‘500 grams of Cocaine have been added to your shopping cart!’


In the last couple of years, there has been a considerable increase in the number of drugs sold online, via the Dark Web. This number is only expected to increase, not at last because of the growing usage and availability of the Internet. I thought it was quite interesting to see how it appears to be quite normal nowadays to browse through the online catalogue of drugs, select your preferences, put the selected items in the shopping cart, and order. So I did a bit of research, and I have quite a story to tell you all, so grab that cup of coffee and embrace yourselves!

So, before we begin, here’s a short 101 on Dark Markets. In 2002 the ‘Onion Router’ (Tor) was released. This is a technology that basically allows everyone within these dark markets to hide their identity and location. It enables secure and confidential communication, preventing users (including governmental agencies) to track down your browsing activity. On Tor, virtually everything is anonymized!

Silk Road was an illicit platform on the Dark Web established in 2011, mainly enabling drug trafficking. In 2013 the Federal Bureau of Investigation shut down the platform and arrested its owner, ‘Dread Pirate Roberts’ a.k.a. Ross Ulbricht.

After the FBI took down Silk Road and arrested Ross Ulbricht and Charlie Shrem (the executive of a Bitcoin exchange service), one would expect that most of these underworld “businessmen” maybe would consider taking it easy for a while, right? Well, apparently these people didn’t get the memo! After Silk Road’s destruction, a plethora of new online drug markets emerged. The industry competitiveness increased heavily, driving ‘weaker’ drug firms out of business and opening a whole new world for drug dealers.

Now, indeed you might think; ‘How did that happen?’ But it’s quite simple folks. Basically the FBI shot itself in the foot! The arrests and the website-shutdown were widely publicized, introducing ‘dark markets’ to a much wider public. Buyers and sellers started establishing new platforms to keep up with the ever-booming business. So… I guess they actually did get the memo. Mike Power on the matter (google the guy if you don’t know him).

The FBI have acted as the most creative marketing and advertising agency that the hidden web drugs sector could have possibly hoped for’

Ladies and Gentleman, a round of applause for the FBI!

However, this does pose another question; if this incident has proven that the FBI is indeed capable of tracking down sellers active on these elicit markets – regardless of the anonymity Tor networks supposedly provide – why are these markets still growing? Well, one of the reasons is that dealers find it safer to do business online. James Martin of Macquarie’s Policing and Intelligence Research Institute states the following:

Law enforcement is only part of the risk for people who sell drugs. The bigger risk and more frightening risk is not someone kicking down the door to arrest you, but someone kicking down the door to kill you and steal your stash”.

These online drug markets offer both dealers and customers a less violent trade mechanism. In addition, the anonymity and highly competitive nature of these markets drive down prices and increase the level of quality, given that the vast majority of sales are exclusively based on customer reviews.

So now, you might be thinking; ‘What the hell does this have to do with the Bitcoin guy being arrested?’ Well, the most widely used digital currency in the dark web is Bitcoin (after all, of what use is it to browse anonymously if you are going to pay with your very traceable credit card?). Given that Bitcoin is an encrypted digital currency that allows for anonymous financial transactions, it was a crucial component to the establishment of Silk Road and crypto markets in general. Shrem (our Bitcoin guy) was involved in a money-laundering scheme that allowed Silk Road customers to convert money to bitcoins and vice-versa.

So after Silk Road was shut down, it only makes sense that the share value of Bitcoin crashed, losing up to half a billion dollars, that is, a drop of approximately 25%. However, as more online drug markets were established, Bitcoin’s value rose again above prior levels in a matter of weeks.

So why did I tell you all of this really? Well here are some of the lessons to be learned!

  1. The use of Tor browsers can be expected to increase exponentially; perhaps not so much because of the ease with which narcotics can be purchased, but more because it offers truly anonymous browsing for the vast majority of users (it took the FBI months to find Ross Ulbricht alone).
  2. The dark web has created a whole new landscape for criminal activities that current law enforcement techniques are not ready to tackle.
  3. The online drug markets will continue to grow (not at last thanks to the FBI’s need to be in the limelight).
  4. The implications of these mysterious markets are very much real. Ross Ulbricht is facing a life sentence, a high level executive has been arrested (more than can be said of the bankers responsible for the financial crisis), and the stock value of Bitcoin fell by up to $500 million upon the shutdown of Silk Road.
  5. Should you be an (amateur) investor or simply tempted to invest in Bitcoin, make sure to keep an eye on the developments in the dark web!

Sources

Buxton, J; Bingham, T 2014, ‘The Rise and Challenge of Dark Net Drug Markets’, Global Drug Policy Observatory, Swansea University

http://www.reuters.com/article/2013/10/08/net-us-crime-silkroad-bitcoin-idUSBRE99113A20131008

http://www.coindesk.com/dark-markets-grow-bigger-bolder-year-since-silk-road-bust/

http://techcrunch.com/2013/10/02/fbi-seize-deep-web-marketplace-silk-road-arrest-owner/

http://arstechnica.com/information-technology/2013/10/amid-silk-road-uncertainty-bitcoin-value-drops-over-20-in-3-hours/

http://www.freemansperspective.com/silk-road-died-bitcoin-crashed/

http://www.wired.com/2013/10/bitcoin-market-drops-600-million-on-silk-road-bust/

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: