first post about the Silk Road, and lo and behold, it was made by Ross Ulbrich. So taking this piece of information with another post on Stack Overflow with the seized server, they pretty much figure out Ross is the guy. Yes, for Ross to be brought down essentially by a simple Google search, it was a little bit disappointing given all of the drama and the build-up, but I guess you know some startups that experience rocket ship growth kind of fizzle out. The one thing we haven't yet talked about, Matt, is Nick Bilton's writing style on this book. So he uses what he terms narrative nonfiction, where he essentially pieces together all of these events and writes it as if you're reading a thriller, whereby he's basically reconstructed entire sequences of dialogue, every minute details in this book, and it doesn't feel like you're reading a typical nonfiction work. Yeah, I was really ready to eviscerate him for things like how the wind was blowing that day, but it turns out he actually looked up the weather on the individual days, and for this, I give him a ton of credit. You know, if I was going to think about it this at the macro level, I kind of think about it as, you know, Kevin Mitnick meets with Michael Lewis. Really interesting read. What was your take, Adam? Yeah, it was kind of like a wee child thriller almost in the style in that you have these very short chapters with ominous foreshadowing, lots and lots of cliff hangers. And if we look at the overall story, we have this incredible tale of Ross becoming an idealistic libertarian at Penn State, founding the Silk Road, you know, meeting Variety Jones, fending off all these hackers as he turns into the Dread Pirate Robots and builds this huge business. But eventually it ends in the San Francisco Library, where law enforcement descends on Ross. He is logged into the Silk Road as the Dread Pirate Robots and they catch him red-handed laptop open and he has nowhere to go. Yeah, unfortunately, he makes one more startup mistake, which is he has a great acquisition offer. In this case, he's offered 10 years to life in prison by the federal government. Now, unfortunately, Ross thinks my laptop is encrypted. They don't have that much on me. I'm probably going to get away with this. And so he doesn't accept the plea deal. Yes. And this turned out to be a pretty horrendous decision. Ross's defense team was not the best, you know, if he'd taken the plea deal, he would have been out way under 10, you know, time-server and good behavior. But ultimately the judge brings the hammer down on Ross, gives him a federal life sentence, and he is almost certainly going to be in prison until he dies. And when the judge is kind of justifying the sentence and she's deliberating, she points out that although Ross holds these high-minded libertarian views, he's really no better than a common drug dealer when it comes to selling drugs to kids who eventually died. Yeah, the great irony of this story is that despite all of these libertarian ideals, the real beneficiary of the Silk Road is the US government, because Ross has lots of thumb drives sitting around his apartment with the Bitcoin on it. And so, of course, the federal government seizes this and now they've benefited from his operation. Yes. Ross frequently refers to the government as thieves in the book, and ultimately the thieves did really, really well because when you leave millions of dollars in bitcoins around your apartment and the government finds them, you're going to be in big trouble. But I was always skeptical reading this book of Ross's libertarian ideals. I have no doubt that he held them at Penn State and maybe early on in the Silk Road, but ultimately they kind of became a crutch to justify some pretty bad behavior while he was running the Silk Road, like putting out a bunch of hits on people. And I don't think he ever really considered the full extent of his philosophy, so things like negative externalities and the effect on other people as a result of one person buying drugs. Yeah, so next week we'll be talking about an idea that Ross would have absolutely hated, China's social credit system. So thanks for watching, please subscribe on YouTube, this is Random Talkers.