Cryptomarkets – Mitigating the Problems of Conventional Offline Drug Markets

The deep web has opened the door to a novel way of illicit drug trading, via what is referred to as darknet marketplaces or cryptomarkets. Users can now safely purchase illicit drugs from the comfort of their homes, compare products and their prices offered by various vendors, while avoiding being busted by law enforcement agencies (LEAs). Cryptomarkets also greatly reduce the risks that might be encountered by vendors on these darknet marketplaces. In cryptomarkets, the features of a successful vendor are determined by their offered customer services, and other traditional parameters linked to marketing of their products. The visibility of illicit drug trafficking is not a threat to either vendors or buyers on cryptomarkets; an issue that basically alters the organization of economic activities within conventional offline drug markets.

Silk Road 2.0 was by far the biggest cryptomarket on the deep web in 2014. Following its launch on November 6, 2013, the Silk Road 2.0 lasted for exactly one year before being shut down by the FBI. Despite the fact that it lasted for no more than a year, the Silk Road 2.0 represents an ideal model for studying darknet marketplaces. A recently published study revealed how top vendors sold illicit drugs on the Silk Road 2.0. Vendor profiles’ details, offered products and buyers’ feedback were utilized to analyze vendors and their conducted operations, with emphasis on trading features including product characteristics, shipping and branding. The study analyzed the Silk Road 2.0 cryptomarket via a combination of economic sociology and transaction cost economics. The study aimed at improving comparative studies analyzing illicit drug markets via application of traditional models of economic activities to the context of darknet marketplaces.

Analyzing the Results of the Study:

The anonymity offered via darknet marketplaces promotes direct communications between a large number of vendors and buyers of illicit drugs. The innovative technology offered via the darknet has markedly reduced the problems of security and visibility that infest traditional offline drug markets. As crypto markets alleviate the problems associated with conventional drug trading, this can markedly alter the buyer and seller population and boost the global illicit drug trading business. Previous studies have described the transparency paradox of darknet and traditional drug markets and proved how they are different regarding the processes of trust building, resolution of conflicts and logistics. These three factors are identical to coordination challenges pinpointed by the research conducted by Beckert and Wehinger in 2013. Even though conventional drug markets have to limit access to information, darknet marketplaces present a system for conflict resolution that guarantees that sellers would compete for buyers via their offered services and prices. Crypto markets have a central authority that oversees various transactions and has the capacity to penalize fraudsters. Such structure guarantees fair competition and the exchange of high quality reliable information, which renders darknet marketplaces much more efficient than conventional offline drug markets.

Establishment of trust is a transaction cost along any form of economic transfer and represents a pivotal part of the cooperation challenge within illicit drug markets. Administrators and buyers are both promoting the process of establishment of trust throughout the framework of Darknet marketplaces, because the centralized feedback system facilitates good conduct. The feedback system represents a crucial base for building trust in a formalized manner, which greatly reduces the costs of enforcement when fraudulent transactions take place. As such, positive feedback and central regulation of vendors’ review system markedly reduces the possible uncertainty associating illegal transactions. On cryptomarkets, visibility doesn't represent a security threat, as buyers and vendors can interact directly via marketplace forums and messaging systems.

To sum up, cryptomarkets represent a novel form of drug market that can totally transform the landscape of illicit drug trading all over the world. This is illustrated by how cryptomarkets mitigate the problems of cooperation, competition and valuation that are usually encountered in traditional drug markets. The basic structure of Darknet marketplaces offers advantages for both buyers and vendors, which boosts potential sales, while also promoting safer transactions that are almost impossible to be busted by law enforcement agencies (LEAs). Consequently, we expect to see a logarithmic rise in the popularity of Darknet marketplaces during the upcoming few years, which can totally alter the framework of illicit drug trading all over the world.

Are we safe?

Source: Tamer Sameeh