How To Destroy the Dark Web Markets
At the recent Usenix Security, Kyle Soska and Nicolas Christian presented their detailed survey of the on-line drug markets that followed Silk Road. Among the interesting takeaways from their work is that the market is now generally stable in daily volume, market takedowns seem to have only a minor effect, a few major dealers dominate the sales, and that the markets process roughly $500,000 a day.
It is this last figure, the daily volume, that points the way to disrupting these markets. Although the markets operate in Bitcoin, almost all of the buyers and sellers operate using Actual Money™ such as dollars or euros. So for almost every dollar of product sold on these dark market, there is a corresponding dollar exchanged for Bitcoin and another dollar’s worth of Bitcoin converted back into currency. I believe this represents the Achilles heel in the dark markets: if law enforcement can disrupt this money flow, they will strangle the dark markets economically.
As any security researcher who works with Bitcoin will attest, its actually rather annoying to buy and sell Bitcoin without leaving a paper trail. There are sketchy overseas exchanges, but these are mostly persona-non-grata to US banks, while the notably sketchy coin.mx just got shut down by the Feds.
Which leaves what is probably the heart of the money flow: LocalBitcoins and other decentralized transactions. Disrupt the face to face and online Bitcoin exchanging and you disrupt the markets, since without the ability to convert Bitcoin it ceases to be a vehicle for crime. And fortunately or unfortunately (depending on your viewpoint), almost every seller of Bitcoin is breaking the law: operating an unlicensed money transmission business.
So to disrupt the markets, start disrupting the money in earnest. Start with an MLAT request to Finland to get all of LocalBitcoin’s data and go after every buyer and seller, starting with the high volume players. Also simply perform a bunch of purchases, and arrest the Bitcoin sellers. In short, treat Bitcoin dealing like it is: drug dealing.
Now treating drug dealers like, well, drug dealers doesn’t take out the drug market: the epic failure of the “war on drugs” attests to that. But are those who sell Bitcoin really as risk-tolerant as drug dealers? It certainly seems to me that the crowd responsible for supporting the economics of the dark markets aren’t the drug dealing type because, well, if they were, they’d deal directly and skip the middle man.
I’m not sure this would work, but disrupting the Bitcoin ecology which supports the dark markets may be the best lever possible.