Bitcoin: Facilitating illicit trade on the Silk Road

While many major retail companies are pondering shifting their businesses online, it appears that the drug dealers are already way ahead of them. There is a new secret website that makes all kinds of illicit and illegal drugs available. Buyers and sellers can trade anonymously and need never meet face to face. Due to the use of relay technology such as TOR, the proposed Australian Internet firewall would be powerless to stop users from using the site. Welcome to the Silk Road.

Silk Road, a digital black market that sits just below most internet users’ purview, does resemble something from a cyberpunk novel. Through a combination of anonymity technology and a sophisticated user-feedback system, Silk Road makes buying and selling illegal drugs as easy as buying used electronics — and seemingly as safe. It’s Amazon — if Amazon sold mind-altering chemicals.

Screen cap of the Silk road website, showing hard drugs for sale

An alleged screenshot of the silk road website. Image courtesy of Anomyous

Of course, anything this illegal isn’t as easy to access as ebay. Interested users will need to configure TOR, the open proxy relay, to access the site.

Getting to Silk Road is tricky. The URL seems made to be forgotten. But don’t point your browser there yet. It’s only accessible through the anonymizing network, TOR, which requires a bit of technical skill to configure.

Once you’re there, it’s hard to believe that Silk Road isn’t simply a scam. Such brazenness is usually displayed only by those fake “online pharmacies” that dupe the dumb and flaccid. There’s no sly, Craigslist-style code names here. But while scammers do use the site, most of the listings are legit.

It’s one thing for users to hide their IP address, but how can a person make a currency transaction over the Internet anonymously? That’s where bitcoin comes in.

Bitcoins have been called a “crypto-currency,” the online equivalent of a brown paper bag of cash. Bitcoins are a peer-to-peer currency, not issued by banks or governments, but created and regulated by a network of other bitcoin holders’ computers. (The name “Bitcoin” is derived from the pioneering file-sharing technology Bittorrent.) They are purportedly untraceable and have been championed by cyberpunks, libertarians and anarchists who dream of a distributed digital economy outside the law, one where money flows across borders as free as bits.

Bitcoins can either be purchased on a digital exchange such as Mt Gox, or they can be “mined” by using your computer to perform complex mathematical calculations. From the bit coin FAQ:

How are new Bitcoins created?

New coins are generated by a network node each time it finds the solution to a certain mathematical problem (i.e. creates a new block), which is difficult to perform and can demonstrate a proof of work. The reward for solving a block is automatically adjusted so that in the first 4 years of the Bitcoin network, 10,500,000 BTC will be created. The amount is halved each 4 years, so it will be 5,250,000 over years 4-8, 2,625,000 over years 8-12 and so on. Thus the total number of coins will approach 21,000,000 BTC over time.

In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. As the number of people who attempt to generate these new coins changes, the difficulty of creating new coins changes. This happens in a manner that is agreed upon by the network as a whole, based upon the time taken to generate the previous 2016 blocks. The difficulty is therefore related to the average computing resources devoted to generate these new coins over the time it took to create these previous blocks. The likelihood of somebody “discovering” one of these blocks is based on the computer they are using compared to all of the computers also generating blocks on the network.

The response to bitcoin from the online community has been huge, with users outfitting makeshift server rooms to mine bitcoins, sometimes with disastrous results.

Possibly the first digital mining injury ever. Bitcoins literally broke this user's brain. Source: 4chan

The creators of bitcoin are adamant that they did not create it to facilitate trade in black market products such as drugs. The bitcoin wiki explicitly removes listings for companies selling goods that would be considered illegal in the US or Japan. However, besides the Silk Road, it appears that bitcoins are really only useful for purchasing a handful of freelance IT services.

A user on the bitcoin forums selling underaged sex services

There are even more unsavoury services available for purchase with bitcoins. Source: bitcoin forums

In addition to being tarnished by its association with illegal trade, the bitcoin market is currently wildly unstable. Prices soared to as high as 28 USD per bitcoin, only to come crashing down hours later after investors became scared and traded out their bitcoins. This sort of instability is perhaps to be expected in a nascent currency, but until it stabilizes bitcoins will be useless to any long term investors. In the meantime, bitcoins will be very attractive to users looking to buy or sell illegal items on the Silk Road, or possibly even more illicit goods such as child pornography. Given bitcoin’s vast illegal applications it’s only a matter of time before the US government is forced to respond. However what, if anything, they can do about it remains to be seen.

Read More:

Underground Website Lets You Buy Any Drug Imaginable – Wired

BitCoin Wiki


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19 Comments on “Bitcoin: Facilitating illicit trade on the Silk Road”

  1. Kristin Brænne
    June 14, 2011 at 9:11 pm #

    Stay excellent!

  2. June 15, 2011 at 2:01 pm #

    This is truly one of the most astonishing stories I’ve read in months. Unbelievably clever. The underworld goes online, however I wonder how long it’s been there right under our noses and only now is it making the media. Something tells me it’s been around as long as porn. But this whole era of mass-transaction global untraceable-ness is both genius and terrifying.

  3. Aaron
    June 15, 2011 at 11:04 pm #

    This opens an infinite sized can of worms. I’m unsure how to respond to such revelations but to say that there is always ways to find those pedophiles and drug dealers, this could prove to be an effective tracking system if manipulated correctly by law enforcement. What happens when you get the delivery? You must give an address to a stranger for a product that could be nothing at all or a jail sentence or worse still, bad drugs.

    • June 16, 2011 at 11:17 am #

      Hahaha, I like how your example of “worse still” – worse than jailtime – was being delivered bad drugs. XD

      • Josh W
        June 25, 2011 at 4:27 am #

        You’re in jail, it’s aweful, you get bad drugs, you could be dead.

        It is true that you can use this kind of thing for tracking; even if the online element is hard to link to a specific person/org, you might be able to use it to map someone’s supply line, and then get them via your knowledge of where they must be getting the stuff from, timings etc.

        Not sure if our organised crime stuff is up to that yet, though.

  4. James Hill
    June 16, 2011 at 9:05 am #

    Silk Road users have their drugs delivered via the mail system. Law enforcement could pose as dealers and sell to users and track the client’s address that way, but this would be very costly and defeated by savvy users setting up dead drops (e.g. have the package delivered to the abandoned house next door, or delivered to a PO box in a false name and wait several weeks before picking it up). The sellers themselves are almost completely protected, short of some very sophisticated attacks on TOR routing itself.
    The only thing surprising to me about the Silk Road is how long it took for someone to think of it. There is a huge, unspoken mass of middle class drug users that value a secure way to obtain drugs, even if it comes at a price premium. As much as the creators of bitcoin hate it, it is this demand that will almost certainly drive the market for bitcoins and give them their shot at becoming a legitimate currency

    • June 16, 2011 at 11:20 am #

      It’s pretty watertight! I still think Aaron has a point with what’s currently stopping criminals ripping off criminals? Pay for an order, get short-changed a few kilos, etc… especially if measures must be taken to ensure secure delivery, such as waiting several weeks, or organising a dead drop… There are always going to be at least 2 people (the buyer and the seller) knowing the delivery location. This opens up opportunities to introduce a third party to pick up the goods first, intercept the goods, or the first party conning the second party during the delivery phase. Silk Road screenshot didn’t seem to indicate that there’s a user rating, a kick user capability, a trust system, a dispute resolutions system, a refund system… It’s all at your own risk. So I can’t see Bitcoin gaining a huge amount of trust until these Quality Control measures are taken?

      • James Hill
        June 16, 2011 at 11:25 am #

        There is a user rating and feedback system similar to ebay’s. Of course, there’s nothing stopping people putting up scam listings and then just making new accounts when they get back feedback– the system is anonymous after all. There will be users that will be interested in building reputation for themselves, and eventually buyers will wise up and only buy from sellers with good feedback.
        There are no guarantees though, it is a black market transaction, and you can hardly order a chargeback on your credit card when WeedLord420 sends you grass clippings instead of pot.

        • June 16, 2011 at 12:34 pm #

          Ah I see. Well in that case… 1/4lB Dried Large Opium Pod, anyone? 😛

  5. Johnny Rotten
    June 17, 2011 at 3:09 am #

    Silk Road offers its buyers protection through an escrow system. The money in escrow is not released to the seller until the buyer receives and tests the product. Then the buyer can hit the “finalize” button on his order status, and leave a review for the seller. However, there have been cases where the buyer has scammed the seller out of his own goods by reporting that they were never received.

    • James Hill
      June 17, 2011 at 9:18 am #

      That makes perfect sense. I wonder how many disputes like this are fraudulent transactions and how many might legitimately be lost in the mail.

      • June 17, 2011 at 10:24 am #

        People do that on eBay all the time 🙂

  6. thinkweis
    June 17, 2011 at 7:59 am #

    I made a site to help newcomers get started. Check out How to mine bitcoins

  7. rick
    June 24, 2011 at 5:13 am #

    I cant even get there with TOR!!! Just wanted a look but the site seems to think im a super computer, constantly asking for the “word in the box code”.

  8. James Hill
    June 24, 2011 at 1:52 pm #

    Due to the huge media interest in the Silk Road, I understand that the server now goes down routinely.

  9. Anonymous
    July 12, 2011 at 3:05 am #

    Here’s what is stopping criminals from ripping off criminals everyone: THE VERY REASON THEY ARE THERE! They are selling their product on Silk Road, and they don’t want to tarnish their reputation, so they can CONTINUE TO DO IT. If they rip a few people off, those people will complain and they will be unable to refill their prescription/grow more weed/buy another ounce of coke etc, and return month after month to sell their offerings for a profit. They have a good thing going for them, completely safe from getting shot by a potential buyer or busted by authorities, and they aren’t gonna rip someone off one time to ruin the repeated opportunity they have.

  10. April 27, 2012 at 7:08 pm #

    if this was me i would rip everyone off and pay the police cause thats what the bikies do in aus. Cudo is king of deals and dissapointment.

  11. clyde
    October 28, 2012 at 1:47 pm #

    good thing you’re just an asshole on the internet and not a drug dealer on the deep web. asshole

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