In 2011, Silk Road became the first black market, or "cryptomarket", for illicit drugs. This study examines two of the largest cryptomarkets which have operated, Silk Road 2.0 and Agora Marketplace. We hypothesize that cryptomarkets cater to buyers who intend to resell or redistribute the products, specifically in the form of social drug dealing, and that larger quantities will be purchased on the cryptomarkets over time. We examine these hypotheses through a descriptive and qualitative assessment of the distribution of drugs sold, and an estimated trend line based on simple linear regression. Data was collected using a custom web crawler which was supplemented with a dataset collected by independent researcher Gwern Branwen, community members and researchers in total spanning the period from February 28th 2014 to April 2015. The observed demand was primarily for quantities intended for personal use or social drug dealing. The majority of sales fell within the lower price ranges, although a significant part of the revenue was generated in price ranges that suggested business-to-business dealing. Furthermore, we found that the sizes of the purchases decreased significantly in both the case of Silk Road 2.0 and Agora Marketplace. The results suggest that cryptomarkets resemble traditional drug markets in terms of the distribution and revenues. As such, it is relevant to include cryptomarkets in discussions about potential reductions of the harmful social consequences of drug markets, as well as in general discussions about drug markets and drug trafficking.
...Studies of retail drug dealing show that drugs are often sold to friends and acquaintances in small quantities, for a small profit by dealers who get into dealing mainly as a consequence of their own drug use (Atkyns and Hanneman 1974; Desroches 2005, 2; Fields 1984; Johnson et al. 1985; Murphy et al. 1990). Dealers motivated by profit and who market their products to a large number of clients run an increased risk of arrest (Desroches 2005, 4). Conversely, drug dealers and traffickers on higher levels of the drug market work mainly for profit and at these levels the drug trade has much in common with legal business. As Desroches (2005), 43) puts it: 'To be successful, traffickers must provide a quality product at competitive prices and maintain a reputation for reliable and trustworthy service.' Drug retailers in cryptomarkets share some of these characteristics with drug traffickers and wholesalers outside the cryptomarkets. A number of studies have examined the cryptomarkets using a quantitative approach (Aldridge and Décary-Hétu 2014; Christin 2013; Dolliver 2015a; Soska and Christin 2015). Findings from qualitative studies have shown that cryptomarkets offer a wide range of high-quality products (Van Hout and Bingham 2013b), and that accessing and purchasing the products requires a certain degree of digital literacy (i.e. using Tor and understanding encryption) as well as time. Because of the time that need to be spent to order the products - i.e., investing in digital skills and waiting for the shipments - we hypothesize that cryptomarkets cater to buyers who intend to resell or redistribute the products. Because buyers do not have to order very large amounts at a time, we also hypothesize that most of the buyers may be buying the products for the purpose of social drug dealing. Buying for a group can make up for the extra time spent purchasing bitcoins, tumbling them, transferring them to the marketplace, encrypting communication and purchasing the product. Since it takes just as long to order one gram of MDMA as it does to order 10 g, and the risk of the package being seized may be the same, buyers may as well order for friends. Social dealing is retail dealing (Jacques and Wright 2011) within a network of acquaintances (as opposed to strangers). On the lowest level of social dealing we find that dealers share drugs with friends and expect their friends to do likewise. This form of drug dealing has been termed 'social supply' (Coomber and Turnbull 2007). At the higher end of the spectrum of social dealing the retail level begins. Providing an objective measure of Bsocial dealing^ is not possible, so we have based our analysis on an examination of the overall distribution of observed drug purchases (in terms of number of sales and value of sales) combined with a qualitative evaluation of the most sold items.
...Graph 1 shows the distribution of sales on both Silk Road 2 and Agora on a scale from 0 to 1000 USD in intervals of 50 USD. A number of reviews are not included in the graph, as the items cost more than 1000 USD. A total of 16,688 reviews for items over 1000 USD were observed, amounting to 2.1 % of the observed 793,825 reviews. The distribution of the value of reviewed items can be further inspected by reviewing the items sold. As our database contains more than 51,344 unique items sold, it is not possible to evaluate every single item. Instead we examined the bestselling item in each category in intervals of 0-100 USD, 101-200 USD and 201-300 USD, the intervals within which 89.6 % of the observed reviews fall. Table 3 shows the most popular items in the different categories in intervals of 0-100, 101-200 and 201-300 USD. While it is evident that the quantities differ, 20 doses of LSD, an ounce of cannabis or 0.5 g of heroin, found in the price range of 201-300 USD, could be for social supply and personal use. The most popular items are in quantities that are either suited for one person's use or a small supply for acquaintances, for example 1 g of cocaine, an ounce or less of cannabis, or a heroin stamp bag. The overview thus indicates that items priced at 300 USD or less are bought with personal use or social dealing in mind. The exceptions to this are found in the category Research Chemicals and NPS, where we find 900 Nbome-blotters and 14 g of mephedrone as well as the 100 g of speed paste in the category of Stimulants. These amounts we deem too large to just be intended for social supply or personal use and thus to be indicative of redistribution. 89.6 % of the sales we observed were of items valued at 300 USD or less. While most sales fall within the lower price ranges, large quantities are still being purchased on the cryptomarkets. 10.4 % of sales are above 300 USD and 2.1 % of these are above 1000 USD. The 2.1 % of sales above 1000 USD constitute 31 % of the revenue generated. The majority of sales, however, do fall within low price ranges.
...Our second hypothesis is that the quantities purchased on the cryptomarkets will grow larger as dealers recognize the potential for sourcing drugs using the cryptomarkets. Due to the suspected obfuscation of review dates on Agora and the different nature of the two markets, we have analyzed the markets separately. To investigate whether the demand for larger quantities is growing, we measure the development of demand by using a simple linear regression model for both markets, with price as the dependent variable and time as the predictive variable, to construct a simple trend line. Graphs 2 and 3 show a seven-day moving average of the value of purchased items and a trend line based on the observed sales. The linear regression trend line of purchases on Silk Road 2.0 shows a significant decline (p < 2.2e-16) in the average value of purchases with a coefficient of −0.1550 USD per day. In March and April we observed a steep rise in the average size of purchases, which we lack explanations for. In February of 2014 Silk Road 2.0 was allegedly the victim of a hack, after which the site operated without escrow services until its seizure. Given that a number of days is to be expected to pass between the purchase and review of an item, this increase in purchase sizes may be indicative of larger purchase sizes that were sold while the escrow system was still in existence and only reviewed afterwards. It is also possible that after the theft buyers and vendors simply chose to conduct large deals off-site rather than on-site, while smaller purchases continued to be conducted on-site. As with Silk Road 2.0, Agora Marketplace showed a tendency towards smaller purchase sizes over time. We found a significant (p = 8.637e-05) negative coefficient (−0.02316756), attesting to a decline in the size of purchases on Agora Marketplace as well. We further examined trends in the three largest categories, Ecstasy, Cannabis and Stimulants, which account for 69 % of the total revenue. Only in the case of Cannabis did we find a significant tendency (p = 4.359e-05) towards larger purchases, whereas Ecstasy (p = 3.257e-06) and Stimulants (p < 2.2e-16) both showed a significant tendency towards smaller purchases (Graph 4).
...In total we found 105 million USD in sales on Silk Road 2.0 and Agora Marketplace in 2014. Soska and Christin (2015) observed that the cryptomarkets reached a daily revenue >600.000 USD in 2014. Our results and those of Soska and Christin (2015), suggests that in comparison to both the global market for drugs and the global cannabis market the cryptomarkets only make up a small proportion of these. While the revenue is increasing rapidly, the markets are still very small in a global context. The first quantitative study of Silk Road concluded that the demand was primarily for items for personal use, such as a few grams of cannabis (Christin 2013: 12). However, recent research has concluded that the main revenue comes from bulk sales to vendors (Aldridge and Décary-Hétu 2014). While these are differing conclusions as to the type of demand, our results support both interpretations of the data. The majority of purchases are for smaller amounts, such as single grams of cocaine or heroin stamps, and it is likely that they are intended for social dealing or personal use. However, the most revenue is generated from larger quantities. These observations are not conflict- ing: the majority of purchases are of smaller quantities suited for personal use and social dealing, while the real revenue is generated in the upper price ranges.
...These results suggest that in spite of higher revenue and increased public exposure, cryptomarkets do not show signs of becoming distribution hubs for larger quantities. Buyers purchase products in differing quantities and amounts, but we did not observe a tendency towards larger sales in the span of our study. The fact that most purchases are not indicative of redistribution apart from social dealing and that we observed no significant growth in purchase sizes could suggest that the market is not changing drastically in terms of purchasing patterns.
Could it be said that while individuals and the "social suppliers" have a need for markets due to lack of large extended social networks, the people on top dealing large quantities already have their solidified, trusted networks and don't have the need of sourcing from groups they don't know?
It will be interesting to see if this changes over time.