Dark Markets Grow Bigger and Bolder in Year Since Silk Road Bust
In this concluding article of our series looking at Silk Road, a year after its closure, we examine the impact the Silk Road bust had on the dark markets and their most widely used digital currency, bitcoin.
The FBI may have taken down the Silk Road in spectacular fashion, slapping a seizure notice on the dark marketplace's website and executing the high-profile public arrests of Ross Ulbricht, and later, bitcoin executive Charlie Shrem and digital currency trader Robert Faiella.
According to academics and researchers studying dark web markets – which transact almost exclusively in bitcoin – listings for illicit goods and services have actually grown in the aftermath of the Silk Road bust. The rising popularity of such markets among drug vendors and customers means that illicit trade is set to expand even more, one researcher believes.
Bitcoin's creation and subsequent explosive popularity has been a crucial factor in the growth of global dark markets, according to James Martin, a senior lecturer and researcher at the Macquarie University Centre for Policing, Intelligence and Counter-Terrorism, who has written a new book about the subject.
"Bitcoin was absolutely critical to the development of Silk Road and cryptomarkets more generally. This was acknowledged by [Silk Road mastermind] Dread Pirate Roberts; he said it was one of the pillars of Silk Road."
Bitcoin economy and dark markets
In the six months following Silk Road's shakedown by the FBI, new dark markets proliferated and listings for illicit goods surged, researchers at the Digital Citizens Alliance (DCA) have found.
The non-profit group, which works on promoting Internet safety to ordinary web users, found that the number of drugs listings on the biggest dark markets had almost doubled by March to 32,029, compared to six months earlier when Silk Road was taken offline.
The DCA report looked at listings on 11 currently live dark markets, of which six were newly launched platforms. It compared the latest listings to the 18,174 for drugs on the four major dark markets that existed last October.
Among the current markets it examined are Silk Road 2.0, Agora and Evolution, plus new entrants White Rabbit Anonymous Marketplace, Outlaw Market and The Pirate Market. The dark markets operating last year also included now-defunct dark markets Silk Road, Black Market Reloaded, Sheep Marketplace and DeepBay.
Silk Road and the bitcoin economy
Given that the most widely used digital currency of dark markets is bitcoin, just how much of the cryptocurrency is sloshing around in these illicit bazaars?
The proportion of the bitcoin economy undergirded by dark market trade is best estimated in a 2012 paper by Nicolas Christin, a computer engineering professor at Carnegie Mellon University who does work at its information security lab.
Christin collected data from Silk Road over eight months between the end of 2011 and 2012. Over this period, he found that 1.35 million BTC were exchanged on the dark market. Comparing that to the 29.6 million BTC traded on other exchanges over the same period, he found that Silk Road transactions corresponded to 4.5% of all traded BTC.
When Christin took other factors into account, like the possibility of Silk Road users buying bitcoin to fund their dark market purchases and then trading bitcoin back to fiat currency, the number of potential transactions attributed to Silk Road activity could double from a conservative estimate of 4.5% to as much as 9% of all bitcoin trading activity, as measured by traded value on exchanges at the time.
But 2011 and 2012 were very different times for bitcoin. The bitcoin price hit a high of $9 during Christin's observation period; it's trading between $350 and $400 today.
Christin also found that at the time, 24,000 items were being sold on Silk Road over a six-month period. Contrast that to the 13,000 in drug listings alone on Silk Road that the DCA recorded in just one October day, before the bust.
That's why Christin is updating his study. He said he's collected a fresh set of data from dark markets that he's in the process of analysing. He won't say what markets he's looked at, and won't be drawn on any preliminary analysis of his new data. He said it will be several months before the research is ready for publication.
Christin said he's not surprised by the growth of new dark markets in the wake of Silk Road's demise, alluding to the amount of publicity generated by the busts and the arrests of Ulbricht and Shrem, but he noteed that the growth in listings recorded by the DCA may not mean dark web trading activity has increased.
"I want to emphasise that it is unclear that the number of listings is a good proxy for economic activity. One might list a large number of items and yet not carry out that many sales," he said.
Dark market comforts drive growth
The growth of dark markets poses the question: If law enforcement agencies have already shown they can break the screen of anonymity afforded by the Tor network and bitcoin transactions, why are new dark markets popping up with more listings than ever before?
Martin, of Macquarie's policing and intelligence research institute, thinks it's because drug dealers are finding it's far safer to do business this way – even with the threat of an FBI raid hanging over them.
"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."
For drug dealers, Martin says, dark markets present a new opportunity to strip away the "systemic violence" associated with the distribution and secure storage of narcotics. A dark market vendor doesn't have to deal with the organised crime groups that traditionally take care of drug distribution and security in return for protection money, he said.
It's not just the vendors who are enjoying the benefits of illicit e-commerce. Drug buyers can now browse a vast catalogue of narcotics on their phablets, with comprehensive reviews from fellow customers to provide an indication of quality.
Consumers are also safer because they don't have to interact with potentially violent gang enforcers, either. Instead, the postman drops off their latest dark market order at their doorstep.
Martin cautions that the amount of trade taking place on dark markets is tiny compared to the global trade in illicit narcotics. Global Financial Integrity, a non-profit focused on tracking illicit financial flows, estimates that drug trafficking amounted to trade flows of $320bn in 2011. The dark web trade is a tiny slice of that, Martin says, although researchers haven't been able to quantify it. By comparison, the FBI alleges that Silk Road made annual revenues of $1.2bn.
However, dark web drug sales are attractive to both vendors and customers, so they are set to grow, Martin said:
"As long as the technology holds strong, they are very good reasons for this trade to get bigger and bigger."
Deep or dark webs?
While the terms 'deep web' and 'dark web' are often banded about interchangeably, they don't mean the same thing.
The deep web refers to any portion of the web that isn't indexed by a search engine. Content that lives on the deep web includes relatively innocuous – and sometimes stultifying – material, like the database containing North Dakota's court records, which is maintained by the government of the rural US state.
Google and other search engines don't crawl through the contents of these databases, so they're invisible to someone traversing the web on its most well-travelled highways.
The deep web, then, is the part of the web that's hidden from the 'surface web', which is what search engines can find. That's the definition of the term according to Bright Planet, a consultancy focused on the deep web founded by the man credited with coining the term, Mike Bergman.
So much for the deep web. What about the dark web? As you may have guessed, this is where things can get illicit. The dark web is that section of the web that is both intentionally hidden and cannot be accessed by a standard web browser, according to Bright Planet.
Dark web sites usually have addresses that aren't governed by the Internet Corporation for Assigned Names and Numbers (ICANN), the international body that regulates domain names. Websites ending in .com or .org, for example, are governed by ICANN.
Domains that exist beyond the ICANN system are known as alternative DNS roots or ADRs. These include websites that end in .geek, .micro or .bit, as is the case with Namecoin domain names.
Websites on the Tor network, which include Silk Road and other marketplaces for illicit goods mentioned in this article, are examples of dark web sites. These sites end with the .onion suffix.
Accessing websites with ADR domains usually requires a specific piece of software. For sites on the Tor network, the Tor Browser, a piece of software designed specifically for surfing that network, must be installed to access them.
The mainstreaming of dark markets?
There are signs that dark markets are evolving beyond the drugs-infatuated niche of Silk Road and its genre.
The creators of OpenBazaar, for example, want to bring their decentralised market to a wider swathe of Internet users who aren't interested in buying drugs, but do want to preserve their autonomy and privacy.
OpenBazaar is a peer-to-peer marketplace that lets vendors hawk their wares anonymously and without relying on a central platform. Vendors host their product listings on their own computers. Trade is conducted in bitcoin.
Sam Patterson, who leads operations for the open-source project, says OpenBazaar is nothing like Silk Road or its successors.
"Silk Road was a centralised marketplace – directly controlled by an individual or small group – that catered almost exclusively to a subset of the population who wanted to trade in illicit substances."
By contrast, Patterson, said, the platform he's building is decentralised – no one owns the network – and it's simply a platform for individuals to conduct business without an intermediary skimming off commissions and fees.
"It is a platform for people to manage their own trade online, directly with others," he said.
The coming e-commerce boom... in drugs
Even as the dark web develops at a rapid clip – there is a now a trade publication reporting on market goings-on and a search engine to make dark market shopping easier – law enforcement agencies seem to be left trailing in the wake of decentralised, encrypted platforms.
Martin, the drugs trade researcher, said he has spoken to law enforcement agencies and they are struggling to police dark markets, despite US agencies' spectacular takedown of Silk Road.
"With online drug trading, you have hidden financial transactions; the dealer and customer never meet in the same place; you have drugs arriving in the post [...] all of this breaks the 'business model' of conventional law enforcement," he said.
Anti-narcotics agencies need to come to grips with dark markets quickly because they are only set to grow, Martin added. Just as e-commerce was pooh-poohed by brick and mortar retailers 20 years before giving rise to retailing giants like Amazon and Alibaba today, law enforcement is now only dimly aware of the development of dark markets.
"We're in a position now like the big department stores of the 90s, for example, who saw online retailing as a flash in the pan, thinking it would never take off. They thought people would want to come to a store to buy sunglasses or shoes. Clearly we know that isn't the case now. There are compelling reasons to speculate that the online drugs trade is going to expand further in years to come."
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