Study: Silk Road Was A "Paradigm Shift" In Drug Trade

Once upon a time, Bitcoin was infamous for its connection to the online black market Silk Road, which facilitated anonymous transactions through use of the digital currency. The “dark net” market grew exponentially until October 2013 when it was abruptly shut down by federal law enforcement. However, a new study has been released which analyzes the thriving drug trade that existed on Silk Road in its final weeks of existence.

The advent of anonymous online markets has resulted in a “transformative” and “paradigm shifting” innovation in drug sales, according to the report. Silk Road and other dark net markets are redefining what it means to be a successful drug dealer — threats, intimidation and violence are no longer necessary or practical in the virtual world.

The researchers claim that this is an important innovation of criminal activity. Whereas mid- and high-level drug purveyors often resort to violent turf wars in order to protect their territory, the Silk Road was the first example of a nonviolent “online clearing house” — it provided dealers with safe and reliable methods for sourcing product.

This goes against the common perception of Silk Road as an “eBay for drugs,” where vendors were thought to primarily sell to customers for personal use. Instead, the researchers found that many Silk Road customers were actually drug dealers themselves. These business-to-business transactions were found to account for at least a third of Silk Road’s total revenue.

Analysis of a Revolution

The study was carried out by Judith Aldridge, professor of law at University of Manchester, and David Decary-Hetu, scientist of criminology at University of Lausanne. They used customized web-crawling software to download the entire Silk Road website across three days in September 2013, just weeks before federal agencies seized the site and arrested its alleged operator, Ross Ulbricht.

The researchers found that the size of Silk Road — in terms of average yearly revenue — had increased from $14.4 million in mid-2012 to $89.7 million in September 2013, a stunning six-fold increase in popularity. The report says that this represents an “exceptionally strong demand” for this kind of marketplace, and that it’s “unlikely” that dark-net markets are going to disappear, even in the face of law enforcement crackdowns.

The principal reason for Silk Road’s explosion in popularity was its innovation on how drug dealers interact with each other and with customers. The combination of anonymity, encrypted communications, escrow services, and a built-in reputation system meant that both vendors and buyers could operate in an environment that is relatively safe and well-regulated. Not only that, but retail-level dealers now had a method for sourcing product that didn’t depend on murderous gangs or cartels.

Myth Busted: “eBay for Drugs”

Up until now, most characterizations of Silk Road regarded it as an “Amazon” or “eBay” built for drugs — an idea perpetuated by both the media and two previous scientific papers. But this latest study found that this wasn’t necessarily the case, and that a large portion of Silk Road’s business was actually vendor-to-vendor.

This conclusion was reached by splitting up all of the Silk Road transactions into five separate price categories for analysis. The lowest quintile represented the cheapest version of a product — just 1 gram of cannabis, for example. Each higher quintile had a more expensive and greater quantity of the drug.

The fifth and highest quintile represented the gigantic bulk orders worth thousands of dollars. These listings included whole pounds of cannabis or several ounces of cocaine, huge amounts that would be impractical for an everyday drug user to be purchasing. The average value of these high-price, high-quantity orders ranged from $1,129 for prescription drugs to a whopping $3,494 for ecstasy.

Clearly, some buyers on Silk Road were also sellers — essentially buying up large quantities of drugs from wholesale vendors in order to resell it again for a profit. That much fell in line with the researchers’ hypothesis, but it still surprised them to learn just how much revenue was made through bulk orders. When nearly half of all revenue from a particular drug is generated through bulk orders worth thousands of dollars, the market in question is obviously not just “eBay for drugs.”

Transformative Innovation

Because many of Silk Road’s customers were themselves drug dealers, the market functioned as the first virtual broker between illicit businesses. This eliminated many of the risks typically associated with the drug trade — including violent “turf wars” between rival groups, and theft of product or cash. Vendors now had a way to source and distribute product that kept them relatively safe in such a risky business.

In addition, eBay-style feedback and an escrow system served to increase buyer confidence, while also weeding out the unethical vendors who shipped substandard product or scammed customers. The result was a healthy selection of vendors who provided quality service. The researchers expand on this conclusion:

In the drugs cryptomarket era, having good customer service and writing skills, having a good reputation via ‘feedback’ as a vendor or buyer — may be more important than muscles and face-to-face connections.

Contrary to public assumption, violence might not be an inherent feature of illicit markets after all.

New Economic Landscape

All of this means that the original Silk Road was much more than an easy way for drug users to get their fix. Sure, with the necessary technical skills and patience, anyone could log in and start buying drugs for personal use. But on the flip side, anyone could log in and start buying drugs for business use. It was just as easy to buy a pound of cannabis as it was to buy a gram, assuming one can afford it.

With the advent of Silk Road and the many dark net markets that have sprung up to replace it, drug dealers now have a much safer and reliable option for re-stocking their product. Assuming they can navigate the technical hurdles of learning how to use Tor, Bitcoin and PGP encryption, it’s now possible to operate in the drug trade with little to no risk of violence. Turf wars, threats, intimidation, theft, assassinations — all of the things we normally associate with cartels and street gangs — are no longer part of the equation when it comes to dark net markets.

There is undoubtedly further scientific research needed on this topic, but so far the results look fairly positive. The migration of drug sales to dark net markets will serve to reduce violence in the streets, and take power away from the murderous cartels and gangs that thrive off the current system. This should come as no surprise to critics of the War on Drugs — but now, there’s finally scientific analysis that shows the paradigm shift is real, and it’s a good thing.