Distrupting Your High

In 2009, a young entrepreneur named Ross Ulbricht took on the toughest industry around and succeeded, creating a company with $1.2 billion in yearly sales. Since then, Ross has been forcibly retired and lives in Manhattan where he will spend the rest of his life behind bars.

Silk Road

Ross Ulbricht’s company, Silk Road was the world’s most successful cryptomarket, bringing digital transformation to disrupt the traditional illicit drugs operating model.  Illicit drugs have traditionally been supplied on various models mainly centered on some sort of grower, producer, distributor, dealer supply chain.  Silk Road seeks to eliminate the dealer by allowing distributors to go direct to consumers.  In order to avoid government prosecution, Silk Road is built on two main technologies, Tor and Bitcoin. Tor, the onion router, allows users to access a part of the internet referred to as the ‘dark web’ and to operate there anonymously by moving traffic through thousands of relays worldwide.  Bitcoin is a digital currency, which brings anonymous payments to the Silk Road cryptomarket.  With these two technologies, Silk Road created a truly anonymous marketplace where suppliers could sell anything they wanted without risk of government prosecution.[1]

Silk Road combined these tools of digital anonymity with an escrow system in order to create trust in the seemingly untrustworthy world of illicit drugs.  Silk Road would hold buyer’s money until they have received their product and then transfer the money to the supplier taking a commission from the sale.  Silk Road also employed a rating system in order to build trust between buyers and suppliers.  This model was hugely effective and provided all of the traditional benefits of online shopping (convenience, price, variety) with the added benefit of decreasing one’s chances of being injured or killed in a drug dealing related crime.  This led to huge success with over $1.2 billion in sales and $80 million in yearly commission[2] before Ross Ulbricht was arrested in 2013 and jailed for life and the website was shutdown.  Silk Road was a substantial portion of the illicit drug market, with a 65% brand recognition and 18% use rate among American drug users.[3]

silk-road

Suggestions for the Future

Since the demise of Silk Road, multiple successor websites have popped up, colloquially known as Silk Road 2.0 and 3.0 who operate on largely the same principles.  In order to operate better in the future, these websites should move their operations out of the reach of authorities.  A few possible solutions would be to move to a country without drug laws or onto the high seas, possible operating in a pressure resistant container deep underwater where arrest would be impractical and attack immoral. This operational improvement, to try and move beyond the range of American justice would do much to increase the longevity of these cryptomarkets.

Another key issue which led to the downfall of Ross Ulbricht, who went by the moniker Dread Pirate Roberts, the nom de guerre of a character in the iconic 80s movie, The Princess Bride, was Ulbricht’s alleged propensity to act like an old-world drug kingpin.  According to the FBI, Ulbricht “soliciting six murders-for-hire in connection with operating the site, although there is no evidence that these murders were actually carried out.”[4]  Perhaps, Ulbricht fell into the common drug dealing trap of getting high off his own supply, a form of narcotic hubris. Future cryptomarket operators would be keen to remain personally divested from the organization, solely offering a marketplace and not seeking to control or in any way involve themselves with the content sold.

From Shooting to Hacking

So long as there are governments black markets will exist.  Governments by their very nature mandate materials and substances which cannot be purchased on an open market.  With the advent of the internet, such markets will increasingly be online though this will never supplant their offline counterparts.  The constant battle between security and privacy taking place on the internet will lead to swings where illicit markets wane and then wax but never falter.  By no means is this a net negative.  In fact, cryptomarkets may provide a net good for the world as they replace much of the violence associated with drug dealing.  Since governments fail to either entirely control and ban or to regulate and allow for the sale of illicit items, online black markets will pick up the slack.  Luckily in the online world, violence is moved far from the end user and vendor rating systems decrease the likelihood of laced drugs leading to health complications.

(703 words)

 

[1] Martin, J. “Lost On The Silk Road: Online Drug Distribution And The ‘Cryptomarket'”. N.p., 2016. http://crj.sagepub.com/content/early/2013/10/06/1748895813505234.full.pdf+html

[2] Barratt, Monica J., Jason A. Ferris, and Adam R. Winstock. “Use Of Silk Road, The Online Drug Marketplace, In The United Kingdom, Australia And The United States”. N.p., 2016. http://onlinelibrary.wiley.com/doi/10.1111/add.12470/full

[3] Barratt, Monica J., Jason A. Ferris, and Adam R. Winstock. “Use Of Silk Road, The Online Drug Marketplace, In The United Kingdom, Australia And The United States”. N.p., 2016. http://onlinelibrary.wiley.com/doi/10.1111/add.12470/full

[4] “Ross Ulbricht, Aka Dread Pirate Roberts, Sentenced In Manhattan Federal Court To Life In Prison”. Federal Bureau of Investigation. N.p., 2016. Web. 18 Nov. 2016. https://www.fbi.gov/contact-us/field-offices/newyork/news/press-releases/ross-ulbricht-aka-dread-pirate-roberts-sentenced-in-manhattan-federal-court-to-life-in-prison

[5] http://silkroaddrugs.org/tag/deep-web/

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10 thoughts on “Distrupting Your High

  1. Looks like TBD is angling for a job in Silk Road 2.0, hope he can hold his breathe to get down to his deep-sea shipping container. Alternatively, Silk Road 2.0 could located themselves inside the heart of a volcano on a remote tropical island, taking a page out of the playbook of decades of comic book villains (1).

    I’m curious to see how well these cryptomarkets are adapting to the needs of their customers. Should they be providing the third party logistics and warehousing, similar to Amazon, or is it better for them to maintain a more Alibaba model and simply operate the marketplace? They already built out their Alipay escrow service, what other value-added services could they develop? I think Silk Road 2.0 needs to focus more on the consumer, as I feel that in their success they have lost touch with the average drug dealer, leaving an opening for new entrants to take business.

    With Ross in jail, who is the Inigo Montoya that will succeed the ‘dread pirate’ in the business, and why doesn’t the Silk Road recruit in any CPD events?

    1) http://www.imdb.com/title/tt0317705/

  2. First, neither the Silk Road or its replacements have ever served as substitutes for traditional illicit drugs markets. The level of sophistication and access to technology required to exploit these channels has always been limited to an extremely small group of tech-savvy aristocrats with a predilection for quality drugs offered by rated, trusted e-dealers. The vast majority of users could never rely on cryptomarkets as a viable channel.

    Second, although the Silk Road may have eliminated some dealers from the intermediary-heavy supply chain common to most drug markets, it never completely eliminated the dealer. Drugs are rarely – if ever – distributed directly from producer to dealer to consumer. Typically, there are numerous dealers and subdealers who funnel the drugs through the channel before they every reach the end consumer.

  3. TBD, this topic seems especially pertinent given the recent move to decriminalize marijuana in many US states. If the federal government were to also decriminalize marijuana, then a market would probably immediately exist for a website like this to act within the confines of the law. Right now, however, selling large quantities of marijuana carries a very heavy penalty under federal law, and could potentially land the operator of such a website in prison with a lifetime sentence just for selling marijuana. The sentence could be even more extreme if a minor purchased the drug from a computer while at a school, potentially triggering more stringent laws around marijuana purchase around schools. There are very few jurisdictions where the operator of the website could escape prosecution under US federal law. Maybe the container under the ocean is the only practical idea.

  4. Is Silk Road ripe for disruption as countries decriminalize and legalize drugs? Roughly 25 countries have decriminalized drugs, but none have legalized everything yet.[1] As long as drug dealers are still prosecuted, Silk Road has a market. If countries implement legalization strategies to end their wars on drugs, Silk Road would need to change their service. Weapons trade seems like another market to serve, but the supply chain is more difficult to manage with increased distribution challenges.

    [1] Mark Provost. “How Portugal Brilliantly Ended its War on Drugs.” http://www.attn.com/stories/995/portugal-drug-policy Accessed November 20, 2016.

  5. TBD, your last paragraph really resonated with me. As I considered Silk Road, what appeared clear to me was the likelihood that it would have a net societal benefit, taking violence and drug dealers off of the streets to be replaced by an online marketplace. This certainly doesn’t remove the danger and violence prevalent in many of the upstream (often foreign) growers/producers. I wonder if the presence of silk road was truly doing anything to proliferate the trade of drugs and other illegal substances, or if buyers and sellers would have found a way to transact anyways, with more risk of violence. If the latter, then it’s interesting to me because governments could find themselves in a moral quandary where shutting down the website would actually increase drug-related violence, whereas turning a blind eye would be the safer decision. Certainly not an easy question to solve.

  6. At the retail level, the illicit market for controlled substances was barely disrupted by Silk Road. And while the platform undoubtedly connected sellers with buyers, it did not address the biggest problem in the narcotics supply chain: transportation and shipping between manufacturer, wholesaler, distributor and retail operator. There is large risk of interdiction between each of these steps, which, along with massive information asymmetry, creates a perpetual bullwhip effect that never goes away under pressure on the supply chain, leading to fluctuations in supply and price.

    Digital innovation generally fails to have a notable effect on the core operations of drug cartels and retailers on the street, where law enforcement has the most difficult time fighting the drug problem. As we learned in Training Day, “it’s not what you know. It’s what you can prove.” And while encrypted communications and iPhones make it easier for people to do business on the street, law enforcement agencies typically lack the control of resources to proactively crack those communications at the street level (when they do, it’s after the fact; someone got caught already). Despite law enforcement agencies still invest significant sums of time and money in removing low-level offenders who are quickly replaced and cost taxpayers a massive sum to incarcerate. Attacking the supply chain and the communication systems of drug cartels can disrupt drug supply on a much larger scale, and that’s where technology can both best enable the drug trade and also efforts to reduce it. Once Silk Road metastasized to the federal level, for example, it was barely a match for the sophisticated technical capabilities of the U.S. national security and law enforcement apparatus. Take one of the major lessons from Training Day: “You gotta see the streets. You gotta feel it. You gotta smell it, you gotta taste the streets.” Ulbricht thought he could beat the government at its own game, on cyber streets, and failed. Imagine Alonzo Harris (RIP) asking Ulbricht, “do you wanna go to jail, or do you wanna go home?” He went to jail.

    Consider this example. One day a man walks out of his house to go to work. He sees this snail on his porch. So he picks it up and chucks it over his roof, into the back yard. Snail bounces off a rock, cracks its shell, and lands in the grass. Snail lies there dying. But it doesn’t die. It eats some grass. Slowly heals. Grows a new shell. And after a while it can crawl again. One day the snail up and heads back to the front of the house. Finally, after a year, the little guy crawls back on the porch. Right then, the man walks out to go to work and sees this snail again. So he says to it, ‘What’s your problem?’

    If Silk Road had figured that out, it’d have figured the supply chain out.

  7. On the suggestions for the future, I would argue that to ensure continued success of these cryptomarkets, it is critical to also make substantial investments on technology in order to keep the servers that are hosting these platforms as insulated as possible from authorities. For example, the below article indicates that a technical failure in the website’s CAPTCHA prompt was one of the main vulnerabilities that the authorities exploited in order to locate the IP address of the servers.

    https://www.wired.com/2014/09/the-fbi-finally-says-how-it-legally-pinpointed-silk-roads-server/

  8. Do you think Silk Road 3.0 really if net good society? If the net public health benefits of Silk Road 3.0 do become clearer, what do you think should be the government’s role going forward in legalizing the online retailing of drugs?

    Is the ongoing legalization of drugs such as marijuana good or bad for Silk Road 3.0’s business model going forward? [1]

    [1] https://www.nytimes.com/2015/12/27/business/dealbook/the-unsung-tax-agent-who-put-a-face-on-the-silk-road.amp.html%3F0p19G%3De

  9. The way a Silk Road clones could endure is to build a community supported marketplace, similar to how bitcoin crowd sources the verification of transactions.

    In Alonzo Harris’ timeless words “to protect the sheep you gotta catch the wolf, and it takes a wolf to catch a wolf,” and the FBI has plenty of wolves. But as Alonzo would say, “this is chess, it ain’t checkers,” and by crowd sourcing the support for the marketplace the FBI would be playing a game of wack-a-mole, taking down one member, and two will fill his place. It needs to be an inherently decentralized organization, just like we learned with Valve.

    Regarding the underwater pressure resistant tank, are you suggesting the operator should live there, or they should just store servers there? If it’s the latter, then again I think a decentralized approach could work well, or in conjunction. By purchasing (or building) cloud computing capacity across many nations, you could have a network that is robust to any single node going down, and when one is taken offline the community could respond by rebuilding in other regions.

    Diversifying servers also makes sense from a supply chain standpoint. If a provider goes out of business, or has technical difficulties, you are considerably less dependent on them. A recent example of this is how Apple started using Intel modems in some iPhones, in addition to using Qualcomm’s modems in other iPhones. This makes Apple less dependent on a single supplier, and allows them to balance if one supplier is unable to meet their demand.

    Source:
    http://www.forbes.com/sites/aarontilley/2016/10/21/how-to-buy-iphone-7-intel-qualcomm-modem/#1a35c81f7f5d

  10. Disruptive and illegal are two separate things for me. I can imagine plenty of new business models that might exist and prosper on the deep or dark web. However, they are innovating around business operations that come with great downside in the form of arrest or safety concerns, etc. When you don’t pay taxes, you don’t get the many protections that are often much needed in legal business operations. That said, I think this was a great and timely post. Super interesting. I would have loved to get a better sense of the actual operations of the Silk Road. Was their technology good? Were they able to build consumer-supplier trust? As marijuana begins to build traction in legalization, an online sales portal could be huge for disrupting the traditional dealer hand-off industry, which seems quite inefficient. We’ve already seen much headway made with dispensaries around innovating around quality, ease of access, efficiency, trust, safety, etc. There is much viability in the Silk Road being the new frontier of legal drug transactions, if it was in fact a best-in-class model for online exchange. My largest concerns are around user preference (testing) and quality assurance/refunds, specifically if anonymity is coming into play.

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