Silk Road’s Closure: An Impactful Hit on the Illegal Drug Market


As you have probably already heard, the FBI recently seized and closed down the notorious black market Internet site “Silk Road,” along with its creator, twenty-nine year old Ross Ulbricht. While many law-and-order types gathered together online to applaud the news, others were shocked and disappointed by the government’s actions. Silk Road offered its army of users access to some of the purest, most potent substances currently available to consumers. Over the course of the long investigation that targeted Silk Road, the FBI made over a hundred purchases of what they reported to be remarkably pure substances. As Silk Road hosted at least $22 million in annual transactions, the void left by the seizure of these high-quality chemicals stands to become evident to us in a variety of ways.

One of the first shockwaves to hit Internet users as a result of Silk Road’s closure was the decline in value of the Bitcoin, an online currency designed to exist without control by a third party. Bitcoins are not issued by banks or the government, but by the users who designed the Bitcoin infrastructure. Silk Road required that all purchases be made in the form of Bitcoins in order to make it more difficult for law enforcement to de-anonymize transactions made on the site. Ironically, in spite of the Bitcoin’s intended purpose to remain free from third-party intervention, the FBI seized 144,000 Bitcoins, equal to $28.5 million, which it plans to liquidate soon. The FBI has also announced plans to push its fingers further into the market as it seeks to eliminate increasing numbers of Bitcoins. When news of the government taking possession of Silk Road initially broke, the price of the Bitcoin took an immediate dip of 11%. It’s worth noting that the Bitcoin market is historically volatile, and it is likely that knee-jerk, reactionary fear played a larger role in the fall of the price of Bitcoins than any concrete “thing” that the FBI could have done to users. In fact, as of this writing, the Bitcoin is performing much better. All the same, economists and law enforcement officials will be keeping an eye on the Bitcoin market for some time to come.

Of perhaps greater concern, small-time drug dealers are not paying back their debts to more powerful, threatening drug dealers. The business of drugs, like any other, starts out as an investment. Typically, a dealer will not secure a truly decent cash flow until the third or fourth time he has put his earnings back into his stock. This cycle of earning and investing occasionally incurs debt on the part of those first starting up their businesses, or those who have just encountered a bad phase in their careers. Dealers who were fronted money and had the bad fortune of loading it onto their Silk Road accounts before the seizure found that their Bitcoins had gone down with the site. While the methods for verifying personal statements made on the Internet are scarce, notable comments made in the thread “Silk Road Fallout Discussion” created on include “It wasn’t all my money and it’s very dangerous people that I now owe large sums to. I’m a dead man.”

Another cause for concern is that addicts are now turning to the streets for their drugs instead of being able to purchase from a reliable source. The 100+ purchases made by the FBI over the Silk Road tested at absurdly high purity levels, much higher than similar tests done on drugs purchased from the streets. If you live with the pressure of an addiction, you often have limited options when obtaining the object of your addiction. Silk Road was unique in that it placed its buyer in the position of the traditional consumer — no sketchy back-alley deals, just your computer and a credit card number.

Not surprisingly, new sites like Silk Road have already begun to pop up on the Tor network. Ultimately, Silk Road will be reincarnated again and again for as long as current technology facilitates the industry and for as long as people choose to take drugs. As long as the demand exists, so will the market. Those involved in the illegal drug industry say it’s foolish to exploit our diminishing resources in the pursuit of a goal that can never be fully achieved, especially when it comes at the cost of lives. The FBI disagrees and will fight drug trafficking with every available resource. Whichever side best utilizes technology in this cat-and-mouse game will maintain a tactical advantage.