Posted by Regulation: Silk Road: A Libertarian’s Wildest Dream
E-commerce is arguably one of the most significant developments in the history of the internet. The ability to buy and sell goods and services without having to travel to a physical store is incredibly powerful; people are no longer bound only to stores in their hometown or general area. E-commerce has not only been a boon for legitimate sellers, however. There have been dark little corners of the internet that pop up dealing in more illicit businesses. Just as black markets avoid governmental regulation in the real world, some developed out of the virtual world as well. Silk Road was the biggest example of one of these “darknet” markets.
Silk Road was the invention of site admin “Dread Pirate Roberts,” later revealed to be Ross Ulbricht, in January of 2011. Ulbricht was an ardent libertarian, unsettled by the perceived stranglehold the government held over the population. As he wrote in his LinkedIn profile:
I want to use economic theory as a means to abolish the use of coercion and agression [sic] amongst mankind…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.
Ross Ulbricht
Ulbricht saw this regulation as a means of oppression by the government and sought to circumvent this with Silk Road. Silk Road offered merchants dealing in less-than-legal businesses a place to securely peddle their wares as well as give consumers peace of mind that their transactions were totally safe and anonymous. It became a massive hub for drug trade as a result. According to a Voice of America report published in October 2013, right after the site was seized by the FBI, “the site had nearly 1 million registered users from around the world…Silk Road took in an estimated $1.2 billion since it started in 2011.” The scope of Silk Road is incomprehensible. In only its two years of existence it managed to bring in over a million users and move hundreds of millions of dollars without any intervention by the government. Ulbricht managed to all accomplish this, perhaps ironically, through rigorous regulation of site access and of hosted content.
Tor was an integral piece in regulating the anonymity of Silk Road. Tor, short for The Onion Router, is a software that encrypts a message using onion routing. According to the US Naval Research Laboratory, instead of connecting someone directly to the destination machine the connection travels through several onion routing proxies before reaching the target. Each connection adds another “layer” of encryption, hence the name. Data appears different at each router as well, making it impossible to track the data’s route as well as its origin. Additionally, access to Silk Road was restricted behind an onion service. Onion services are servers that only receive connections through Tor. By obscuring the origin of the user logging on and only accepting logins through Tor, the likelihood of a government agency tracking a user’s activity on Silk Road is minimal, ensuring the site’s security and longevity.
Another key piece of regulation was the implementation of Bitcoin-based transactions. Transactions made through use of Bitcoin, a popular cryptocurrency, are notoriously difficult to track. The Drug Enforcement Administration (DEA) wrote, “[a] Bitcoin-based payment system that served to facilitate the illegal commerce…by concealing the identities and locations of the users transmitting and receiving funds through the site” (Tarentino III, 2020). Bitcoin transactions do not have to be tied to a person’s true identity. Buyers and sellers can employ a pseudonym to obscure their real identities from people investigating transactions. This regulation of currency exchange further ensured that users of Silk Road maintained their anonymity and, by extent, the anonymity of the website.
Regulation of Silk Road was a major defensive measure from the US government. However, regulations were put in place to protect its users, too. Because Silk Road dealt in drugs, there were associated risks. Being an underground market, a user or seller could not go to law enforcers if they had any problems or got scammed. Silk Road tried to mitigate risks associated with this by limiting the number of sellers on the site. In an archived message from Dread Pirate Roberts (A.K.A Ross Ulbricht), he explains that a new seller account was auctioned off every 48 hours and the highest bidder was admitted as a seller. Instead of anyone being able to register as a seller, only those who won a seller account in an auction would have the privilege of being a merchant on Silk Road. Ulbricht states in this message, “our hope is that by doing this only the most professional and committed sellers will have access to seller accounts.” The success of this measure is debatable, but the intention is clear: regulating the amount of seller accounts available and restricting them behind a paywall both served as means of preventing scammers preying on Silk Road’s userbase. Furthermore, to protect its clientele Silk Road also had its own list of banned products in its terms of service. According to a 2011 IBT article, “anything whose purpose is to harm or defraud, such as stolen credit cards, assassinations, and weapons of mass destruction, will not be sold through the network” (Gayathri, 2011). These regulations were apparently put into place to prevent harm done to users and the general public, but also perhaps in part to keep people complicit in Silk Road’s existence; if nobody is being harmed by the site, then why would they report it to the authorities? These regulations were not entirely effective, however. A report from the US Immigration and Customs Enforcement suggests six overdose deaths have been linked to narcotics sold on Silk Road (ICE, 2015). Ulbricht himself was also accused of hiring a hitman to kill those who threatened Silk Road’s existence. The restrictions did exist, but whether they were there to protect the userbase or to protect Ulbricht from heat is debatable.
(Image via Wikipedia.org)
Silk Road would ultimately shut down in October 2013, after being seized by the FBI. Ross Ulbricht would be convicted of five of the seven charges brought against him and served with a double life sentence and forty years without parole (Ulbricht’s arrest and the shutdown of Silk Road are beyond the scope of this piece, but this article from Wired is an excellent read about the story if interested). Silk Road’s perceived airtight regulation was ultimately not enough to outmatch the government as Ulbricht hoped it might at the start, and he did fail to abolish the “coercion and agression” of the government. Despite its failings and illegality, the highly organized structure and regulation of the Silk Road stands in stark contrast to the traditional violence associated with drug trade on the streets and through cartels. Former harm reduction manager Meghan Ralstan from the Drug Policy Alliance described Silk Road as, “a peaceable alternative to the often deadly violence so commonly associated with the global drug war, and street drug transactions, in particular” (Ferro, 2015). While drugs may kill people, drug trade also kills people. Silk Road, even if it was illegal, with its regulations may have offered a safer alternative to buying drugs off the street. Silk Road’s regulatory measures may be incomparable to actual market regulation by the government, but for a system built entirely from the ground up and sustained for over two years completely underground the effort is incredibly impressive.
Works Cited:
Ferro, Shane. “Ross Ulbricht’s Defense Team Argues Silk Road Made Buying and Selling Drugs Safer.” Business Insider, May 19, 2015. https://www.businessinsider.com/did-silk-road-make-the-drug-industry-safer-2015-5.
Gayahtri, Amrutha. “From Marijuana to LSD, Now Illegal Drugs Delivered on Your Doorstep.” International Business Times, November 6, 2011. https://www.ibtimes.com/marijuana-lsd-now-illegal-drugs-delivered-your-doorstep-290021.
Klasfeld, Adam. “Silk Road Murder Threat Shown as Case Nears End.” Courthouse News Service, January 29, 2015. https://www.courthousenews.com/silk-road-murder-threat-shown-as-case-nears-end/.
News, VOA. 2013. End of the ‘Silk Road’ as US Shuts Down Black Market Drug Website. Washington: Federal Information & News Dispatch, LLC. https://www.proquest.com/reports/end-silk-road-as-us-shuts-down-black-market-drug/docview/1439331428/se-2.
Tarentino, Frank A. “Senior Advisor of the ‘Silk Road’ Website Pleads Guilty in Manhattan Federal Court.” Drug Enforcement Administration, January 20, 2020. https://www.dea.gov/press-releases/2020/01/30/senior-advisor-silk-road-website-pleads-guilty-manhattan-federal-court.
U.S. Immigration and Customs Enforcement. “Ross Ulbricht, Aka Dread Pirate Roberts, Sentenced to Life in Federal Prison for Creating, Operating ‘Silk Road’ Website.” ICE, May 29, 2015. https://www.ice.gov/news/releases/ross-ulbricht-aka-dread-pirate-roberts-sentenced-life-federal-prison-creating.