Silk Road and the potential to disrupt a truly evil industry

Silk Road and the potential to disrupt a truly evil industry

Summary: All types of businesses including drug distributors are vulnerable to the disruptive economic forces of the Internet... and Bitcoin can help

TOPICS: E-Commerce
Silk Road and the potential to disrupt a truly evil industry

The FBI's shutdown of web site Silk Road is a hollow victory in the hugely expensive war on drugs, which has consistently failed to stop the drug trade, or stop criminals from amassing huge amounts of wealth and ordering more than 60,000 murders in Mexico alone.

Silk Road had some positive aspects. The FBI admitted that Silk Road vendors provided high quality drugs. And the prices were far below the street.

Based on advanced Internet technologies, it was able to create a protected market that kept money out of the hands of violent street gangs and international criminal syndicates. It also protected buyers (lots of US citizens) from the poisons that adulterate street drugs. 

If it had grown large enough, Silk Road, or a collection of similar online services, would have begun to seriously challenge the revenues of local and international mobsters on a scale that the war on drugs has consistently failed to do.

It's much better to have drug distributors such as Silk Road and competitors fight over Google keywords in online auctions than murder and behead each other.

The beneficiaries of this FBI takedown are the international criminal syndicates, hit men, and the corrupt networks that enable the drug trade to cross borders in staggering quantaties. 

The FBI has unwittingly done them all a big favor and kept the Internet from disrupting a truly evil international industry.

But this story is not done yet. It's just the beginning. The next generation of Silk Roads is on the way and they'll be smarter, stealthier, and even more efficient at disrupting the drugs business. 

Bitcoin's future…

Bitcoin is a key technology in this tale of potential business disruption. Its ability to enable a large market with relatively friction-less payments has attracted the attention of a legion of entrepreneurs with ideas for other applications. Bitcoin has benefited greatly from its nefarious affiliations.  

Businessweek's Joshua Brustein reports that the Silk Road bust is good thing for the virtual currency.  He quotes several entrepreneurs saying it removes a negative perception.

However, Bitcoin's future has nothing to do with drugs. It's as if the future of cash was in doubt because its anonymity allowed people to buy drugs, and worse. Bitcoin's value dipped after the bust but it recovered quickly showing that most Bitcoin backers knew that the drug connection is a red herring and were happy to buy them at a discount from dumb sellers.

The burgeoning interest in the currency is due to its unique properties, especially its property of scarcity.

Abundance destroys monetary value but scarcity attracts it and retains it. 

That's why De Beers warehouses huge quantities of diamonds so that they remain scarce and maintain their market value despite the fact that diamonds really aren't all that scarce, thanks to new sources and new mining techniques.

There isn't a warehouse full of Bitcoins being kept out of the market to maintain a high value because it would be impossible. But De Beers could decimate the value of all diamonds at any time, by having a 50%-off warehouse sale.

A government couldn't use Bitcoins for quantitative easing, for example. "Printing money" is impossible with Bitcoins.

In the digital world of the Internet everything is easy to copy. But not Bitcoins. 

It's these qualities that make it interesting.... and valuable.

See also:


Topic: E-Commerce

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  • Silk Road was largely victimless

    Which is precisely why it had to go. Wars for Profit, such as the war on drugs, are aimed at being endless with lots of collateral damage for show.
    Zee Flynn
    • Uh, are we forgetting the murder plot?

      Largely victimless? What other than the hitmen for hire that the sites owner used to try and murder an opponent with? The only thing that separates it from having the worst sort of victims is the fact that the libertarians who get into this sort of thing are more or less pathologically incompetent people. If they actually knew what they where doing, trust me, there would be victims.
      • Are you forgetting prohibition?

        Do you remember prohibition? When it was in effect, alcohol-related crime was rampant. After it was repealed, the related crime disappeared.

        You don't fear alcohol producers, do you? The blame here lies with the government for forcing drug producers and distributors underground. Because producers have no legal recourse their only choice is violence.
      • You are mistaken ...

        He is NOT accused of trying to have an opponent murdered - the alleged hit was on someone who was blackmailing him i.e. demanding he pay a (presumably large) sum of money or have his identity revealed to law enforcement which would, of course, result in a long prison sentence. Murder is terrible, without doubt, but for someone in his position there aren't any good ways to respond to such a threat. Paying the person would be unlikely to make him/her go away and would result in handing over the profit from a risky business to someone else.
      • It's perfectly reasonable to judge DPR as an individual, but consider this

        DPR may be a less than savory individual, attempting to have a police-invested-identity "killed". The fact remains though, if not for the government's prohibition of the wares available on the Silk Road, it never would have had to come to that. The "hit" only came about as a result of pro-cartel laws, and I think it's fair to put a good part of the blame on the US government for the hit. Considering the "snitch" both never existed (entrapment) and was only a threat in a legal climate inhospitable to DPR's project.
  • Interesting perspective

    I think Tom has the right idea. Not many people out there writing it, sadly. Its nice to see a logical take. Keep it up... I like this guy.
    • Just look at Portugal.

      Rather than punish drug users, they treat them. Decriminalization decreased drug use, sale, and related violence by 50% during the first ten years of Portugal's 'experiment' (2001-2011). I don't know what's happened since 2011, but logically the situation has continued to improve. Also, treatment costs far less. For one thing, they don't spend money on prisoners being in prison, people who've done little wrong. Just trying to get high. Not only do they save money by not locking people up for such minor offenses, but they make money by keeping that part of their population tax paying.

      It's impressive really, that a program like Portugal's is so well documented and yet so few countries are willing to act on it. To some extent the Netherlands, Sweden, and Norway have taken similar measures.

      Prohibition kills, it fuels gang and cartel violence, and it forces drug abuse into the shadows where we can pretend it doesn't exist because we can't see it all the time. Instead, we should draw it out into the light and actually FIX the problem. How often does repression work?
  • Truly evil?

    Are you serious when you say that the Silkroad empire is an evil industry?
    I could not agree less with you.

    Silkroad showed the world exactly how a market works, whether it is handling drugs or anything else.

    "If it had grown large enough, Silk Road, or a collection of similar online services, would have begun to seriously challenge the revenues of local and international mobsters on a scale that the war on drugs has consistently failed to do."

    To me that sounds like a good thing.
    Please explain to me and rest of your readers why it is a good thing that the site is down for now.
    To me there should not be any war on drugs - people should be able to choose for themselves.
    As a rule of thumb:
    Dont listen to the people telling you what to do or what not to do.
    Choose for yourself.
    • Re: Truly evil?

      Plz read the article properly emilpfeifferS:
      Silkroad is never called "Truly evil" and the author also did not say that bringing silkroad down is a good thing. He only linked to article by Joshua Brustein. In fact his conclusions are much the same as yours. The "Truly evil" are the mexican drug cartels. FBI did them a big favor by shutting down slikroad.
    • The effect of drugs on people is bad

      I have seen first hand how the drugs themselves destroy lives even quite seperate from the cartels etc.

      Many drugs mess up the way the brain works (after all that's the point) and make the person less able or unable to cope with the world.

      You don't have the right to turn into an ice monster for instance and make the lives of others difficult cause you are a 'free' 'thinker'. Other people's lives get messed about at the same time.

      An ice addict buying from a reputable source is still an addict and still will ruin their lives.

      So although I like the idea of cutting out some of the criminal element - it is not the only problem here.
      • What's your solution?

        Yes, drugs can be horribly bad and addictive. That said, what's the solution? Throw somebody in jail? Where they're likely to get raped and/or abused by truly vicious people?

        Drugs are bad, yes. But that's completely different from saying what we should or shouldn't do about the problem.
      • The affects of TV on people are bad.

        How about prescription drugs. Are they bad?

        Meth is a prescription drug named Desoxyn. Fentanyl is a synthetic opiate similar to heroin but much stronger.
        The only difference is WHO makes the profit.. Our governments are set up to keep the profits in the pockets of Big Pharma. Big Pharma doesn't care if you take dangerous drugs as long as they get the money.
      • People aren't going to stop using drugs.

        At least not while they are criminalized, and thus profitable and easily accessible. Easy access should be considered a constant, just because of how damn easy it is to manufacture and transport illicit substances.

        If ease of acquisition is held constant, than the only factors affecting drug proliferation should be . . . criminal status,danger to individuals involved in any level of the drug cycle, and profit potential.

        Criminality directly relations to profit potential, thanks to the 'law' (tendency) of black markets. Danger is high for someone working with drugs or with people who work with drugs. The only reason they continue to do so is because of the profit potential. Associated danger becomes not worth it when the potential profits get too low. Low profit margins also drive down the danger, but not to a meaningful degree.

        By decriminalizing illicit substances several things are accomplished. Black markets evaporate and profits vanish. Prices drop. Availability goes down. Use goes down. Crime goes down. Violence goes down. Prison populations go down. Society improves.
  • Interesting Perspective for Morons

    Sorry Tom, but clearly you are a naïve moron. Where do you think Silk Road sourced the product that it was selling... and with respect to Bitcoin, you compare its scarcity to that of diamonds, are you for real? Time to give yourself a couple of sharp upper cuts and clear your head because you a clearly a source of dangerous ideas for people with mushy brains!
    • Bitcoin

      Just clarify my comment, Bitcoin is essentially synonymous to religion. Its value is a function of pure faith. Faith that others will continue to agree that an algorithmically generated number (1 of 21m numbers to be generated) has value. There is nothing tangible that defines its value other than faith that people will continue to exchange it. If we were to lose the electronic net work that supports Bitcoin, because of war or extreme natural disaster then you would have nothing; so as for the diamonds, yes their value is defined by artificial scarcity but so is that of Bitcoin, the only question is what happens when the next pseudo Bitcoin algorithm makes an appearance, will people buy into that or will they then question the whole notion of a totally intangible currency.
      • True but

        All currencies are based in a beilef in eventual payment.

        Currency is a promissary note and nothing more.

        At some stage the holder of the note can obtain it's value from the issuing country.

        If the faith in the issuing country goes down the value of a currency drops.

        If the issuing country falls apart there is no value in theory and often in practice.
      • The difference between Bitcoin and issued currencies

        Basically, the difference between Bitcoin and issued (fiat) monies like the US Dollar, the Euro, Great British Pounds, Francs, Yen, etc, etc is that Bitcoin has buying power after the fall of a state. If US-backed currency completely falls apart, there's no reason why Bitcoin would suffer any more than other issued currencies would. Bitcoin would continue to trade against Euros and Rubbles. And when the Euro falls, BTC is still traded against the Australian Dollar, GBP, Francs, etc. And when they fall? BTC is still traded against the remaining state currencies. But BTC has no state backing, there is no authority to collapse which would render it worthless.

        It is truly decentralized. It is a "clean conscience currency", backed by people, not by the military might of the nation which issues it.
  • Not realistic

    "If it had grown large enough, Silk Road, or a collection of similar online services, would have begun to seriously challenge the revenues of local and international mobsters on a scale that the war on drugs has consistently failed to do.

    It's much better to have drug distributors such as Silk Road and competitors fight over Google keywords in online auctions than murder and behead each other."

    Sorry, Tom, but this is a pretty naive view. I grew up in the New York City area, where the Mafia was entrenched for decades and now there are also other large-scale criminal organizations. I know of one small group that decided to run a small-scale gambling operation (called "running numbers") on Long Island, without Mafia connections. Within a week someone from the Mafia showed up and told them straight out--"As of NOW, you're out of business. If we hear that you are running any more of this, you're all dead."

    Regarding "good quality drugs", one of three things would eventually happen--either some gang would kill the Silk Road leaders and destroy their physical premises to eliminate the competition, or gangs would adopt the same tactics Silk Road was using, or some gang would take over Silk Road's operation. In places like New York City, Chicago, and other areas where there are entrenched large-scale organized crime organizations, they eventually infiltrate many legitimate businesses. For instance, in the 1970's I was talking with a guy on Long Island who worked in the shipping department of a manufacturer, packing and unpacking boxes. He mentioned one day that in high school he had completed an electrician vocational training program. I asked him, "You're fully qualified as an electrician? Why are you working HERE?" He responded, "To work as an electrician I have to be a member of the International Brotherhood of Electrical Workers union. The guys in charge of the local chapter wanted a $25,000 bribe and my dad can't afford it."
    • NYC electritians are making fortunes

      I worked with a project manager for a large nyc bank ten years ago. The union was charging the bank $150 an hour(!) for an electrition. I assume that at least half was going to the electrician himself. the whole union thing in nyc is just another mafia.
      The outragious money they are making is the reason they want an 'entry fee'.

      On the other hand, a licenced professional does not have to work in a specific city. Out is suburbs there is still electricity - which require electritians, the pay is less, but no entry fees.
    • The wonderful thing about strong cryptography and proper anonymity . . .

      is that when combined, you are unknowable. The cartel/mafia/etc can only destroy what they can know. But if I'm truly anonymous within a cryptographically strong (and onion routed) network, there is absolutely no reason why I should be found. In a well orchestrated pseudonymous identity situation (which DPR almost had) there would be no way for even the government, much less an organized crime syndicate, to find someone. The sellers are similarly protected by the mail system, and the buyers are protected by Amazon marketplace style reviews and vouches.

      Research cryptographic networks like TOR, Freenet, and I2P. You'll find that it's going to be a very long time before someone can demonstrably defeat the encryption used in these networks. Even if the mafia somehow gained this ability, all they'll get is maybe an originating IP address. And then what? Go shoot up the ISP and try to find who had [x] IP at [y] date/time? Face it, there's nothing organized crime syndicates can do to defeat Silk Road-like competition.