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Bitcoin Is Falling Out of Favor on the Dark Web


Steep transaction fees and wild price fluctuations have made the cryptocurrency harder to use in the illicit markets that originally made it famous.


Of all of bitcoin’s uses—as a currency, a payment system, an investment, a commodity, a technology, a remittance network, a market hedge—perhaps its most notorious is as a facilitator of online drug transactions. For years now, the cryptocurrency has allowed anonymous purchasers to pay anonymous vendors on eBay-like markets, avoiding the use of the formal financial system and thus the easy intervention of the federal authorities.


“Making small talk with your pot dealer sucks. Buying cocaine can get you shot. What if you could buy and sell drugs online like books or light bulbs? Now you can: Welcome to Silk Road,” the journalist Adrian Chen wrote in?an exposé?for Gawker on the now-defunct market, back in 2011. At the time, Chen called it “the most complete implementation of the bitcoin vision” of freewheeling, anarcho-libertarian anonymity.

“和大麻贩子闲聊很糟糕、危险,购买可卡因更可能会让你被枪毙。如果你可以像购买书籍或灯泡一样在网上买卖毒品呢?现在就可以:欢迎来到丝路(购物网站)”记者阿德里安·陈(Adrian Chen)在2011年为Gawker网撰写的一篇关于现已停业市场的文章中指出了这些问题。当时,阿德里安·陈称其为“比特币愿景中最完美的实施”,这是一种随心所欲、无政府自由主义、匿名化的状态。

Seven years later, though, problems with using bitcoin on the dark web—a kind of?mirror internet?that uses encryption to ensure its participants’ privacy and features websites that are not accessible?from standard browsers—have piled up. Purchasers and vendors are cancelling orders, losing money, and fleeing to other forms of cryptocurrency. Bitcoin remains in wide use for drugs and other illegal goods, but the shadowy markets that made it famous, and infamous, are turning on it.


The first issue lies in the extreme volatility of the price of bitcoin. The cryptocurrency has, since its?very earliest days, been a highly unstable one, its price surging and collapsing much like that of a penny stock. Even so, the past year has proven unusually volatile, with dramatic day-to-day and even?minute-to-minute?swings and plunges. Investors crowding into the cryptocurrency—including those putting bitcoin on?their credit cards, or taking out equity loans on their houses to buy it—and regulatory interest from governments around the world have helped to?drive those fluctuations. And the currency’s short-term volatility has been matched by some longer-term volatility too: The currency’s value?surged 1,300 percent?last year, and it has fallen by more than half of late.


For Wall Street–type investors seeking to buy and hold bitcoin or risk-happy prospectors looking to make a quick buck, such price swings are generally a feature, not a bug. Nor are they problematic for many the many Silicon Valley entrepreneurs interested in the blockchain technology underpinning the currency. But this kind of volatility is a headache for participants in marketplaces with transactions denominated in bitcoin. That means the darknet markets, which have continued to crop up and collapse since the federal authorities?seizedSilk Road in 2013.


On those markets, the price of drugs and other illicit and licit goods are fundamentally pegged to dollars or euros, not bitcoin. Buyers think in terms of traditional currencies, in other words: An eighth of an ounce of marijuana is worth $25, not a minuscule fraction of a bitcoin. And vendors think in the same terms, often purchasing wholesale goods with dollars or other government-issued currencies, or seeking to sell their wares for cash in person. As such, “the price of a bitcoin does not matter,” Nicolas Christin, a computer scientist at Carnegie Mellon University and an expert on the darknet markets, told me. “But that it is stable matters.”


To understand why, it helps to know a bit more about the mechanics of buying drugs on the dark web. A purchaser buys bitcoin, reviews vendors’ offers on a marketplace, and then pays for his goods. His money generally goes into escrow before it is released to his vendor. This introduces a number of financial choke points and transaction delays: between when the purchaser procures bitcoin and makes a purchase, when the vendor receives the order and receives payment from escrow, and when the vendor cashes out from the marketplace. Those are all moments when bitcoin’s volatility becomes problematic. For vendors, price drops while payments are in escrow might wipe out all the profits from a sale, for instance.


Complaints about these kinds of scenarios are rife in popular forums where buyers and vendors chat online, including on Reddit. “Seems I hear Vendors are sitting on the sidelines. If payment is in [bitcoin and] then [the] price falls all their work is for nigh,”?one user?recently posted, worrying that fewer vendors were selling given the market dynamics at work. Another?complained, “Seriously?! I purchased coins this morning at like $675 and within 1.5 hours it dropped down to $625.”

在各类买家和卖家用以在网上聊天的知名论坛——包括Reddit——上,人们普遍在抱怨这种情况。“看起来这些卖家实在是无能为力,如果买家用比特币支付,然后比特币价格下跌,那么所有的工作的白费了”这是一名用户最近发帖的内容。他担心,鉴于市场的状态,越来越少的卖家会在市场上进行销售。另一个则抱怨“真的吗? !今天早上我花了675美元买了一枚硬币,然后在1.5小时内,它就降到了625美元。”

Of course, licit markets have the exact same vulnerability to swings in the price of bitcoin. But those markets—with their deep-pocketed investors and ties to the formal financial system—have come up with ways to avoid them. “Merchants who want to avoid volatility will still accept bitcoin or cryptocurrency, and can use a service provider that automatically converts it,” Jerry Brito, the executive director of Coin Center, a nonprofit research and advocacy organization for cryptocurrencies, told me. “That service provider accepts bitcoin on their behalf, automatically converts it, and deposits dollars into the merchant’s account. That way they never face the volatility.”

当然,合法市场也同样容易受到比特币价格波动的影响,但这些市场——有财力雄厚的投资者和正规的金融体系——已经找到了规避风险的方法。“商家虽然想要避免货币波动,但仍会接受比特币或加密货币来支付,并且让服务提供商来进行货币自动转换” 。 Coin Center(加密数字货币的非营利研究和宣传中心)的执行董事杰里布里托告诉我“这个服务商接受比特币,并且能自动转换,将美元存入商家的账户,这样商家就不会面对比特币剧烈的波动。”

But such businesses want nothing to do with illegal markets, meaning that marketplaces, vendors, and buyers have few if any ways to hedge. Some drug dealers urge their customers to “finalize early,” letting their payments out of escrow before they receive their goods. And some marketplaces have built in their own mechanisms to help manage volatility. Indeed, the original Silk Road provided a kind of insurance system against volatile cryptocurrency prices. “Ross Ulbricht was a very smart young man who got into a line of work he should not have been involved in,” said Christin, referring to the creator of Silk Road, who was arrested in 2013 and is now serving a life sentence. “He had very clever ideas, like this hedging system that exists in banks.” But other markets do not have the technological wherewithal to do so, or the willingness to absorb any volatility risk from their customers and vendors. As a result, many vendors cancel orders, or requests that their buyers cancel orders, to manage the swings.


It is worth noting that volatility has proven less of a problem when the price of bitcoin was shooting up, as buyers and vendors holding bitcoin found their currency worth more and more. (Indeed, in forum posts, some vendors note that they have made more money holding bitcoin than selling drugs.) But a crash in the price of bitcoin gives vendors far less of an incentive to do business on the darknet markets. “Volatility upwards is, of course, largely a good thing for [the darknet markets], as they produce a wealth effect,” wrote Gwern Branwen, a cryptocurrency researcher who?goes by a pseudonym, in an email. Branwen added, “The really bad thing is when prices crash. This sets up an ugly dynamic for sellers: typically you still have to pay your expenses and your supplier in a fiat, so do you continue shipping out orders pre-paid with bitcoins which are now worth a lot less and may well incur a loss?” ?

值得注意的是,当比特币价格飙升,买家和卖家发现手中持有的比特币的价值越来越高时,波动性就不是个问题。(事实上,在论坛帖子中,一些卖家指出,他们持有比特币赚的钱比卖毒品的钱要多) 。但是,比特币价格暴跌时,让卖家在黑市上做生意的意愿大大降低。加密货币研究员格温·布兰文用笔名回复邮件称“波动性上升当然对(暗网市场)来说是一件好事,因为它们产生了财富效应”。他接着补充,“真正糟糕的是价格崩盘,这让卖家很难做:一般情况下,你仍然需要给商家支付费用,在价值更低,甚至很可能会导致损失的时候,你是否继续用比特币支付预付款呢?”

The second reason bitcoin is falling out of favor on the dark web has to do with the sudden increase in the cost of transacting in bitcoin. Here, again, it helps to get into the technical details for a moment. All bitcoin transactions are kept in a decentralized and public ledger. When someone makes a transaction with bitcoin, miners in the network solve cryptographic puzzles to verify and log it—and get paid a small fee in bitcoin to do so. That has given the cryptocurrency ascaling problem: As demand for transactions has gone up, the price to transact has gone up. Indeed, the price of a bitcoin transaction recently?spiked as high?as $55.


That might not be a problem for an investor. But for someone who’s just looking for some weed? “If you look at the average transaction on cryptomarkets, half of transactions are something like $30 or $50,” said David Décary-Hétu, a professor of criminology at the Université de Montréal. “It makes no sense to pay a commission of $35 for $50 of drugs.” Such transaction fees become especially problematic for anyone trying to make many smaller bitcoin transactions in order to avoid the attention of the authorities—such as drug dealers. ?


Bitcoin’s fees and transaction delays have also pushed darknet market participants away from the cryptocurrency. “Which markets would YOU recommend, now that the bitcoin literally became unusable in low amounts?” one Reddit?forum poster?asked. “How should one adapt to this? The fees got enormous, the sites I use to buy [bitcoin] set their minimum amount you can buy up to 500.” Another commenter stepped in to advise the user, recommending a rival cryptocurrency: “Monero appears to be the way forward, at least for now: as you said, bitcoin is currently unusable for smaller transactions.”


Another posting reads: “I think [it is] officially time to step away from [bitcoin], at least for the time being. Went to do a direct deal today with a vendor, realized my $250 purchase would end up costing me $315 or so with fees and would still take probably 24 hours to get to him,” a Reddit?user wrote. “As of this morning the lowest electrum fee was approx $32 to send coin.... and people reporting at the highest level still not having coin move 12-16 hours later.”


A third issue has to do with anonymity—or really, a lack of it—as law-enforcement and regulatory agencies have become more interested in and sophisticated about monitoring cryptocurrencies. Though bitcoin initially promised completely anonymous transactions, the public nature of the blockchain system in fact has always meant that savvy observers could amass huge amounts of information on bitcoin users, identifying the addresses of popular darknet markets and making money-laundering more onerous. “It’s pretty well established at this point that bitcoin is not anonymous, and it is traceable,” said Sarah Meiklejohn, a cryptography expert at University College London. “If you are buying drugs, using bitcoin is not the best bet.”

第三个问题与匿名有关——或者说,缺乏监管——因为执法部门和监管机构对监管加密货币越来越感兴趣,也越来越富有经验。尽管比特币最初承诺完全匿名交易,但区块链系统的共享本质实际上意味着,懂行的人可以积累大量比特币用户的信息,鉴别当下流行的暗网市场网址,并让洗钱变得更加麻烦。伦敦大学学院的密码学专家萨拉 米尔克约翰说 “在这一点上,比特币已经非常成熟,比特币不是匿名的,它是可以追踪的。如果你正在购买毒品,使用比特币不是最好的选择。”

Other coins offer?more privacy, and people who use darknet markets are moving to options like Ether and Monero. “Alex Cazes is dead because he believed bitcoin mixers obfuscated his money trail,” one forum poster said, referring to the founder of the now-defunct market AlphaBay and “mixers” that would supposedly hide his illicit bitcoin transactions. “My advice. Convert your bitcoins into Monero.” Another?argued: “While many of us have benefited from the surge in BTC price, it’s time we left it in the past and move on to something safer and more efficient. The wave starts with getting vendors and markets on board. While making an order I urge you to ask your vendor if they have considered switching to Monero (or alternative). If more customers want to pay with Monero, vendors and markets will want to switch to where customers have money.”


Even with these three factors, bitcoin still remains the common currency of the dark web. Given the difficulty of purchasing drugs and the lucrative nature of selling them, people are willing to put up with high transaction costs. Moreover, market participants have many other prent risks to worry about, and transaction difficulties to deal with: the threat of law enforcement running a market?as a honeypot?to catch dealers and purchasers; the threat of vendors stealing their customers’ bitcoin and suddenly disappearing; whole marketplacesscamming their vendors?and customers; the question of how?to launder?huge amounts of money converted from bitcoin. “If you want heroin, you might be willing to pay a fee, or take these risks,” said Décary-Hétu.

即使存在着这三个因素,比特币仍然是暗网的共同货币。考虑到购买毒品的困难和销售这些毒品的利润丰厚,人们还是愿意承担高额的交易费用。此外,参与者们还存在许多其他常见的风险以及难以处理的交易问题:比如执法的威胁,它将市场作为一个诱饵来抓捕经销商和购买者;供应商窃取客户的比特币并突然消失的威胁;整个市场都在欺骗他们的供应商和客户的威胁;如何从比特币兑换大量资金的问题。“如果你想要海洛因,你可能愿意支付一笔费用,或者承担这些风险,” Décary-Hétu说道。

Plus, they have few alternatives—unlike participants in licit markets, whose advantages bitcoin-denominated markets throw into sharp relief. The dollar and euro are stable, with prices shifting just a few percent per year. Online payment systems are cheap and reliable, with credit cards charging just a few percentage points to process a near-instantaneous transaction. Contemporary financial markets are rich marvels, offering hedges, insurance, security guarantees, and a seemingly infinite variety of other products to make buying goods and doing business easy.


Not so with bitcoin. Its original promise—to be more efficient, easy to use, low-cost, immediate, and anonymous than traditional banking—has turned out to be false. One can still use it to buy drugs, of course. But not so easily.