The week of February 15, 2015

The real triumph of Silk Road

By Aaron Sankin

In the weeks before convicted Silk Road mastermind Ross Ulbricht went to trial, prosecuting U.S. Attorney Preet Bharara filed a motion asking the judge to bar the introduction of any evidence from Ulbricht’s attorneys regarding the defendant’s political philosophies.

This type of request isn’t unusual. Defendants often try to claim a moral purpose for an otherwise illegal act, and inserting politics into the mix creates a situation where a crime can cross into civil disobedience. Prosecutors generally attempt to block these types defenses because, if the overall morality of a given law is called into question, they’re suddenly defending an entire system rather than trying prove a single person’s guilt.

However, when the prosecution in the Ulbricht case tried to preemptively push politics underpinning the Silk Road out of the mix, the move made headlines. The Silk Road may have been set up as a mechanism for its operators to make money facilitating the sale of illegal narcotics, but it was also an experiment testing out Ulbricht’s libertarian philosophy that using technology to circumvent drug prohibitions would make the world a better place.

On his LinkedIn page, in a post published well before the site was taken down and he was arrested in a San Francisco library in October 2013, Ulbricht wrote:

I want to use economic theory as a means to abolish the use of coercion and aggression amongst mankind. Just as slavery has been abolished most everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force.

Though clearly directed at government institutions, the “use of force” Ulbricht is referring to could be extended to private actors in the drug trade. It may be difficult to hold Ulbricht up as an unimpeachably moral actor, especially in light of evidence that he allegedly attempted to hire the Hell’s Angels to carry out five contract killings, a charge on which he is still awaiting trial. Despite its management’s claims to the contrary, Silk Road also hosted sales of hacking tools designed to steal other people’s personal information on a regular basis.

Yes, the first product ever sold over the Internet was pot.

However, there’s still an argument to be made that Silk Road—and the archipelago of successive online drug marketplaces that popped up in its wake—actually made the world a safer place by decreasing the level of violence that existed inside the drug trade.

Measuring if  Silk Road had any effect on violence is tricky. The number of drug transactions going on over these sites isn’t even a drop in the bucket of the overall global drug trade; it’s a drop in the ocean. The scale of these markets is simply too small to actually make a dent on actual crime figures.

However, just by looking at their structure, it’s not particularly difficult to see the one simple trick behind how Silk Road functioned as a way to push crime out of much of the drug trade. In many ways, it allowed the people who used it to act like drugs were already legal.

The eBay of drugs

In the early 1970s, a handful of students at Stanford’s pioneering Artificial Intelligence Laboratory (SAIL) did something revolutionary. In a building nestled in the foothills of the Santa Cruz mountains—a spot to which, as teenagers, Apple founders Steve Jobs and Steve Wozniack used to ride their bikes, peer through the windows, and dream—a tight-knit group of computer scientists with a decidedly counterculture bent were making breakthrough after breakthrough on the path that eventually led to the personal computer revolution.

In the grand scheme of things, one of the most important things to ever occur at SAIL was the very first ecommerce transaction. Using the fledgling APRANET, an early-stage precursor to the current Internet, researchers at SAIL used the network to covertly arrange for the sale of marijuana to their counterparts at MIT.

Yes, the first product ever sold over the Internet was pot.

The point here is that Ulbricht didn’t create anything particularly novel when he made the Silk Road. For nearly as long as there have been two computers wired together to talk to each other, users have been taking advantage of those connections to facilitate getting high. In fact, many of the features that allowed the Silk Road’s drug marketplace to flourish originated on online forums for trading stolen personal data like credit cards, primarily located in Russia and Eastern Europe. What Ulbricht did was bring those innovations into the world of selling drugs.

In its most basic sense, the closest corollary to Silk Road is eBay. Both essentially offer a place for vendors to set up virtual storefronts to sell their wares. The main difference is that the Silk Road was only accessible using the online randomization system Tor, which makes it nearly impossible for law enforcement authorities to discover information about the site, assuming the operators did everything else securely. (This is clearly not what happened in Ulbricht’s case.)

Much like eBay, most online drug markets use escrow services.

Silk Road didn’t host auctions like eBay, but it allowed both buyers and sellers to maintain profiles where other users could leave ratings and reviews. Did a dealer send your shipment of cocaine right away? Leave a good review. Did a buyer never send the money he or she was supposed to? Give a zero-star rating. The rating system not only gave both buyers and sellers the ability to avoid bad actors who might rip them off—a common trigger for violence—but it also encouraged everyone to act honorably because their reputation was both instantly quantifiable and followed them everywhere they went.

“If you’re smart and read feedback with both an inquisitive and skeptical mindset you can easily use these markets without ever getting scammed,” explained a Reddit user going by the handle LongLiveThe_King, who moderates a forum on the social news site dedicated to discussions about online drug markets.

Much like eBay, most online drug markets use escrow services, which function as third parties between the buyer and seller, ensuring both sides of a deal get what they bargained for. In an escrow transaction, the buyer gives the money to the escrow service, which then informs the seller that a payment has been made. The seller then sends the goods—be it a trove of Beanie Babies or 100 pills of ecstasy—to the buyer. When the package arrives, the buyer tells the escrow service, which releases the funds to the seller.

Markets like the Silk Road almost exclusively transact in the virtual currency Bitcoin, whose programmable nature adds another layer of protection. Since smart contracts are executed by the Bitcoin network itself, as soon at the preset conditions are met, everything happens automatically—no human intervention needed.

Traditionally, escrow services required both the buyer and seller to maintain a level of trust that the institution holding the money wouldn’t abscond with it or, in the case of illegal enterprises, have the entire operation unexpectedly shut down by authorities. With three-party Bitcoin escrow, if the buyer and seller both think something is wrong with the marketplace, they can elect to get the money back or just complete the transaction on their own.

Outside of escrow, the administrators of most sites also offer dispute resolution. If someone has a problem with how a given transaction went down, he or she can submit a complaint to the site’s managers, who act as arbiters: They could pay either full or partial refunds that come either out of escrow or, in some cases, from the pockets of the marketplace itself.

“In the real world, when you hand someone your money, go home and realize the product you bought is bunk, there is very little recourse you have without putting yourself in a potentially serious conflict,” explained IGetDankShit, another moderator of Reddit’s Dark Net markets community.

None of these features would be particularly revolutionary if they popped up in the legal economy. However, on the black market for drugs, they’re major innovations. They exist because anonymizing technologies like Tor and Bitcoin allow these markets to operate more or less out in the open. You couldn’t search for “Silk Road” on Google and be instantly directed to the site. But someone without much technical knowledge could easily download the free Tor browser and find the online location of the Silk Road in under 10 minutes.

“We were witnessing a new breed of retail drug dealer, equipped with a technological subcultural capital skill set for sourcing stock.”

One of the main reasons there’s violence in illegal drug ecosystems is because the people working in them are producing and distributing prohibited commodities. When you’re selling something that could put you in prison for life, you can’t exactly go the local police department when you get ripped off or appeal the Federal Trade Commission if a rival is engaging in anticompetitive practices. There’s no central authority to appeal to, so the solution is often violence. Coffee is just as addictive as many illegal drugs, but you don’t see Starbucks employees gunning Peet’s baristas for encroaching on their turf.

Online black markets like the Silk Road effectively used decentralized technology to create little fiefdoms where illicit goods could be sold openly, and private authorities could spring up to regulate on their own without the need for violence.

‘A new breed of retail drug dealer’

David Décary-Hétu, a criminologist at the University of Montreal, has long been interested in what he calls “innovative offenders,” people who are breaking the law in interesting, novel ways. That’s why he joined with University of Manchester School of Law’s Judith Aldridge on a study looking at the structure of the Silk Road.

Using a specially designed Web crawler, Décary-Hétu and Aldridge downloaded every drug listing posted on the Silk Road in September of 2013, shortly before the site was shuttered. In total, they collected around 12,000 ads posted by over 1,000 individual vendors. When they surveyed the results, something surprising jumped out.

“We found that a substantial proportion of transactions on Silk Road are best characterized as ‘business-to-business’, with sales in quantities and at prices typical of purchases made by drug dealers sourcing stock,” they wrote. “High price-quantity sales generated between 31-45 [percent] of revenue, making sales to drug dealers the key Silk Road drugs business.”

The Silk Road wasn’t replacing street-level drug dealers distributing product to end users, although there were clearly a good number of consumers buying on there as well. Instead, the authors wrote, “we were witnessing a new breed of retail drug dealer, equipped with a technological subcultural capital skill set for sourcing stock.”

When markets like the Silk Road are viewed largely as virtual links within a drug supply chain, their potential to reduce violence grows because they move closer to the heart of the drug cartels responsible for the vast majority of drug violence.

The study also noted that moving the transaction into an anonymous online space reduces the possibility of violence because the participants are just physically farther away from each other.

“Violence can happen either on the streets or it can happen when a client comes up wanting to buy drugs and he wants to steal from the vendor instead of paying. By reducing the interactions between individuals, even if someone scams someone else, it makes it impossible for them to find who the scammer was and to get back at them,” Décary-Hétu explained. “This really changes everything, as does the internationalization of the market. If you’re buying coke from someone in France and you’re in the United States, you’re not going to take a plane and fly out to Paris to beat up the guy that scammed you.”

“If you’re buying coke from someone in France and you’re in the United States, you’re not going to take a plane and fly out to Paris to beat up the guy that scammed you.”

A major principle of the markets like the Silk Road is that they don’t work on credit. To purchase anything from a vendor, a buyer has to come in with cash in hand. Eliminating credit makes sense for online markets because the quantities being sold are already limited by dealers having to send the drugs through the mail, which puts an upper bound on the amount of product that can be safely shipped.

“A lot of times violence happens with credit. People are going to buy drugs on credit and they either lose the drugs or the drugs get seized and they’re going to be unable to pay back the loan that they took. That’s one of the main problems in the drug industry. People are going to work on credit,” Décary-Hétu noted. “While we’ve heard of many stories of people borrowing money to sell drugs on Silk Road, the system made isn’t made for you to borrow the money. You’re supposed to buy drugs with the money you have.”

A drop in the bucket

While Décary-Hétu suspects that markets like the Silk Road reduce violence, he admits it’s impossible at this point to say for sure.

He recently did an analysis looking at three of the biggest markets that came to fill the void left by the shutdown of the Silk Road—Silk Road 2 (which was closed when its founder was arrested last year), Agora, and Evolution Marketplace. Over the course of 2014, Décary-Hétu found about 4,200 vendors active on those three markets at some point in the year.

To put that number in perspective, nearly 700,000 people were arrested for selling marijuana in the United States in 2013 alone. Online black markets may have tripled in size since Ulbricht’s arrest, but everyone who has ever logged onto any online drug market could like take a lifelong vow of pacifism and the change in rates of drug violence would still be far too small to measure.

But there’s an even bigger problem with the idea that online drug marketplaces can, by themselves, reduce violence: They still exist in a larger context of drug prohibition.

Over the past decade, Mexico has been awash in drug violence. Author Michael Deibert, whose fascinating book In the Shadow of Saint Death: The Gulf Cartel And The Price Of America’s Drug War In Mexico examines both the roots and effects of that violence, argues that technical solutions may allow drug traders to circumvent certain violence-producing tension points, but the underlying cause of the cartel violence is the United States’ war on drugs.

“A lot of times violence happens with credit.”

“To understand the drug violence that exists in Latin America—particularly in areas like Mexico—one has to understand the relationship between the drugs and the marketplace where those drugs go,” he insisted. “The U.S. is by far the largest consumer of drugs coming through Mexico. Things like heroin or marijuana or meth, which are produced locally, or cocaine, which is shipped through Mexico. The U.S. is the number one consumer of that.”

Even if a significant number of Mexican cartels began using the successors to the Silk Road to ship drugs to dealers in the United States, there would still undoubtedly be violent competition on the supply end.

“[The violence in Mexico comes from] competition between cartels to feed the ravenous appetite of the United States with the drugs that they crave,” Deibert continued. “There’s always going to be violence in the trafficking of heroin and cocaine because people are always going to have to buying it from somewhere.”

There, in effect, is the rub. Places like the Silk Road are only able to reduce violence because technologies allow them to carve out safe spaces where buyers and sellers can operate with a certain degree of impunity. Considering that one year after Ulbricht got busted, authorities shut down 50 Dark Net sites in an international crackdown, some of that confidence may not be misplaced.

Drug use and addiction have wrecked countless lives, that much is inarguable. One of the prosecution’s witnesses in Ulbricht’s trial testified that the ease of using the Silk Road allowed him, a recovering heroin addict, to relapse and start dealing over the site to feed his addiction.

However, it’s just as inarguable that the government’s battle to stop people from using drugs has also wrecked countless lives. In her landmark book The New Jim Crow, author Michelle Alexander argues that the drug war is just as damaging to African-American communities as pre-Civil Rights-era Jim Crow laws were in the American South. Combatting illegal narcotics has given the United States the world’s largest prison population and created a black market that has resulted in a countless number of needless deaths.

The reach of online drug markets only extends so far, and the degree of protection from the drug war’s violence ends at their virtual walls. Outside of that, in the midst of the blood-soaked chaos of the war on drugs, everyone is pretty much out there on their own.

Illustration by Max Fleishman