August 8, 2016
- Since the closing in 2013 of the first well-known cryptomarket, Silk Road 1.0, transactions on new markets have tripled and revenues have doubled.
- Total global monthly illicit drug revenues from cryptomarkets are estimated to be between $12.0 (€10.5) and $21.1 (€18.5) million.
- Sales of illicit drugs on cryptomarkets are still small compared to offline sales, but are supporting offline trade of drug dealers.
A new study has shown that the number of transactions for illicit drugs on cryptomarkets, which exist on the “dark web,” have tripled and revenues have doubled since 2013, when Silk Road 1.0 was shut down by the FBI, according to a new RAND Europe study. There was also a six-fold increase of advertisements for illicit drugs on cryptomarkets. These so-called cryptomarkets are accessible with a normal internet connection, but require special anonymising software to access.
The study, done in collaboration with Judith Aldridge (University of Manchester) and David Décary-Hétu (University of Montreal), considered the size and scope of the trade of illicit drugs online during January 2016 after it extracted data from eight of the largest cryptomarkets. These findings were compared with figures collected in 2013, a few weeks before Silk Road 1.0 was shut down.
The total drug revenues on cryptomarkets (excluding prescription drugs, alcohol and tobacco) during January 2016 were estimated to be between $12.0 (€10.5) million* and $21.1 (€18.5) million*. This suggests that cryptomarkets are still only niche online marketplaces when compared with the offline market for drugs, which is estimated to be $2.3 (€2) billion* on average per month for Europe alone, according to figures from the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) included in its 2016 EU Drug Markets Report.
However, there is some evidence that drugs sold on cryptomarkets are fuelling offline drug markets, with buyers sourcing stock for offline distribution. Twenty-five per cent of total drug revenues on cryptomarkets measured in January 2016 were greater than $1,000 (€877.2)*, making it likely that these drugs were bought for the purposes of resale. The majority of drug transactions on cryptomarkets were under $100 (€87.7)*, which was likely to be for personal use, but they only generated 18 per cent of total revenues, according to the researchers.
Illicit drugs sold on cryptomarkets were dominated by cannabis (37 per cent), stimulants (cocaine, amphetamines) (29 per cent) and ecstasy-type drugs (19 per cent). These figures were very similar to EMCDDA estimates about drugs sold offline, apart from ecstasy-type drugs (just 3 per cent of the total European retail value) and heroin (28 per cent offline, but only 6 per cent of the total drugs revenues on cryptomarkets). An explanation for these differences may be that purchasing drugs online requires an element of planning, which suits “party drugs” such as ecstasy and MDMA, but does not suit the daily use of dependent users of heroin.
Stijn Hoorens, a research leader at RAND Europe and one of the report's authors, said: “Cryptomarkets essentially work similarly to online ecommerce platforms, such as Amazon, but they require encryption software to access and payment in bitcoins. They are dominated by advertisements for illicit substances.”
He continues: “The closure of Silk Road has not curbed the growth of these cryptomarkets, as more markets continue to be created and more illicit drugs are being bought online. This is despite several high-profile law enforcement interventions and exit scams by market administrators. Cryptomarkets are often online only for several months and users seem to be operating under the assumption that they could be closed at any moment.”
Other findings from the study showed the following:
- Cryptomarkets were dominated by vendors from the U.S. (35.9 per cent of total drug revenues), the U.K (16.1 per cent), Australia (10.6 per cent), Germany (8.4 per cent) and the Netherlands (7.1 per cent).
- The Netherlands had the highest revenues per capita for illicit drug sales on cryptomarkets, with the country dominating sales of psychedelic drugs, such as MDMA and ecstasy.
- More than half of the vendors made more than $1,000 (€877.2)* per month and the most successful vendor made an estimated $276,230 (€242,307)* in January 2016, a 10-fold increase over the most successful vendor in 2013.
- Vendors have creatively adjusted their behaviour to avoid detection, such as changes in shipping practices.
- Buyers were attracted to cryptomarkets to purchase drugs because of a perceived increase in safety, improved quality and variety, and ease and speed of delivery.
Hoorens said: “The evidence on the full impact of cryptomarkets remains inconclusive. Some have argued that cryptomarkets reduce violence from the drug supply chain, but others believe that it may offer a new, often young, consumer base easy access to drug markets. Law enforcement agencies that try to curb these markets can use a combination of traditional surveillance operations, postal detection and interception during shipping, and online detection and tracking of the cryptomarkets.”
The study was commissioned by the Research and Documentation Centre (Wetenschappelijk Onderzoek- en Documentatiecentrum (WODC)), the independent research arm of the Ministry of Security and Justice in the Netherlands.
To view the report visit: https://www.rand.org/randeurope/research/projects/online-drugs-trade-trafficking.html
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Notes to Editors:
*The values are based on EUR/USD exchange rate of 1.14 as of April 2016.
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