Faiella and Shrem conspired to sell more than $1 million in Bitcoins to criminals who wanted to sell narcotics on Silk Road between December 2011 and October, U.S. Attorney Preet Bharara said in a release.

"Truly innovative business models don't need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act," Bharara said.

Over the objection of prosecutors, U.S. Magistrate Judge Henry B. Pitman allowed Shrem to be released on bail, though he required him to submit to electronic monitoring and live with his parents in Brooklyn. They were required to post nearly $1 million in property as collateral.

Assistant U.S. Attorney Serrin Turner said Shrem "has held himself out as a 'Bitcoin millionaire' " who was ready to flee rather than face charges that could put him in prison for nine to 11 years.

Turner said the nature of the Bitcoin industry meant that Shrem had a "storage locker in the clouds" with money to facilitate flight.

Turner played a video interview of Shrem posted online in which the he boasted that if the government tried to make arrests or take down companies that promote the use of Bitcoin, "I have a plane ticket ready to take me to Singapore. There's another corporation already set up."

Shrem's defense lawyer, Keith Miller, said there were other videos of his client saying that everybody involved with virtual currency should comply with the law.