Out of Prohibition’s Reach: How Technology Cures Toxic Policy

Out of Prohibition’s Reach: How Technology Cures Toxic Policy

Drug policy is a contentious issue.  Prohibition creates undue violence and fills prisons with victimless offenders.  Addiction is a difficult topic, though, and the effects that legalizing all drugs would have on today’s society is almost entirely uncertain.  In this three part series, The Review will approach the debate from a new angle by taking insight gained from online drug markets.

Part 1 of 3

On October 1, 2013, the Federal Bureau of Investigation arrested Ross Ulbricht, charging him for operating an online drug network called The Silk Road, which grossed roughly $1.2 billion over two years of operation. Ulbricht is not your typical drug lord. In the moments before his arrest, he was working on a laptop in the San Francisco public library.  Despite earning $75 million, Ulbricht “had next to nothing—just a computer and three or four changes of clothing.” While Ulbricht has not spoken publicly about his reasons for starting the website, his personal footprint on the internet makes it clear that the money alone was not his primary motivation. His LinkedIn summary reads:

“I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force.”

Figure 1 - Amazon wine section (left); Silk Road drug section (right)

Ulbricht’s arrest marked the end of the original Silk Road and left about 150,000 buyers and 3,800 vendors in search of a new home. As a result, at least eighteen comparable marketplaces exist today, all fighting to fill the demand left behind by Silk Road’s legacy. One particular replacement, branding itself as “Silk Road 2.0”, turned heads in Washington when it launched just one month after Ulbricht’s Silk Road was shut down.

The shutdown also motivated improvements as new marketplaces started offering features like faster services, private messaging that requires encryption, and bitcoin escrow services that eliminate the possibility of the marketplace scamming users. Every improvement in marketplace usability and security represents another step toward Ulbricht’s ultimate vision of “an economic simulation … of what it would be like to live in a world without the systemic use of force”. In the same vein, every new user to these marketplaces marks a small victory for Ulbricht’s desire to “change the minds of the governed.”


Mike Power, author of Drugs 2.0, gave an in-depth talk on digital marketplaces where he provided a thought-provoking analogy for prohibition, stating, “If we see drugs as an illness, prohibition as the antibiotic, [and] treated [the illness] with the same antibiotic for 50 years, medical people would be astounded if a resistance had not developed.”

The traditional black markets that have fulfilled our demand for illegal drugs for decades have acted as society’s resistance to prohibition, but unfortunately these black markets created at least as many problems as they solved.  Producers vye for market dominance by imposing violence on their competitors. Suppliers maintain indefinite turf wars with anyone that threatens to enter their distribution channels. Dealers maximize for profit by deceiving consumers either with products intentionally diluted to inflate supply or by lying about the products they are selling altogether. Altogether, it is more apt to describe both drug prohibition and the externalities it creates as one ugly virus in need of a cure.

Ulbricht’s mission statement is carefully worded; while his assertion that “violence, coercion and all forms of force by one person over another can come to an end” is certainly directed at forceful government behavior like drug prohibition, the statement goes further in desiring an end to all coercive acts, including the violence and deception that the producers, suppliers, and dealers in black markets exert on each other. To that effect, the Silk Road represented an initial attempt at a true cure to the virus that is drug prohibition and violent black markets.

Treating Prohibition

The Silk Road was not a perfect cure to prohibition and violent black markets, but the technology involved was sophisticated enough to sustain the marketplace for two years of large scale drug trade that law enforcement couldn’t touch.  The Silk Road was able to survive thanks to three established technologies: Tor, Bitcoin, and PGP.  Together, the website could operate without being located, users could pay vendors without revealing their identities, and vendors could coordinate with users without the possibility of exposure if the website was one day shutdown.

Over the years, using Tor has become as easy as installing a browser extension. This installation allows users to browse visit any website anonymously, as well as anonymously browse the “deep web”, an extension of the internet consisting of websites like the Silk Road that only live on the Tor network.  Just as users can install Tor to anonymize their traffic, these websites anonymize their servers in a similar fashion. As a result, websites like the Silk Road are extremely difficult to locate and their visitors are not easily susceptible to government surveillance.

As an added layer of security, buyers and vendors communicate by encrypting their messages using a program called PGP.  PGP users know that only their intended recipient can decrypt and read the contents of their message.  The encryption PGP provides is an important precaution on marketplaces like the Silk Road seeing as all buyers need to message their mailing address to their drug vendor of choice.  When used properly, the buyer and seller can communicate knowing that their messages cannot be read by the website’s administrator or any law enforcement agent that seizes the machines at a later date.

Finally, Bitcoin allowed users to pay for drugs without subjecting the user’s identity to a subpoenable central party. Unlike credit/debit cards, ACH, PayPal, or any other form of payment on the internet, Bitcoin lets individuals transfer currency to another party without associating the sending and receiving accounts with identifying information like a person’s name.  Bitcoin enables privacy by design;  marketplaces like the Silk Road also implement tumbling and mixing services to further obfuscate any relationship between the Silk Road and the bitcoin the vendors receive as payment.  Bitcoin’s baseline privacy enables users to buy drugs without revealing their identity. The additional measures taken by marketplaces like the Silk Road allow vendors to accept payment knowing that the money will be easily laundered and spendable right away.

Treating Black Market Side Effects

Marketplaces like the Silk Road reduce violence and introduce competition for vendors, which are the equivalent to the producers, suppliers, and drug dealers that introduce the negative externalities in traditional drug markets. The benefits of these marketplaces can be separated into two major categories: quality assurance and scam prevention.

The most prominent quality assurance feature on the digital black markets are the vendor and product reviews.  Just like ordering on eBay, after you receive your shipment you are asked to review the product you received by providing a positive, neutral, or negative review and a comment explaining your rating. In these reviews users names are censored but the product they purchased is displayed and they are encouraged to evaluate speed of delivery and product quality. As a result of the review system sellers with good ratings receive more orders, well known vendors can charge more for ensured quality, and buyers can research products before they order them.

Many marketplaces also have subcultures that are thoroughly motivated to help the community filter for good quality vendors.  For example, a group called “The LSD Avengers” set up shop after many LSD vendors on the Silk Road scammed users; the Avengers “began ordering from different vendors on the site, subjecting their wares to a chemical reagent test and a gas chromatography mass-spectrometry machine”.

In terms of scam prevention, most marketplaces actively work to make scamming unattractive.  Anyone that wants to sell as a vendor is required to post a bond until they reach a certain amount of sales and positive reviews.  All payments are paid in bitcoin and processed through the marketplace’s personal escrow payment management system, meaning that the seller doesn’t receive payments until the customer is satisfied.  If the buyer and seller both dispute a transaction then the website’s admins step in to help mediate the dispute.

Immune Systems

Beyond attempting to solve the problems posed by traditional black markets, the anonymous markets currently operating also compete with each other by fixing the issues in the existing black markets by improving security, anonymity, and usability.  After the original Silk Road was replaced by a handful of marketplaces looking to inherit its user base, a few of the marketplaces scammed their users by withdrawing all of the bitcoin deposited into the website then shutting down the service. As a result, an increasing amount of anonymous markets today are handling payments using multi-signature bitcoin addresses that make it impossible for the marketplace administrators to transfer deposited bitcoins without the user or seller approving the transfer as well.

While many Silk Road users exclusively used PGP to encrypt their purchase information, many found it too difficult. This discrepancy puts the careless users, as well as the individuals they transact with, at risk of being traced back to by law enforcement if and when server information is seized.  In response to this concern, many marketplaces now block users from sending private messages on the marketplaces unless it is encrypted with PGP. Anonymous marketplaces go beyond curing for the side effects of traditional black markets; the competition between the many anonymous marketplaces incentives all contenders to protect the privacy and financial safety of users.

Curing Prohibition

Silk Road’s shutdown can be attributed to any one of a handful of mistakes. Ross might have leaked his identity when he asked a programming question under the same pseudonym he used on the Silk Road.  Alternatively, he might have motivated an investigation when Homeland Security intercepted nine fake IDs Ulbricht purchased for the purpose of buying more servers for the Silk Road. It is even possible that Ulbricht’s involvement was discovered through government sponsored malware and parallel construction.

For all cases, the common theme is clear: central points of dependence becomes central points of failure.  Ulbricht’s central role in maintaining Silk Road servers and running the marketplace becomes a central point of failure for everyone.  The servers themselves become central points of failure as malicious government agencies might silently take control at any point in time. Today, marketplaces like the Silk Road are anonymous and relatively secure for users, but the popular sites remain centralized, meaning that government agencies will always be searching for central points of failure to exploit.

Centralized marketplaces are a terrific stopgap for treating the illness of prohibition, but it does not cure the disease.  Decentralized marketplaces like the experimental “DarkMarket”  platform, recently renamed “OpenBazaar”, are the next step towards the cure.  DarkMarket is peer-to-peer which means that every user serves up their own buyer or seller page, as opposed to that page being served up by a server like on traditional websites or current anonymous marketplaces. Users message each other directly so their messages are never stored in a massive database that is likely to attract law enforcement. Reputation is managed just like on current marketplaces, but instead of storing the reputation on a centralized server or on users computers, the reputation is embedded in the bitcoin blockchain so that it cannot be easily spoofed by vendors looking to deceive. On top of this massive shift to decentralization, the same mask of anonymity can be worn by routing the marketplace’s traffic through tor.

An operational DarkMarket that decentralizes reputation, distributes hosting, and communicates via anonymous peer-to-peer might be the true cure for prohibition.  When technology eliminates central points of failure, policy makers will grasp at straws as voluntary trade falls out of their reach.

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