Darknet Markets

Bitcoin (and cryptocurrency in general) have come a long way from their simple beginnings. A simple peer-to-peer cash system has turned out to be so much more, prompting a revolution of sorts that has really challenged institutions of money around the world. Relatively early on in the world of Bitcoin, a man named Ross Ulbricht took the idea of anonymous currency and coupled it with the anonymity of the internet to create an online marketplace called the Silk Road to buy and sell drugs. It was even outfitted with vendor feedback and an escrow system. This marketplace was the beginning of a long line of many known as Dark Net Markets. Outside of their obvious social impacts, DNM have had a profound effect on Bitcoin and cryptocurrency as whole, including awareness, stigmatization, their markets, and their general use. In this article we will discuss darknet markets as a whole, the Silk Road Marketplace specifically, and touch on the effect it has had on crypto.

A Little More on Darknet Markets

Simply put, Dark Net Markets (or DNM) are commercial websites that are operated via darknets like Tor and I2P. Darknets are described “any overlay network that can be accessed only with specific software, configurations, or authorization, often using non-standard communications protocols and ports” (1), and they are used to ensure privacy and security for users and operators. Sites on the darknet operate in opposition to those on what is called the clearnet, or regular internet. It is important to note that the darknet is no new development; it is a term that has been used since the 1970s to describe any network located off the beaten path of ARPANET, the network that eventually evolved into the internet we know today (1). As DNM started to emerge, there have of course been plenty of scamming, fraud, and attention from law enforcement agencies, but they have persisted nonetheless, hiding behind security provided from the Tor network and the general anonymity provided by the internet itself, placing orders on websites like the Silk Road and sending drugs and other items through the mail.

The Silk Road

Ross Ulbricht was the first person to effectively implement a DNM with full-blown escrow and review systems to help identify scammers and protect customers. This came to fruition in the form of the infamous Silk Road Marketplace, a now-defunct Tor-hosted marketplace that sold everything from Viagra to Heroin, hailing itself as “Amazon for drugs”. This DNM received tons of media coverage, and if you had heard about Bitcoin or DNM at all prior to the last six months you’ve likely also heard of the Silk Road. While Ulbricht did in fact pave the way for many a Libertarian ideal and many a darknet market to follow, he ultimately fell victim to said ideals and was captured based on a slew of careless mistakes and unsavory decisions. For more on Ross and his pioneering effort in illegal online markets, refer to my two-part article, “Dread Pirate Roberts: The Rise and Fall of the Silk Road Marketplace”.

Darknet Markets & Bitcoin

The founding of sites like the Silk Road Marketplace were a major turning point for both Bitcoin. As result of the surrounding media coverage, it was brought heavily into the public’s eye for the first time, with an unsavory appendage: Bitcoin was for drugs. This was a bit of a hit for the young crypto, and those at the Bitcoin Foundation worried that Bitcoin would crash following the news of its association with the Silk Road. They couldn’t have been more wrong. The Silk Road almost single handedly catapulted prices to all-time-high after all-time-high, and while this was definitely instrumental to Bitcoin’s growing success, it posed the new problem of a bad reputation. This bad reputation lasted for a while, and in many regards still lasts today. When the Silk Road was seized by the FBI in 2013, the Bitcoin Foundation breathed a much-needed sigh of relief. This was followed by a brief panic, when news of Ross Ulbricht’s capture prompted a pretty steep drop in Bitcoin’s price. This was followed by a near-unwavering volume and subsequent recovery that blew past even Silk Road-era highs. This is characteristic of the cryptocurrency market as a whole – prices don’t usually stay low for long, and the market took advantage of it. This was a great turning point for Bitcoin – it proclaimed itself unbinded and independent of criminal enterprise, an important step towards todays massive (and still growing) adoption.

What It All Means

Darknet markets certainly played a role in the rise of Bitcoin. There’s no use or credibility in denying this fact. The important thing here is that it is not married to the concept of criminal enterprise, and never was intended to be. Satoshi Nakamoto himself stated that Bitcoin was “very attractive to the libertarian viewpoint if we can explain it properly,” (6), but privacy and illicit drug vending are two separate issues, and any reasonable person can see that. The fact that Bitcoin has risen from the ashes of usage in places like the Silk Road is testament to its viability in our world. While DNM still exist today, their portion of the Bitcoin pie is ever shrinking as legitimate uses grow exponentially, and the troubles associated with Bitcoin are quickly becoming things of the past.

Sources

  1. https://en.wikipedia.org/wiki/Darknet

  2. https://en.wikipedia.org/wiki/Darknet_market

  3. https://www.coindesk.com/bitcoin-milestones-silk-road-goes-dark-bitcoin-survives-its-biggest-markets-demise/

  4. https://www.smithandcrown.com/bitcoin-freedom-black-market-history/

  5. https://cointelegraph.com/news/white-and-black-market-businesses-talk-bitcoin

  6. https://motherboard.vice.com/en_us/article/vvbm43/quotes-from-satoshi-understanding-bitcoin-through-the-lens-of-its-enigmatic-creator