After Silk Road and its alleged owner got busted, plenty of speculation arose in many places around the web on what the consequences of this bust would be - some realistic, some not at all, and some mostly ignored. I already joked about this a little on Twitter. This article is an attempt to provide a realistic analysis on what's likely to happen.
One disclaimer beforehand; I was never a user of Silk Road (as I believe recreational drugs, including 'legal drugs' like alcohol, are an overall bad thing - although I do not believe prohibition helps the cause), so my description of aspects of Silk Road may be a little off at times. I'm well-versed in Bitcoin, but with regards to Silk Road I have somewhat of an "outsider view".
Personal information
Back in July, the FBI already acquired images of the main Silk Road server, and judging from the criminal complaint against Ross Ulbricht - the alleged owner of Silk Road - they had access to the messages that were sent through the site's internal messaging system.
What this means, is that the FBI likely has access to the personal (shipping) information of every Silk Road user that used the site before the server seizure in July. If your communication was encrypted (using GPG, for example) you are probably going to be fine - if it wasn't, the FBI probably knows that you ordered stuff from Silk Road by now.
The Bitcoin exchange rate
A few media outlets immediately jumped on this opportunity to (implicitly) announce the end of Bitcoin by stating that it had experienced "a dramatic drop in exchange rate". The reality turns out to be much less dramatic.
For the past few weeks, the Bitcoin-to-USD exchange rate outside Mt. Gox (which has been having withdrawal issues leading to rate inflation) has been fluctuating between some $110 and $130, depending on the exchange. When having a look at a chart for BitStamp, the exchange rate dropped to $104 after the news of Silk Road broke. It is already back at $112 at the time of writing this article.
Compared to past fluctuations for Bitcoin, and considering that Bitcoin really still is in its infancy as an unenforced currency, this is not a very significant drop - especially given the quick correction.
Regardless of what people believe caused the drop - decreased trading volume due to Silk Road closure, temporary loss of trust in the currency, opportunistic forex traders, drug lord capital sell-offs, or whatever else - it's reasonable to assume, given the history of Bitcoin and the possible reasons for this drop, that the exchange rate will restore itself to (nearly) its old level very soon. The closure of Silk Road is unlikely to have a permanent impact.
The legitimacy of Bitcoin
This is really not even a serious concern. Other Bitcoin services are still running, the exchange rate has not taken much of a hit - there is currently no rational reason to consider the closure of Silk Road to be directly harming Bitcoin (or the ecosystem around it) as a whole. That won't cause any concerns over legitimacy. The use of Bitcoin on Silk Road isn't exactly breaking news either - it's not going to be a reputation hit for Bitcoin.
In fact, if anything, this case has proven that Bitcoin is not magical fairy dust that makes it impossible for law enforcement to trace down people that they believe are breaking laws (regardless of whether that's just or not). The FBI was perfectly capable of tracking down the owner of what is commonly known as the largest online drugs trading platform - despite that platform only using Bitcoin for its monetary flow.
Availability of drugs
This is a commonly mentioned one. Indeed there will likely be a temporary rise in the amount of street-dealing (and the associated violence and trouble) while Silk Road is gone. However, Silk Road has turned out to be a pretty solid business model, and it will have become obvious to any technically competent drug dealer that the owner got busted over a bunch of what are essentially rookie mistakes.
In short, it's almost certain that some drug dealer is going to think "hey, I can do this too, but better", regardless of whether they actually can.
Given the popularity and turnover of Silk Road, it probably won't take very long before a nearly identical alternative surfaces - perhaps even with better security measures, lower trading fees, or whatever other features such a platform could use to distinguish themselves from all the other alternatives that will likely crop up. It most likely won't take too long until you can order your drugs via Tor and Bitcoins (or cash-in-mail) again.
The War on Drugs really is an endless war.
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