Silk Road: Illicit Goods Plus Anonymity Equals... A Fairly Small Business

from the but-the-customers-are-happy dept

Fri, Sep 14th 2012 3:01pm — Mike Masnick

The anonymous marketplace Silk Road got some attention about a year ago when Gawker did a big expose on the site, which can only be accessed via the TOR network, and which requires Bitcoin for all purchases. That bit of publicity also resulted in Senator Chuck Schumer demanding something be done about the site, while also suggesting that Bitcoin itself was a form of money laundering. While there are a bunch of similar sites, the "publicity" has established Silk Road as the most well known such site.

Nicolas Christin, from Carnegie Mellon, recently released a fascinating research paper analyzing the Silk Road marketplace. Christin also recently appeared on Jerry Brito's Surprisingly Free podcast, which is where I first heard about the report.

There are a bunch of interesting things in the report itself, but a few key points that seemed especially interesting. The market is surprisingly stable. You might think with a very (but certainly not totally) anonymous marketplace, that seems to focus mostly on illegal products, using a really volatile currency, that the market itself would be pretty volatile as well. But the data does not suggest that at all. Also, you might expect a number of scammers to use the site, but (like plenty of regular online marketplaces), Silk Road has a rating system, and the research found that there was tremendous customer satisfaction:

On a site like Silk Road, where, as shown above, most of the goods sold are illicit, one would expect a certain amount of deception to occur. Indeed, a buyer choosing, for instance, to purchase heroin from an anonymous seller would have very little recourse if the goods promised are not delivered. Surprisingly, though, most transactions on Silk Road seem to generate excellent feedback from buyers. Table 3 provides a breakdown of the feedback ratings from 187,825 feedback instances we collected. 97.8% of feedback posted was positive (4 or 5 on a scale of 1 to 5). In contrast, only 1.4% of feedback was negative (1 or 2 on the same scale).

Also, it will come as little to no surprise that the vast majority of products for sale are not what most people would consider legal. Drugs seem to represent an overwhelming percentage of items for sale, though there are also things like "books" for sale.

Finally, it doesn't appear that the "business" is really that big. For all the talk and publicity around it, you might think it was a decently sized operation, but there's little to support that. When Christin began his research back in November last year, there were only 220 sellers. By the time he finished in July, it was 564. So the number is growing, but it's still not a huge number. Christin also made some reasonable assumptions and estimates to suggest that approximately $1.9 million worth of transactions happened on Silk Road in a month. Translating the commissions, he believes that the site's operators likely brought in approximately $143,000 per month in commissions. At first glance that may sound like a lot but, assuming rather significant costs to operating and maintaining the site while keeping everything as secret as possible, there really isn't that much left for "staff," though no one has any idea how big a "team" there is involved in the operation. It's possible it's just one person, of course, in which case, the money is probably pretty good (and growing).

The report also notes various ways that such a site might be disrupted... and you have to imagine that law enforcement has been working on doing exactly that. It won't surprise me at all to find out that the operators of the site eventually do get tracked down, but I doubt that will stop these kinds of marketplaces from existing.

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Filed Under: bitcoin, chuck schumer, tor
Companies: silk road

25 Comments

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Anonymous Coward, 14 Sep 2012 @ 3:23pm

Sounds like a government setup.
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- Anonymous Coward, 16 Sep 2012 @ 6:25pm
  
  Re:
  I always thought so too. What's stopping the DEA from posing as a buyer and figuring out where the package originates. Maybe that's the plan and they're the ones who have been raiding the bitcoin exchanges?
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  - jooboy, 20 Nov 2012 @ 12:27pm
    
    Re: Re:
    The country of origin is known to anyone who wants to look. The DEA could place an order, but how are they going find out where it was sent from when it is dropped in a random mailbox?
    
    Any seller who is even a tiny bit intelligent drives around and uses different mailboxes to make their drug drop. It is packaged like any ebay item would be, vacuum sealed, etc.
    
    The best the DEA could do is pose as a seller and then bust the buyers via their address, but all that effort for a couple drug possession charges isn't efficient.
    
    Not to mention it would be very hard to prove in court that you were the one who placed that order. Nothing would be stopping me from placing a drug order and giving the address of one of my enemies to get them arrested.
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- Cmo, 28 Jun 2013 @ 11:39am
  
  Response to: Anonymous Coward on Sep 14th, 2012 @ 3:23pm
  Not its not
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Anonymous Coward, 14 Sep 2012 @ 3:27pm

Why does weed and cannabis have separate categories?
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- letherial (profile), 14 Sep 2012 @ 4:10pm
  
  Re:
  same reason why drugs is in 2nd place...listed after all those errr drugs.
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- Bob, 14 Sep 2012 @ 6:30pm
  
  Re:
  Because the heavy users can only spell WEED.
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  - btrussell (profile), 15 Sep 2012 @ 7:51pm
    
    Re: Re:
    I thought it was only POT (Paywall Omitted Transactions).
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Chosen Reject (profile), 14 Sep 2012 @ 3:29pm

I find market places like this fascinating from the standpoint of a libertarian leaning. Libertarians say that the free market can handle a lot of the things others say is required by the government (the FDA for example). This goes to show how far the free market can work in that way. There is no way you'll be able to complain to the government that someone sent you bad heroin, yet that market seems to be operating just fine without an FDA or CPSC to verify that sellers' heroin is good quality.
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- Ilfar, 14 Sep 2012 @ 3:55pm
  
  Re:
  I wish to complain, the heroin I purchased was fake and I died while using it...
  
  Anyone thought that could be a reason there aren't all that many negative reviews?
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  - letherial (profile), 14 Sep 2012 @ 4:12pm
    
    Re: Re:
    should of looked into the guy that has a bunch of positive reviews, instead of finding the guy that has 0 reviews.
    
    live and learn....o wait..
    
    Anyways, nice to know that the next life has internet, now i will haunt people from the dead muahahaha
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  - Chosen Reject (profile), 14 Sep 2012 @ 4:27pm
    
    Re: Re:
    I get that. However, I don't think that would be the case here. First off, people die while taking heroin. Second, bad heroin doesn't necessarily mean death. Third, it could be that the buyers aren't the users, and they wouldn't be too keen on selling bad heroin, and will leave bad reviews when they find their users are dying from the bad heroin they've been sold. Fourth, I suspect a lot of people got to silk road from referrals to friends of fellow druggies. Alone, that should be evidence of the decency of the reviews, but in addition, they'd probably leave bad reviews if their friends start dying from bad heroin. There are probably other reasons why if someone is selling bad heroin (or other drugs) they'd still end up with bad reviews.
    
    Now come back with how the sellers could be writing all the positive reviews (it is tor and bitcoin and otherwise heavily anonimized after all).
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    - Anonymous Coward, 14 Sep 2012 @ 5:16pm
      
      Re: Re: Re:
      silk road is a business, and the people who operate there are business people, it is in their best interest to supply quality good to get return customers... simple
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- Anonymous Coward, 14 Sep 2012 @ 6:00pm
  
  Re:
  Read through the comments/ratings of the site to know what is legit. Someone could rip off a small amount from a couple people before being found out, but the big payoff is just to deliver what you actually promised to a lot of customers.
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- Ninja (profile), 17 Sep 2012 @ 6:17am
  
  Re:
  First thing I thought. Capitalism could be a better system if it wasn't for the very ineffective monopolies set by the Govts. Food for thought.
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Liz (profile), 14 Sep 2012 @ 5:52pm

Books? Holy crap, they're selling BOOKS on that site? The Author's Guild must be soiling themselves about now.
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- The eejit (profile), 15 Sep 2012 @ 8:22am
  
  Re:
  Nope, they don't care so long as they get paid.
  
  And the Silk Road pays them. So no issue.
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- Ninja (profile), 17 Sep 2012 @ 6:15am
  
  Re:
  "Books". Note the " ".
  
  I'm fairly sure they aren't selling comedies ;)
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Anonymous, 15 Sep 2012 @ 5:49pm

I'll have to check this out and see if they have those Kindergarten mags. Inga is the queen!
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monkyyy, 15 Sep 2012 @ 6:13pm

can someone found out what books are on sell, i want to know but it seems like a pain
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Anonymous Coward, 16 Sep 2012 @ 8:16am

I would have to say this is a pretty dumb business idea, mostly because taking a commission on an illegal transaction makes you part of it. The number of felonies this guy is a part of is staggering. Enforced, this guy would be locked up until Kate Middleton's grandkids are flashing their legal (over 18) boobs.

This is truly a case where someone hasn't figured out the implications.
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- CTS, 15 Dec 2012 @ 3:25pm
  
  No one ever thought of that.
  Thanks for your insight. If only your brilliant idea could be broadcast around the world all crime would stop. In other news this type of online transaction medium reduces violence. Just as ending alcohol prohibition reduced violent crimes dramatically related to the sale, turf, and everything else associated with getting the goods to the people. Interestingly alcohol is one of the worst drugs when taken to cause violence and crime. Our government really does a top notch job of telling us what is best for our own bodies and minds. Glad the US Government is there to regulate things. We all know how efficient and noble they are (almost no corruption). Another case in point when the "war on drugs" benefits the drug cartels there is probably a better solution to the drug problem. Unless declaring war on your own citizens is a sound idea to you. But that's a slippery slope. It might sound good until the government decides something you enjoy should not be allowed.
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average_joe (profile), 16 Sep 2012 @ 8:32am

Translating the commissions, he believes that the site's operators likely brought in approximately $143,000 per month in commissions. At first glance that may sound like a lot but, assuming rather significant costs to operating and maintaining the site while keeping everything as secret as possible, there really isn't that much left for "staff," though no one has any idea how big a "team" there is involved in the operation.

Wow, really? $143K a month is a lot. And I seriously doubt that operating expenses eat up much of that. Just more internet exceptionalism and apologism, IMO. How many millions does someone have to rake in from their crimes before you can admit it's "a lot"? I mean, I remember you saying that Dotcom didn't make a lot. LOL! Yeah, millions is jump chump change.
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Anonymous Coward, 16 Sep 2012 @ 12:57pm

Where did this occur?
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Bitcoin, 18 Sep 2012 @ 2:10pm

Silk Road
one of the best thing that could happen to the net.
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