by Besim Likmeta
A cryptomarket is an online marketplace platform bringing together multiple vendors and listing mostly illegal and illicit goods and services for sale. Silk Road was the first cryptomarket selling illicit drugs, including cannabis, psychedelic drugs, stimulant drugs such as cocaine, and prescription medications. Drugs were purchased online from vendors displaying eBay-style shop windows and delivered by mail. Buyers were protected by a system of escrow: they paid for their purchases in the anonymous cryptocurrency bitcoin but vendors did not collect until buyers were satisfied with their deliveries. This market could function well because it was part of the hidden web, where all communications are anonymised by the Tor service. The site was launched in February 2011 and ran successfully for over two years until the FBI seized it on 2 October 2013.
A few weeks after Silk Road’s closure, Silk Road 2.0 was created. Meanwhile, rival marketplaces were emerging . One of these, Sheep, quickly grew up to a great size, but a few weeks later its administrators shut down the site, claiming that a user had exploited a security loophole and stolen 5 400 bitcoins of their users’ money (at the time worth around USD 6 million), although many believed this was an ‘exit scam’ by the marketplace administrators, designed to enable them to run away with the funds themselves. Throughout 2014, marketplaces grew in size, with Pandora, Agora, Hydra, Evolution and Silk Road 2.0 competing to regain the trust of vendors and buyers once the possibility of scams by marketplace administrators became apparent. Another exit scam by market administrators occurred on 18 March 2015, when the Evolution marketplace closed, with administrators reportedly having stolen USD 12 million from buyer and seller accounts.
In November 2014, cryptomarkets were hit again by law enforcement agencies in Europe and the United States, in Operation Onymous. Multiple marketplaces were targeted, including Silk Road 2.0, Cloud 9 and Hydra.The administrator of Silk Road 2.0 and several vendors were arrested. The operation was carried out by an undercover agent who had been involved from the start of the market working as an administrator. As a result, anonymity, that provided users with confidence in the platform, was undermined.
In spite of scams and law enforcement efforts, however, cryptomarkets continue to proliferate. Studies have found that 43 new markets opened in 2014 and 46 markets closed. Most of these closures were due to scams by marketplace administrators (or outside hacks), with only six closures attributable to law enforcement. Other studies show that these marketplaces are extraordinarily resilient, with law enforcement ‘takedowns’ resulting primarily in vendor displacement to other marketplaces. In summary, cryptomarkets tend to have a fairly short life, and their longevity is reduced more by scams than by law enforcement crackdowns.
Cryptomarkets represent a change in criminal innovation. Visually, they look just like a legitimate online marketplace such as eBay. Most importantly, they bring together four security measures never used in conjunction before. First, cryptomarkets require that participants make their payments in virtual currencies such as bitcoin. Second, cryptomarkets require that their participants use an anonymising protocol, such as Tor or the Invisible Internet Project (I2P), to hide their identities when connecting to them. Cryptomarkets also take advantage of these protocols to hide their IP addresses, thereby making it difficult for law enforcement to seize their servers. Moreover, they provide buyers with security in relation to their transactions. Cryptomarkets use escrow systems, and they employ feedback or purchase review systems similar to those found on Amazon and eBay. Buyers can check the feedback scores for vendors and their products, in this way making an informed purchase.
© 2021 Besim Likmeta. All rights reserved.