A history of Silk Road, the net’s largest hidden service and drug marketplace

January 1, 2013 — 14 Comments

silkroadlogo

“An individual’s rights ARE the goal, ARE the mission, ARE the program.”

When Silk Road launched in February 2011, it was one of several online marketplaces selling drugs to the public. If a buyer wanted to shop around, the Open Vendor Database (OVDB) and The Farmer’s Market (TFM) were two other relatively popular options available around that time. In 2012, OVDB was absorbed into Silk Road and TFM fell to a major drug bust. The Silk Road remains active today as the largest market of its kind.

Online drug markets have a long, difficult-to-pin-down past that extends back beyond Silk Road and the Bitcoins spent there to more than a decade of dealing over different mediums. Finding information on past markets is tricky. When asked, some veteran vendors will talk about older digital currencies such as e-gold, PecunixLiberty Reserve and even Western Union and PayPal being used on markets like The Hive or in small, ephemeral IRC channels. Still others point to deals made in the 1990s and even further back on Usenet.

Some of the old vendors and buyers from these markets will not talk about them in public. Years after most of these markets ceased to exist, former patrons still stick to an old ethos that once covered them all: Loose lips sink ships.

It took black markets like Silk Road using anonymizing tools such as Bitcoin and Tor to bring these activities closer to sunlight.

“Silk Road is hands down the most popular mainstream internet drug market to ever be,” wrote user kmfkewm. “It also uses some of the best security honestly, although there is room for improvement for sure. It was the first community to embrace Bitcoin and one of the first to operate openly (OVDB launching almost simultaneously and Black Market Reloaded coming shortly after). It was the second drug market to be structured similar to E-bay or Amazon (the others were more like OVDB with a forum and private message system versus a market interface). TFM was the first market to have a market interface built into their community as far as I know, but I am pretty sure the Silk Road interface pwnt theirs.”

silk road today

Whereas most older markets had operated as closed forums, chats, instant messages or otherwise privately organized groups, Silk Road is the most recognizable name in a new generation of marketplaces. The site’s open market, large and active community, polished interface and business model mimicking the best of eBay, Craigslist and Amazon have played instrumental roles in the rise of the Road.

For a buyer, the site is simple. He downloads the anonymizing tool Tor, signs up for a free account on Silk Road and purchases encrypted Bitcoins to use in the market. Ideally, the buyer will take his time to search for a vendor with a good reputation selling a product with positive feedback on the forums. Or, as happens often enough, the buyer will hurry to buy LSD from the first dealer he spots. When the buyer has found what he wants, he can place it in a shopping cart as if he was buying a classic baseball card on eBay.

Next, Silk Road receives the buyer’s money in an escrow “as a trusted third party”, takes a commision off the top and then launders it to sever any traceable connections it had to the buyer. The vendor is informed of the purchase and given the buyer’s shipping address.

When the product is received, the buyer can “finalize” the transaction and release the funds. If there’s a problem, Silk Road will step in to mediate. The site’s administrators say that over 99% of transactions go through successfully or are mediated to a mutually agreed upon conclusion. Independent studies of feedback on the market have confirmed those numbers as strongly as is independently possible. Beyond the sale, buyers and sellers can affect each other’s reputation by submitting ratings similar to eBay’s feedback and rating system and by posting reviews in the forums.

There’s nothing else quite like it out there. Today, imitators and off-shoots are building new marketplaces with lessons learned from Silk Road. It’s a system that has helped to launch a new generation of black markets that have stymied law enforcement the world over.

But even for the most enthusiastic buyers and sellers, Silk Road is far from perfect.

The Bitcoin itself has been one of the site’s major strengths thanks to the relative anonymity and security it provides. It’s also been the cause of serious pain for vendors and buyers alike. When Silk Road launched, Bitcoin was a famously volatile currency with a tendency to lose and gain significant value in sudden swings.

“I have been here for many of [Silk Road’s] new adaptations,” wrote user anarcho47. “When I first started selling on here, there was no hedging against BTC fluctuations and this is back when BTC was making its wild swings from $1.00 – $30.00+ and all over the map, so buyers would be hesitant to purchase while the price was going up, and sellers would cancel orders while the price was going down. The few ones that stayed honest (myself included) hardly made any money at this time, and the currency issues alone completely wiped out more than a couple of sellers.”

Silk Road had a working community of buyers and sellers from day one. From then, word of mouth in the growing Bitcoin community and curious onlookers around the web steadily built up the user base in what was a young but already impressive marketplace.

As with any other market, price can attract or repel money from Silk Road. Depending on when and what you look for, you may find drugs on sale for less than local street value. More commonly, prices are at least slightly inflated but come with the benefits of anonymity that Bitcoin and Tor provide.

As Silk Road matured, the market diversified. Marijuana has always been the most popular product but harder drugs have become more readily available over time. Sellers began to offer products outside of drugs including hardware, pirated digital goods, forged documents, guns and stolen web accounts. Nevertheless, drugs have remained the market’s dominant offering by far.

Dread Pirate Roberts, the now famous and much-loved libertarian founder of Silk Road, began as the head administrator and a vendor on the site. As its popularity increased by word of mouth, he quickly stepped back to what he says is a purely managerial role. Doing this avoids potential conflict with customers, allows him to dedicate more time to role of CEO and, perhaps most importantly, vexes law enforcement who would like nothing more than for Roberts to poke his head out from the shadows.

By May 2011, the site had grown quickly to an active user base in the hundreds according to Bitcoin Magazine. On June 1, 2011, Gawker’s Adrian Chen published an article showing Silk Road to the world.

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.

About three weeks ago, the U.S. Postal Service delivered an ordinary envelope to Mark’s door. Inside was a tiny plastic bag containing 10 tabs of LSD. “If you had opened it, unless you were looking for it, you wouldn’t have even noticed,” Mark told us in a phone interview.

Chen’s article changed Silk Road forever. When Silk Road showed up in one of the most influential blogs on the net, the stream of new users became a torrent. Soon, prominent politicians expressed disdain for the “brazen” and “audacious” selling of drugs. Law enforcement expressed frustration at their inability to act against the site.

The public had many reactions but, above all else, they were intensely interested in what was happening. Silk Road is a seductive experiment in tech, economics, anonymity, crime, law enforcement, drugs, personal freedom and community. Even many of those disgusted with the ideas promoted by the market have long had their eyes glued to the drama unfolding.

Thousands of new users rushed into the marketplace to see if it wasn’t just a mirage. Membership jumped “an order of magnitude to over ten thousand,” reported Bitcoin Magazine.

The new members were initially faced with a creaky Silk Road website that went down for several days under the weight of sudden massive publicity. Eager scammers waited to prey on the curious newbies. A still-volatile Bitcoin made doing business even riskier as its value quickly doubled, halved and then continued to fall as it adjusted to the rush in the days following the influx. “Silk Road suffered as the price fell from $31 to $2 between June and November, making it difficult for sellers to make money,” reported Bitcoin Magazine.

After the new users purchased Bitcoins, they made orders in droves and turned what was a reasonably popular marketplace into a singularly successful business. Dread Pirate Roberts began work on upgrading the infrastructure to deal with the surge in traffic. Technical difficulties on the site, economic woes for the Bitcoin currency and security difficulties facing the web’s largest BTC exchange led many curious new faces to leave or step back considerably during 2011.

However, reports of the death of Bitcoin turned out to be greatly exaggerated. The price of Bitcoins would rebound and eventually stabilize towards the end of the year. Despite all the hiccups, Silk Road was traveling on an indisputably upward trajectory.

To help fight Bitcon volatility, a “hedged escrow” option was introduced for buyers and sellers in July 2011. Today, Bitcoins are converted into US Dollars after the purchase, held in an escrow and then quickly changed back as the transaction is finalized, shielding both sides significantly from whatever currency volatility may creep up. When Roberts announced the new option, the site’s American majority seemed just as pleased as international users.

Whatever else was being said about him, Roberts and his team were repeatedly proving themselves to be supremely competent businessmen.

Bitcoin exchange volume distribution

The exchange volume distribution by BTC market and currency. Source: Bitcoincharts

On August 16, Dread Pirate Roberts announced that he was hiring new talent with an attention-grabbing $1,000 referral prize.

We are looking for a unix administrator to add to our team. The person in this position will be responsible for the security, reliability and performance of our servers. They should have at least several years of experience and be able to formulate and clearly communicate new ideas for improving our systems. This is a temporary position that could turn into a more permanent arrangement depending on your performance and character. To apply, please send your answers to the following questions via the “contact us” link on the main site. Use the subject line “unix admin application”.

Why do you want to join the Silk Road team?

Describe your experience as a unix admin and your skill set. Do you have other skills that might be applicable to our operation?

If you were starting from scratch, how would you set up the Silk Road servers to maximize security, performance, and reliability?

Are you able to work full-time (40+ hrs/week), part-time (at least 20 hrs/week), or both?

How much would you need to be paid?

Were you referred by someone? Who?

How did you hear about Silk Road?

What is your drug of choice, if any?

Anything else we should consider?

We are offering a $1000 to anyone who refers the person we hire

About 4,000 people have viewed the offer, many of whom said publicly that they’d be sending in resumes. Several site members became nervous about a public hiring.

“Wouldn’t it make sense for you to hire someone that you know and trust?” wrote user whome. “The paranoid me jumped out of his shorts when he saw this ad. What if someone says hire this guy! and that guy is Law Enforcement…”

“your concern is appropriate,” wrote Roberts. “However, the person we hire will not be put in a position to be able to compromise the site.  There are also substantial advantages over using someone I know.  In an operation like this, people are the biggest liability.  Someone I know and trust can tell someone I don’t know and trust what’s going on.  If this person needs to be let go for any reason, there are no loose ends.”

Not all the Silk Roaders were convinced.

“Really? I don’t think this is a good idea,” wrote user envious. “How could he not be in a position to compromise the site? You have to at least give him some sort of SSH access, and local root exploits are a dime a dozen. Just do your homework and run OpenBSD with full ASLR and isolate each process in a VM. Then your site is virtually impenetrable.”

Roberts explained the new position further.

“Access is not necessary,” he wrote. “At least at first, this person will be more of a dedicated expert adviser. There are many layers to this site and more we want to add, and unfortunately my expertise and time are maxed out. Several members have been very generous in volunteering their time to help improve the site, but by their nature, volunteers can only do so much and have other obligations. Right now we need someone with plenty expertise who can dedicate their time to this project and help take it to the next level. If all goes well, we’ll be opening up other positions too.”

“A random advisor could still be in the position to trick you into installing something dangerous,” responded envious. “For instance they could work with some sort of software developer, install a backdoor and host it on the actual real hosting site, and tell you to install it. Instantly rooted. I think it should be someone you semi-trust, not some random. Not someone CLOSE to you per say, but someone that you have known for a while, has a history in the scene, and you are pretty confident they are not LE. Hope this helps.”

Several other forum members continued to discuss the idea of outside hiring and related security concerns. Other more enthusiastic users discussed passing the wanted ad onto qualified friends from major tech companies such as Cisco. Roberts withdrew from the conversation except for one more update:

“I’ve been blown away by the caliber of the applicants so far.”

Drugs launched Silk Road into the stratosphere but the marketplace has had much more to offer since launch. Whether you want to buy a MacBook, cell phone jammer or imitation designer fashion, Silk Road has a section for you to browse. However, there are limits.

“Practically speaking, there are many powerful adversaries of Silk Road and if we are to survive, we must not take them all on at once,” reads the Silk Road Seller’s Guide. “Do not list anything who’s (sic) purpose is to harm or defraud, such as stolen items or info, stolen credit cards, counterfeit currency, personal info, assassinations, and weapons of any kind. Do not list anything related to pedophilia.”

All the above — from child pornography to weapons to stolen credit cards — are easily available in other marketplaces around the web.

In fact, Silk Road had allowed the sale of small-arms through the first year of its existence. It was a regular source of debate on moral, ethical and business grounds.

“Silk Road should strive to have every item and service that subverts the power of the state,” wrote user dird in January 2012.

“How much of us wants this place to represent some philosophical/ideological/social idea,” wrote user prsnnknwn, “vs. how much of us wants it to be another convenience store (yeah, unusual, but still, just another one). And from there you can start ask whether we should ban this or that or nothing whatsoever.”

Polls on the subject were repeatedly split near the middle.

On February 26, 2012, Dread Pirate Roberts opened an off-shoot of the Silk Road called the Armory focused “exclusively on the sale of small-arms weaponry for the purpose of self defense.”

First off, we at Silk Road have no moral objection to the sale of small-arm weaponry. We believe that an individual’s ability to defend themselves is a cornerstone of a civil society. Without this, those with weapons with eventually walk all over defenseless individuals. It could be criminals who prey on others, knowing they are helpless. It could be police brutalizing people with no fear of immediate reprisal. And as was seen too many times in the last century, it could be an organized government body committing genocide on an entire unarmed populace. Without the ability to defend them, the rest of your human rights will be eroded and stripped away as well.

That being said, there is no reason we have to force everyone into a one-size-fits-all market where one group has to compromise their beliefs for the benefit of another. That’s the kind of narrow thinking currently used by governments around the world. It’s why we are in this mess in the first place. The majority in many countries feel that drugs and guns should be illegal or heavily regulated, so the minority suffers.

Here at Silk Road, we recognize the smallest minority of all, YOU! Every person is unique, and their human rights are more important than any lofty goal, any mission, or any program. An individual’s rights ARE the goal, ARE the mission, ARE the program. If the majority wants to ban the sale of guns on Silk Road, there is no way we are going to turn our backs on the minority who needs weaponry for self defense.

The Armory lasted only six months until August 16, 2012 when it was shut down due to slow business. After all, it’s usually easy for most American citizens to purchase guns from local dealers with greater privacy, a lower price and, often, completely legally.

“As someone who likes guns and likes privacy, I saw no real benefit to having the Armory,” wrote user IveBeenBit. “In most states in the US, you can get what you want and do so privately or semi-privately, and completely legally. We’re lucky to have some REALLY powerful lobbyists that have successfully hampered the government’s tracking of firearms ownership.

The online weapons market is far from dead. With The Armory gone, Black Market Reloaded is now likely the most popular limitless Tor market. Even there, the gun market is many times smaller than the drug market. Overall, BMR carries less than half the volume of goods offered at Silk Road. It also has far less publicity. BMR users generally like it that way.

The attempt to create a separate market for guns highlighted Dread Pirate Robert’s political streak. His brand of active anti-state libertarianism has been the subject of much discussion. In answering questions on the forums and in private, Robert has made his ideology well known. He’s produced a number of political essays that have attracted great attention in the community.

Here he is laying out his vision of drug legalization and the future of personal freedom:

I keep hearing this argument come up when people talk about drug prohibition: legalize, regulate and tax it. On the surface it sounds like a good idea. No more drug war, more tax revenue, government regulators can make sure it is safe. Makes sense, right?

I can’t help but think something is wrong though. Feels like the bastards that have been screwing everyone over all this time still win in this scenario. Now all that money can go to the state and to their cronies, right?

Here’s the rub: the drug war is an acute symptom of a deeper problem, and that problem is the state. If they “legalize, regulate and tax” it, it’s just one more part of society under their thumb, another productive sector that they can leech off of.

If prohibition is lifted, most people here will go away. You’ll go back to your lives and get your drugs from whatever state certified dispensaries are properly licensed to sell to you. Drug use will be as interesting as smoking and drinking.

Here’s my point: Silk Road is about something much bigger than thumbing your nose at the man and getting your drugs anyway. It’s about taking back our liberty and our dignity and demanding justice. If prohibition is lifted, and the drug industry is placed under the yoke of the state, then we won in a small way, but lost in a big way. Right now, drugs are ours. They aren’t tainted by the government. We the people control their manufacture, distribution and consumption. We should be looking to expand that control, taking back our power, no giving what is ours to the very people that have been our enemies all along.

It’s easy to justify though. Think of all the horrors the war on drugs has caused that will be gone, almost instantly. That pain could stop!

Don’t be tempted by this short-term easy fix of “let the government handle it.” Their time is coming to an end. The future is OUR time. Let us take this opportunity they’ve given us to gain a foothold from which we can throw that yoke off completely. We are NOT beasts of burden to be taxed and controlled and regulated. WE are free spirits! We DEMAND respect! The future can be a time where the human spirit flourishes, unbridled, wild and free! Don’t be so quick to put on that harness and pull for the parasites.

If prohibition is lifted, where will you be? Will you forget about all this revolution stuff? Will you go back to ignoring that itching feeling that something isn’t right, that men in uniforms and behind desks have just a bit too much control over your life, and are taking more and more of your sovereignty every day? Will you go back to thinking that taxes are as inevitable as death and the best you can do is to pull as hard as you can for them until you mind, body and spirit are all used up? Or will you feel the loss, as one more wild west frontier comes under the dominion of the enemy, and redouble your efforts to stop it?

I know where I’ll be. I won’t rest until children are born into a world where oppression, institutional violence and control, world war, and all the other hallmarks of the state are as ancient history as pharaohs commanding armies of slaves. The drug war merely brings to light their nature and shows us who they really are. Legalizing it won’t change that and will only make them stronger.

Hold on to what you DO have, and stand for the freedom you deserve!

If Dread Pirate Roberts believed much in the state, he might have some support in a political campaign with that sort of rhetorical arsenal. In his forum signature, he links to Murray N. Rothbard’s Libertarian Manifesto and Samuel Edward Konkin III’s New Libertarian Manifesto.

As it stands, Roberts is the CEO of the world’s largest online drug market and a crusader against what he sees as violent, vile statist oppression. He seems happier this way. Wealthier, too.

Nicolas Christin, a researcher at Carnegie Mellon, monitored Silk Road from February to July 2012. Released in August, the study made headlines all over the web when it claimed that the marketplace had $22 million in sales during that period. “Dr. Christin will be publishing a revised version later this month that lowers the estimate to around $15 million,” reported The Verge in November.

The researchers found 24,422 unique items being sold. From 220 distinct sellers in February, the researchers saw 564 by the end of July. Top 100 vendors may be earning $180,000 per year from Silk Road alone. “Superstar sellers” could take in much more. Considering an overall population of at least tens of thousands of users overall and several thousands of active users, the ratio of buyers to sellers seems extremely high.

Silk Road’s growth was steady but not exponential in 2012. The Road gained about 50 new active sellers each month but many left after just a few weeks. It’s worth noting that a number of these disappearing vendors may have gone into “stealth mode” — that is, they sold privately to their established customers rather than publicly. Stealth vendors may go hidden to avoid unwanted notoriety and the torrent of orders that a “superstar seller” may receive.

cmsellers

A total of 1,397 sellers were documented during the study but “the top 100 sellers were responsible for approximately 60% of all feedback gathered, a strong indicator of the number of sales made.” For all of Silk Road’s growth, it seems a steady core of vendors has remained the foundation on which the market’s success has been built.

cmreport2
“The four most popular categories are all linked to drugs; nine of the top ten, and sixteen out of the top twenty are drug-related. In other words, Silk Road is mostly a drug store, even though it also caters some other products. Finally, among narcotics, even though such a classification is somewhat arbitrary, Silk Road appears to have more inventory in “soft drugs” (e.g., weed, cannabis, hash, seeds) than “hard drugs” (e.g., opiates); this presumably simply reflects market demand.”

As the researchers crawled Silk Road, several changes took place that made profiling the site more difficult.

“Whether this was due to Silk Road operators noticing our crawls or to other activity is unclear,” wrote Christin.

URL structure changed. Instead of items and users being referenced by a linearly increasing numeric identifier (/silkroad/user/795, /silkroad/user/796), they became unique hashes (/silkroad/user/b00812aa62). Feedback data was obfuscated until strong push back from sellers and buyers alike convinced Roberts to revert back to a system with time-stamped, per-item feedback.

The day-by-day of Silk Road’s security is obviously difficult or impossible to pin down. These changes caught by the researchers provide valuable insight into where Roberts’ gaze is directed at least some of the time.

Like a lumbering bear swatting at bees, hitting nothing but air and feeling a bit slow and stung, law enforcement have come across as impotent against Silk Road.

The most notable hit law enforcement has landed against Silk Road came in July when Australian police arrested a Melbourne resident attempting to smuggle drugs into the country, reported Betabeat.

Australian law enforcement published a triumphant press release.

Silk Road is an overseas based illicit e-commerce website which facilitates the sale of drugs, weapons and other items prohibited under Australian law.

Law enforcement is well aware of this method of drug procurement and other illicit e-commerce platforms and are committed to identifying and combating users importing narcotics via this website into Australia.

“Criminals are attempting to exploit the international mail system through online networks, but the recent arrest demonstrates that we are one step ahead of them.

“The AFP will continue to identify, investigate and prosecute individuals or groups importing narcotics into Australia, including via illicit e-commerce platforms such as Silk Road,” said Australian Federal Police Manager Crime Operations Peter Sykora.

“Persons who buy or sell through online market places, on so-called ‘anonymous’ networks should understand that they are not guaranteed anonymity,” said Acting National Manager Cargo and Maritime Targeting Branch, Alana Sullivan.

srchDespite the ominous warning to Silk Road users, there are important caveats to note. The consensus is that the suspect was caught through more traditional means — that is, the product was likely nabbed in the mail. This scenario presents its own set of issues relating to packaging and international mailing. The prospect of mailing to island nations is particularly interesting as they can guard their borders relatively effectively.

However, an intercepted package is far less daunting to Silk Road than the prospect of governments monitoring Tor or Bitcoin’s anonymizing services. Much to their collective delight, that is not what seems to have happened despite the grandstanding of the police.

The most pervasive threats to the site have been scammers and hackers.

Vendors often convince naive, impatient buyers to purchase drugs outside of Silk Road’s escrow, leaving those buyers vulnerable to scams.

Early in 2012, the site’s top vendor held a major 4/20 sale in which he convinced buyers to either go outside of escrow or, if in escrow, finalize the deal before they’d received their drugs. He delivered none of the product and walked away with a whole lot of cash in one fell swoop.

This is a scene that has repeated itself numerous times on Silk Road and across other anonymous marketplaces that have grown in its shadow. Buyers become vulnerable when they choose to purchase goods outside of escrow and vendors are vulnerable to buyers who lie and cheat and in an effort to harm the vendor’s business.

Hackers have attacked Silk Road, disrupting business and bringing the whole market down for days at a time.

By November 2012, Silk Road was in “uncharted territory in terms of the number of users accessing Silk Road,” wrote Roberts. “Most of the time we’ve been able to keep up with the demand, but we ARE behind the curve right now. Being the largest hidden service ever to exist and having limited options for expanding infrastructure due to the need for security means we may stay behind the curve until we can find a way to accommodate the demand. There are several paths we are currently pursuing and we hope to be back on track very soon. Please be patient and try using the site during off-peak times”

On November 8, it was discovered that a “very skilled and clever” hacker had changed product images, added a “Quick Buy” option that included a Bitcoin address, removed shipping options and made it impossible to place an order for nearly a week, explained Dread Pirate Roberts once the site was back online. “It doesn’t look like anybody fell for it & the hack didn’t affect most of the product listings, they however do not have backups of the original images so these will have to be reuploaded by the vendors.”

Several Silk Roaders wondered if the hacker (who used an SQL injection) was now the proud owner of the Road’s entire database. If so, would Roberts say so? What exact data does that entail? Is the Silk Road’s database now for sale on another less visible black market?

Every time Silk Road stumbles, Black Market Reloaded and other competitors tend to grow as vendors look for alternative markets. BMR has a significantly smaller customer base but has no limits on what can be sold and sports an interface very similar to Silk Road’s, putting it in a unique and attractive position. During the Road’s troubles this past November, a number of vendors publicly explored BMR’s marketplace and have increased the amount of drugs available there.

Today, there are one to two hundred active users on Silk Road at any given time. The total membership sits around 50,000 but that no doubt includes many clones.

The most active thread on Silk Road’s forums is h3ЯØ|n Vendors, a vendor review discussion at 198,000 views and 14,793 replies. LSD, coke, MDMA and meth review threads follow. You can view publicly available and up-to-date stats from Silk Road’s forums here.

Silk Road remains the net’s largest hidden service of all time and an increasingly important cornerstone of the Bitcoin economy. Dread Pirate Roberts remains an endlessly fascinating figure. Orders keep coming in, deliveries continue to be successfully made and money keeps moving from wallet to wallet.

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