Where to buy your drugs?

12

October

2017

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Hello reader. Lets assume that you graduate successfully at RSM and that you are smart enough to land yourself a high paying job in the financial sector of London. The bonuses on top of your salary are great and you are quickly able to pay your student loans. The hard part is to deal with the never ending working hours and the stress from last-minute requests by your superiors. You have heard rumours of employees at your company who use drugs to deal with the most intense days and you become curious yourself. You decide to buy some drugs to get you through the day.

Two questions quickly pop-up in your mind: Where can you buy drugs and how do you know that the quality of the drugs is good? You are new in London and do not have any friends here who have some experience with buying drugs. Asking your colleagues is out of the option, what if the rumours are not true? Envisioning yourself walking the dark alleys of London in search of a drug dealer does also not seem so pleasant.

Luckily, you have learned during your studies about the rise of e-commerce and was inspired by the CoolBlue guest lecture. You suddenly also remember one blog you read about black markets on the darknet (https://digitalstrategy.rsm.nl//2017/10/03/the-difficulties-of-dominating-the-dark-net-black-markets/). Did it not say something about criminals using online platforms to facilitate drug trade? You start your search on the internet by Googling for some information on buying drugs on black markets.

You type in black market drugs (without quotation marks) and one of the first results is this website: https://darkwebnews.com/dark-web-market-list/. It provides some tips on how to remain anonymous on the web, which black markets are currently active and a link to their websites.

You happen to be a person which does not bother to go the second page of a google search and there you find a wikipedia page https://en.wikipedia.org/wiki/Silk_Road_(marketplace) of Silk Road, the first popular black market. What is the vision to start a drug sales on the web?

You are familiar with the general reasons why online channels are more beneficial than offline markets. For buyers it reduces search and switching costs and for sellers it expands the market reach and reduces transaction costs. For the drug trade, the move online means a potentially reduction in the violence related to the trade. This reduced violences can be seen as a reduction in transaction costs.

“Meghan Ralston, a former “harm reduction manager” for the Drug Policy Alliance, was quoted as saying that the Silk Road was “a peaceable alternative to the often deadly violence so commonly associated with the global drug war, and street drug transactions, in particular”. Proponents of the Silk Road and similar sites argue that buying illegal narcotics from the safety of your home is better than buying them in person from criminals on the streets.”  (Business Insider, 2015)

Your vision of a dark alley in London merges with some Narcos style violence and you are happy to have found a way to avoid a more digital approach.

Because you are a good student, you read all the required readings for the course Information Strategy. One of the papers (Dimoka et. al, 2012) talked about product uncertainty and seller uncertainty in online markets. Your happiness about the reduction in violence of your drug trade starts to fade a bit and your own uncertainty about the products and vendors offered online start to increase. What if the drugs have no effect? Or what if the effects of the drugs are completely different than advertised? You do not want to walk around the office space thinking you are a bird and are able to fly or something. What to do if you pay the vendor, but you never received your drugs?

Your memory, filled with all kinds of theories, does not remember anymore how these kind of product and seller uncertainties can be mitigated, so you search within Google Scholar for the specific article. A beautiful quote of uncertainty is given:

“Uncertainty is defined as the buyer’s difficulty in predicting the outcome of an online transaction due to seller-related and product-related information asymmetry.” (Dimoka et al, 2012)

The authors of the article tell you that uncertainty can be reduced with information signals such as:

  • online product descriptions (textual, visual, and multimedia)
  • seller reputation
  • third-party product assurances

You hope that some of these signals will be there to provide some light on the dark net and guide your purchase. You feel it is time to explore the dark net. You check your anonymity measures and chooses one of the markets still active.

You are surprised to find out that the interface of the website looks something like this:AlphaBay

*Of course it will not exactly look like this, because we are in a hypothetical story about your future life and Alphabay was shut down in July 2017*

The marketplace gives multiple indications of the reputation of the sellers and whether the seller works with a refund policy. The reputation is split in a ‘Vendor level’ and ‘Trust Level’. You are not completely sure how to the two work, but according to Reddit (https://www.reddit.com/r/AlphaBayMarket/comments/5qw3of/vendor_level_trust_level_explained/) the two indicators are based on the seller’s actions performed, sales amount, feedback ratings and user votes. You can read feedback provided by previous buyers per product and per vendor. You have to smile a bit when reading the following feedback:

 

“Excellent vendor, great communication, thx bro!!!” one user wrote on the seller’s feedback page.

The vendor leaves a reply: “No problem, have fun mate!”

 

To see such a feedback system in place makes you relax a bit. Some vendors even work with refund policies if something goes wrong.

The product descriptions help you understand what product you are buying. The origin of the product and which areas it ships to is also provided. In the payment feature the status is ‘Escrow’ and you need to google the definition of this term. You find that the following picture helps you understand the procedure:EscrowExplaiined

At the moment there is no independent agency (such as the Consumentenbond) for drugs to review the quality price ratio and provide some third-party assurance. However, with the textual product descriptions, seller reputation system and refund and escrow services in place, you feel confident. Confident enough about the quality of the product and the quality of the seller while accepting that there will always remain a degree of information asymmetry.

You order the drugs online. You close your laptop. A few hours of sleep before your next working day. 

 

References in order of appearance without proper formatting:

1. https://digitalstrategy.rsm.nl//2017/10/03/the-difficulties-of-dominating-the-dark-net-black-markets/

2. https://darkwebnews.com/dark-web-market-list/

3. https://en.wikipedia.org/wiki/Silk_Road_(marketplace)

4. Business Insider 2015, http://www.businessinsider.com/did-silk-road-make-the-drug-industry-safer-2015-5?international=true&r=US&IR=T

5. Dimoka, A., Hong, Y., & Pavlou, P. A. (2012). On product uncertainty in online markets: Theory and evidence.

6. https://www.reddit.com/r/AlphaBayMarket/comments/5qw3of/vendor_level_trust_level_explained/

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The Difficulties of Dominating the Dark Net Black Markets

3

October

2017

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“Not since the days of the now legendary Silk Road has a single site dominated the dark web’s black market as completely, and for as long as the online bazaar Alphabay. With the news that the site has been torn down by a law enforcement raid —and one of its leaders found dead in a Thai prison— the dark web drug trade has fallen into a temporary state of chaos.” (Wired, 14th July 2017)

In July 2017 the US and Dutch authorities shut down the two major illegal marketplaces Alphabay and Hansa with the aim to crack down the sales of drugs, weapons and malware. However, the shutdown was accompanied by increased traffic at other black markets (BBC, 2017).

This blog looks at the platform properties of a black market on the dark net and asks the question whether another black market can dominate and attain a winner takes all scenario? In this blog the term black market is used to refer to the markets which mainly trade in illegal products and are hosted on the dark net.

Platform location and product nature

Alphabay and eBay both provide a platform which connects buyers and sellers. The main difference is that one sells illegal products and the other does not. For that reason eBay can have its platform on the searchable web, the Surface Web, while Alphabay operates from the dark net. The dark net (also called dark web) which is intentionally hidden and inaccessible through standard web browsers (Sing, 2014).
The majority (70%) of illegal products sold are cannabis-, ecstasy- and cocaine-related products. There are black markets which are specialised in a certain product, and markets which offer a wide variety of products. Specialisation can for example occur with respect to drugs, weapons or counterfeits (Soska & Christin, 2015). This indicates that niche specialisation seems possible and worthwhile, which decreases the odds for a winner takes all game.

Risk mitigation function

The black market does not sell any products itself, but has as main function to manage risks for its users while they participate in transactions (Soska & Christin, 2015). Risk is mitigated in four ways:

  1. Abolishing physical interactions to eliminate physical violence during transactions
  2. Providing superior anonymity guarantees compared to other modes of transactions
  3. Holding payments (often in bitcoins) in an account until for example the receiving party confirms that his order has arrived. This idea is referred to as escrow and some black markets work with a more advanced multi signature escrow. Financial risks are also mitigated by allowing its user to hedge against bitcoin value fluctuations.
  4. Requiring feedback for the quality of goods received

Power of a feedback system

The fourth method, a feedback system, ensures that buyers and sellers behave in an honest way. In case of a scam on the black market there is no where to turn to. There are no contracts, no physical interactions, and no government who will help you. Hardy & Norgaard (2016) write that reputation based on a feedback system is a strong self-enforcing mechanism to sustain transactions on black markets. Furthermore, the existence of feedback systems make it possible for researchers to investigate the size of sales on black markets.

Positive network effects

In order to thrive as black market you want to increase the number of buyers an sellers to achieve a higher number of transactions and a better match between buyer and seller. Strong positive network effects are found in a multiyear study on black market transactions. Either marketplaces manage to get initial traction and then rapidly flourish, or they never manage to take off (Soska & Chrstin, 2015). The increase user base enhances the value of the platform for users which stimulates a further increase in users. This effect contributes to a winner takes it all scenario.

Access and long-tail 

Complete open access to the platform comes however with the risk of a drop in quality goods offered and more user misbehaviour (Alstyne et al., 2016). Silk Road allowed its buyers, the subsidised party, to create free accounts. Sellers needed to either bid for an account or pay a fixed fee (Dread Pirate Roberts, 2011). In this way low-quality sellers would be deterred from the platform and it would be costly for sellers to keep recreating accounts after they received negative feedback. At the same time the fee for sellers provided income for the owners of the platform. In addition, the owners profit from a commission on sales.
Although a few big sellers are very successful with respect to sales, the majority of sellers earns little revenue. Soska & Christin (2015) state that the long-tail phenomenon can found in in the seller population.

The end of a black market

Since the rise and fall of Silk Road, multiple black markets came to existence and vanished. There are three main ways, one forced by government and two voluntarily chosen by the administrators, in which these black markets closed:

  1. Take-down: The black market was shut down by government and the bitcoins are confiscated.
  2. Exit-scam: The black market owners ran away with the bitcoins of its users. Sometimes the owners try to blame technological failures for the disappearance of the black market and its bitcoins.
  3. Exit-in-Fear: Some black markets close down and give back bitcoins or freeze when the owners suspect that the governments are close to a take-down.

Network effects and take-down

In 2011, the existence of Silk Road, the most popular black market at that time, became more known on the Surface Web when an article was published on Gawker, a US Blog. Silk Road started to be a topic of discussion. At this time a US Senator requested the FBI to shut down Silk Road. The existence of online market, where thousands of drugs transaction took place per day, was a slap in the face for law enforcement.  The extra attention for Silk Road boosted its traffic even more. (Wired, 2015).
Silk Road was eventually taken down in 2013. Temporarily negative network effects were witnessed for other black markets, when the technology of their sites could not cope well with an overflow of new users which moved away from Silk Road. Since the fall of Silk Road only Alphabay was able to dominate the market for as long as Silk Road did. (Wired, 2017) However, in the summer of 2017, also this black market has been shut down by the government. The probability of getting on the radar for law enforcement increases with the popularity of the market. In addition, the priority for the law enforcement to take you down increases also with the popularity of the market. In this way the upside from network effects come suddenly to an halt when the FBI knocks on your door.

The growth of the black markets ecosystem

Although some black markets have closed down voluntarily or through external force in the past years, the total sales of all the black markets still in existence keeps on growing  (Saska & Christin, 2015). Buyers and sellers quickly move to another existing market or start a new one. Saska & Chrstin (2015) argue therefore that new crackdowns of marketplaces might not help in an effort to reduce online drug trade.
Sellers are often active on multiple black markets, a case of multihoming, in the anticipation that one of them will eventually end. This means that the threat of a close down stimulates multihoming and undermines the ability of a winner take it all scenario in the black markets ecosystem.

How to escape the government?

Before a take-down happens, a game of hide and seek is played between the government and the administrators of the black market. The ability of the administrators to hide themselves, and their access to the marketplace, depends on the technological sophistication of their marketplace and the  human behaviour of the administrators. In theory it could be possible to have superior technology and perfect human behaviour which would allow the administrators and their marketplace to hide forever. This is however a difficult bet since you only know when your security is flawed when someone breaches it.
Another scenario which would improve the sustainability of black markets is when the government accepts the existence of black markets and shifts its resources away from take-down operations. As Saska & Christin (2015) suggest, it might be more worthwhile for the the government to reduce the demand for drugs or focus on the sellers of drugs rather than trying to fight the marketplaces itself. However, so far there are no indications that that the government will take this position.

Conclusion: can a winner takes all scenario materialise?

Positive network effects contribute to the rise of black markets as major players while other black markets remain small. However, buyers have a wide variety of demand for illegal products allowing niche markets to remain. In addition, sellers are present on multiple markets indicating that multihoming is not too costly and hence enforces the existence of multiple black markets. The multihoming behaviour is incentivised by the threat of black market closure. Popularity of a black market, due to network effects, make a black market more likely for government take-down. So far the two most dominant black markets Silk Road and Alphabay have both ended in this way. There are many threats preventing a winner take all scenario and even sustaining a position as major black market seems to be difficult. A potential for more sustainable black markets might arise with new technological developments or a change government strategies.

 

References:

BBC (1 August 2017) “Dark web markets boom after AlphaBay and Hansa busts” http://www.bbc.com/news/technology-40788266

Dread Pirate Roberts (26 June 2011). “New seller accounts”. Silk Road forums., Source copied from references at https://en.wikipedia.org/wiki/Silk_Road_(marketplace)#cite_note-10

Hardy, R. A., & Norgaard, J. R. (2016). Reputation in the Internet black market: an empirical and theoretical analysis of the Deep Web. Journal of Institutional Economics, 12(3), 515-539

Sing (27 March 2014). “Clearing Up Confusion – Deep Web vs. Dark Web” https://brightplanet.com/2014/03/clearing-confusion-deep-web-vs-dark-web/

Soska, K. & Christin, N. (2015). Measuring the Longitudinal Evolution of the Online Anonymous Marketplace Ecosystem. 24th SENIX Security Symposium

Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard Business Review, 94(4), 54-62

Wired (April 2015) “The Untold Story of Silk Road, Part 1” https://www.wired.com/2015/04/silk-road-1/

Wired (14 July 2017). “The Biggest Dark Web Takedown Yet Sends Black Markets Reeling” https://www.wired.com/story/alphabay-takedown-dark-web-chaos/

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