What can we learn from the dark markets?

Monday 05 September 2016

Drugs are bad, hmmkay? But crypto-market purchases are booming in the UK, which suggests there are advantages to using crypto that other sectors might leverage.

Amid lacklustre economic data, there is a segment of the UK economy that is booming. It’s only a small segment, admittedly, but we’ll take what we can get, right?

Online drug dealers in the UK have earned more per-capita than their competition in any other country, capturing $2.2 million or 17% of the total online drugs market in January. Not bad for a small country. The US managed 36% but has five times the population. So. In your face, America.

Rand Europe found that drug purchases on the dark web (typically for bitcoin) had tripled since 2013, despite the closure of the Silk Road. That’s still only a tiny proportion of the total drugs trade.

Is there anything we can learn from this little slice of the crypto economy?

Drugs world

Buy anything, anywhere in the world, without risk of chargebacks or fraud - not something you can do for fiat, even when it's legal

Obviously, the biggest take-home point is that people engaged in illegal activity don’t want to get caught, and bitcoin helps them to evade arrest and troubling jail time. But that’s not something we should focus on when it comes to mainstream adoption. So what else can we apply from this research?

Only just illegal

Firstly, it’s interesting that the most common drug bought was marijuana. ‘Cannabis was the most popular item on the underground websites, accounting for a third of transactions.’ There are likely several reasons for that, but marijuana isn’t too illegal. It’s technically illegal in the UK, and dealers may get into trouble, but generally users don’t get pinched. It’s too much trouble for the cops. So it seems that maybe customers are using the dark web for something that is only just illegal. The added anonymity of crypto markets encourages them to take a step they would otherwise not quite be prepared to take.

There are obvious analogues in other areas of vice, legal or otherwise, including gambling and pornography. But perhaps more useful are instances where anonymity is desirable but may not be linked to illegal activity. A desire for financial privacy doesn’t just indicate criminal behaviour. This links to the next benefit for online drug merchants and buyers alike: security.

Drug merchants like crypto not just because it can be relatively anonymous, but because it’s secure for them. There’s no chance of chargebacks. And customers like it because it’s a push transaction, and there’s no chance of their card being skimmed and further funds stolen. Where either of these is a problem in the mainstream economy, there’s a case for doing business differently. Merchants who deal with customers where credit card fraud is a real problem can circumvent those problems with crypto payments - like these guys

Related to this, dark markets are physically safer than sourcing your smack on the streets. (It’s also interesting that the drugs they offer tend to be purer, and they have better customer service. ‘Market’ is the operative word here: the web has brought competition and the benefits of the free market to an industry that was previously defined by territory, gangs and cartels.) Buying something on holiday from a merchant you’re not sure about? You probably want to hand over cash instead of a credit card. But you don’t want to carry too much cash, so…

Crypto drug markets are a small segment of the overall crypto economy. But we can start to learn a little about why people might use crypto from looking at where they are using it already.

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