Silk Road Reloaded:
Considering the E-commerce of Drugs
In the early 1970s, a group of Stanford students logged onto Arpanet accounts in Stanford University’s Artificial Intelligence Laboratory.  Arpanet, a packet-switching network, was one of the precursors to the modern computer network, and at the time was just beginning to be used in a handful of institutions across the nation.  The students, in a groundbreaking moment in history, proceeded to engage in the world’s first e-commerce transaction with their peers at the Massachusetts Institute of Technology.  The transaction?  Some marijuana. So it turns out that online drug-dealing actually isn’t that new of an innovation. But, it’s a sector that’s been making recent headlines.  On November 6, the FBI shut down Silk Road 2.0, one of the largest darknet marketplaces where anonymous sellers and customers could make transactions for drugs and other illicit items.  The take down of Silk Road 2.0 should have been a major victory in the war against drugs. Should have. It may actually be a step back in the opposite direction. The original Silk Road was shut down in October 2013, and in the past year, dozens of new darknet marketplace sites have started operating in its place. Among them Silk Road 2.0, which was launched just a month after Silk Road was shut down.  The number of active sites increased from four in October 2013 to eighteen in August 2014, and the number of drug listings increased from 18,000 to 47,000. The darknet economy is increasingly looking like a modern-day hydra: cut off one head, and five more take its place.  “Those looking to follow in the footsteps of alleged cybercriminals should understand that we will return as many times as necessary to shut down noxious online criminal bazaars.  We don’t get tired,” Manhattan U.S. Attorney Preet Bharara said in an FBI press release.  Yet at the current rate of darknet market growth, it may soon be impossible to ever completely take down the darknet economy. A closer analysis of Silk Road 2.0 and comparable markets by programmer Daryl Lau shows that drugs make up the bulk of items sold – especially MDMA, which is in almost twice as much demand as marijuana, the second most popular item.  Why?  Likely because MDMA is difficult to find in pure form, and impure versions can be fatal when ingested.  Most MDMA purchased from street vendors are adulterated with other substances, but the beauty of online drug dealing is that legitimacy of the transaction is easier to guarantee. Sellers, while operating under anonymous usernames, are rated by users.  Thus drugs sold on darknet sites are on average purer and higher-grade than drugs bought on the street, which are often cut with cheaper unknown substances.  The average purity of street cocaine is no more than 20-30%, for instance, according to a Vice article.  Buying MDMA from a vendor with consistently high ratings is a reasonably accurate way to ensure that the end product is high quality.  According to the Center for Disease Control and Prevention, drug overdose was the leading cause of injury death in 2012, and overdose death rates have steadily increased 117% from 1999 to 2012.  The unique system of ratings and reviews that e-commerce provides the drug trade thus has the potential to significantly decrease the number of drug overdoses by clarifying purity, dosage, and content of purchased substances. Taking the drug trade and putting it behind a virtual barrier also significantly reduces the violence in interactions between drug suppliers and users.  According to the Bureau of Justice, in 2004, 17% of state prisoners and 18% of federal inmates said they committed the offense they were currently serving time for in order to obtain money for drugs.  In every step along the drug transaction timeline – supplying, paying for, and finally executing the actual exchange of drugs, in addition to turf and gang wars closely associated with the drug trade – violence is present.  Conversely, dark net markets reside in an encrypted part of the internet where the URLs all end in “.onion” and are only accessible through a special browser called Tor, which allows people to cloak their location when browsing the internet.  The high level of anonymity makes it a safe transaction for both parties and is also much more efficient than street dealings – in fact, it’s not far-fetched to say that as drug e-commerce proliferates, street vendors will be forced out of the market when they’re unable to compete with the higher quality and reliability of online drug dealing. Yet at a time when ease of access to drugs is steadily increasing, the issue is whether or not the safer alternatives vendors like Silk Road provide will become a benefit that outweighs the detriment of more people being able to obtain drugs.  And it’s not just vendors who are easing the road to drug access.  Alaska, DC, and Oregon just joined the ranks of states where marijuana is legal.  The organization Dance Safe passes out drug testing kits at music festivals, which are notorious for association with recreational drug culture – the implication being that if festival-goers sneak in drugs past law enforcement, they’ll at least be able to experiment knowing that their drugs are safe.  Abstinence may be the safest policy, but there’s also a case to be made that if people are bound to come into contact with drugs, staying educated about drug safety and making safe-quality substances readily available will save lives. The drug trade is now a lucrative $400 billion per year business, and it's steadily growing; there’s a good chance that Silk Road 3.0 is already in the works.  In the war on drugs, the drugs, unfortunately, are winning.  The question that remains is which is the lesser evil – proliferating drugs more efficiently and widely but increasing safety of drug usage, or cracking down with a no tolerance policy and knowing that the drugs that do slip through the cracks are potentially more fatal.  Taking down marketplaces such as Silk Road 2.0 may currently be a win in the judicial playbook, but from a larger social economic perspective, it might be not just futile, but detrimental – and in any case, the federal government should take future courses of action against darknet markets into more careful consideration.

  • Richard

    I agree. A wise businessman in the Caribbean named Sir Kyffin Simpson always said that the key to success is progression and humility, and clearly he’s done very well for himself as a self made man!

  • John Andrews

    The Airgain IPO launches this week, and they’re a one-brand company.

    Some investors don’t think it’s a good stock though:

    http://seekingalpha.com/article/3997291-risky-signals-antenna-maker-airgain-launches-ipo

  • Cincinnati World Cinema

    Well said, Joe, and worth rereading on a regular basis! Another advantage of small-to-midsize city living is pace and competition. Living in NYC, LA and SF entailed a hectic pace, hallmarked by capital S striving, as one realized there were a ton of others doing what I do. Spending so much time in one’s car in SoCal meant much less time for quality pursuits and pleasures. A smaller pond with relaxed pace allows one to savor life and special moments.


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