After Silk Road, Online Illicit Marketplaces for Drugs and Weapons Grow, With More to Come

Anonymous sites do $500,000 per day in deals that make the powers-that-be twitch

Silk Road lives!

Well, the online marketplace for illicit goods' competitors and successors live, anyway. The original Silk Road and its operator were taken down by the United States federal government in an over-the-top campaign that featured stunningly corrupt federal agents. Beyond its employees' sticky fingers, the federal government almost certainly hacked servers hosted overseas in the course of its efforts and then shrugged its institutional shoulders over the legal status of the tactic. But even as the feds brutally targeted Ross Ulbricht and his underground marketplace, new sites proliferated on the anonymous TOR network to more than replace what the U.S. Government had shut down.

"Far from causing the demise of this novel form of commerce," write Carnegie-Mellon University researchers Nicolas Cristin and Kyle Soska, "the Silk Road take-down spawned an entire, dynamic, online anonymous marketplace ecosystem, which has continued to evolve to this day."

The tech-savvy duo presented their findings earlier this month at the USENIX Security Symposium in Washington, D.C. They studied anonymous, illicit online marketplaces from 2013 to 2015 to track their popularity, their responses to legal setbacks and scams, and their adoption of increased security measures. In the course of their research they examined 16 different online ventures (out of a much larger possible sample) established to connect buyers and sellers.

Cristin and Soska scraped the various online marketplaces for the data they needed. Several of the sites require feedback for transactions, which they found to be a good tool for estimating sales volume.

How much sales volume?

A lot. In early 2013 when Silk Road had the market largely to itself, say the researchers, they estimate that it was doing about $100 million per year in business. Closure of Silk Road turned out to be a speed bump, with "unprecedented highs" (pun not obviously intended, but we'll take it) in the fall of 2014. The more diverse market is now thought to be averaging $300,000-$500,000 per day, with occasional $650,000 days.

Who participates in the black market?

This is a pretty grassroots phenomenon. "[O]nline anonymous marketplaces are primarily competing with street dealers, in the retail space, rather than with established criminal organizations which focus on bulk sales," say Cristin and Soska.

What's being sold?

It's still mostly drugs. Marijuana, ecstasy, and cocaine make up about 70 percent of the goods. But that leaves room for "digital goods," weapons, currency, electronics (presumably illicit), forged ID, and the like.

Buying and selling of "digital goods" is a surprisingly small component of the market now, but it's an obvious direction for the illegal dealers to go if governments attempt further restrictions on things that can be distributed via simple clicks of a mouse button. There is—or should be—a lesson in there for the likes of UK Prime Minister David Cameron, FBI Director James Comey, and aspiring dynastic successor Jeb Bush, who would cripple encryption, and Senators Joe Manchin (D-W.Va.) and Charles Schumer (D-N.Y.) who feel the same way about bitcoin. Online businesses that deliver weed, cocaine, and guns to your doorstep are very nicely positioned to drop a variety of products straight onto your desktop.

Of course, the powers-that-be don't care for any of this. They've put significant effort into shutting down the very modern manifestation of an ancient desire to buy and sell stuff that the authorities don't like. Aside from the legally and ethically challenged attack on Silk Road, law enforcement agencies in several countries staged the internationally coordinated Operation Onymous last November to shut down a few sites (including Silk Road 2.0) and seize $1 million in bitcoin.

That $1 million in bitcoin seems a bit anemic when you think of it as 2 or 3 days of business. In fact, write Cristin and Soska, the online markets appear "to have withstood Operation Onymous quite well, since aggregate volumes were back within weeks to more than half what they were prior to Operation Onymous."

Security seems to improve after these attacks, too, with vendors increasingly adopting PGP for an extra level of assurance. And that assurance and the desire to buy and sell obviously prevail over fears. Participants in these illicit markets are only briefly deterred by even the worst scams (some markets have closed and stolen customers' funds) and most fervent police assaults. These incidents have measurable effects for no longer than 2-3 months.

All the signs point to the long-term survival and growth of the online black market. The Carnegie-Mellon duo consider it unlikely that law enforcement will ever be able to shut down the new online market. "[C]onsidering the expenses incurred in very lengthy investigations and the level of international coordination needed in operations like Operation Onymous, the time may be ripe to investigate alternative solutions," they drily suggest.

The few "successes" that Europol and the FBI have claimed to-date in their efforts against illicit online markets have required them to identify and arrest the operators of sites, but that task seems poised to become more difficult. After all, you can't arrest an operator if there is none—or if every participant plays part of that role.

This fall, a decentralized prediction market called Augur debuts. Operating as a peer-to-peer network not located in any particular space, Augur will enable the placing of bets on predictions, leading Reason's Jim Epstein to say it "could do to the neighborhood bookie what electric refrigerators did to the ice delivery man." Politicians with a powerful dislike for sports gambling may find their personal preferences more irrelevant than ever before.

And those of us tracking the fascinating evolution of online black markets may be getting a glimpse of the near future.