Why Silk Road basically sells insurance and financial products, not drugs

The world's biggest online drug marketplace is more like the world's biggest service company

Forbes reporter Andy Greenberg secured the interview of the year this week, with Dread Pirate Roberts, the pseudonymous owner/CEO/"center of trust" of Silk Road, "the Web’s busiest bazaar for heroin, methamphetamines, crack, cocaine, LSD, ecstasy and enough strains of marijuana to put an Amsterdam coffee shop to shame". The interview is an insight into the political motivations behind the site, as well as the levels of paranoia you need to have to run a multimillion dollar drug empire online.

But for this blog, perhaps the most insightful quote didn't come from Roberts (who takes his pseudonym from cult 80s film The Princess Bride) at all. Instead, it's this take:

“Silk Road doesn’t really sell drugs. It sells insurance and financial products,” says Carnegie Mellon computer engineering professor Nicolas Christin. “It doesn’t really matter whether you’re selling T-shirts or cocaine. The business model is to commoditize security.”

Silk Road is a marketplace; it's far closer to the eBay of drugs than the Amazon of them. And so its main purpose is merely connecting buyers and sellers.

But even more than with eBay, there are major trust issues involved in doing so. No-one wants to actually share any information which could be used to track them down (although the buyer has to give the seller at least somewhere to post too), and if you do get scammed, you've got even less chance of using the law to get your money back, on account of what you buy being really illegal.

Some of the Silk Road's services specifically get around this problem: so, for example, the site offers escrow services to buyers, which only release their cash to the seller once they get the goods. And, famously, all purchases are made using Bitcoin, the anonymous peer-to-peer currency which increased in value by almost 20 times over the first few months of this year.

That brought its own problems, which Silk Road also helps alleviate. Dealers can price their goods in dollars, even as they get paid in Bitcoin, and Silk Road will ensure that the fluctuations don't hit them too hard. In effect, the company is running a small FX trading division, although with only one currency pair being traded, they won't make much money from it.

But as competition in the sector grows – a rival site, Atlantis, has launched and is running direct campaigns against Silk Road – the lawlessness may start being something which no amount of innovation can solve. Already, there are murmurs that an outage at Silk Road was engineered by the newcomer. Roberts estimates the value of Silk Road at "10 figures, maybe 11"; he's got a fight ahead to keep it to himself.

Drugs! Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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There's nothing Luddite about banning zero-hours contracts

The TUC general secretary responds to the Taylor Review. 

Unions have been criticised over the past week for our lukewarm response to the Taylor Review. According to the report’s author we were wrong to expect “quick fixes”, when “gradual change” is the order of the day. “Why aren’t you celebrating the new ‘flexibility’ the gig economy has unleashed?” others have complained.

Our response to these arguments is clear. Unions are not Luddites, and we recognise that the world of work is changing. But to understand these changes, we need to recognise that we’ve seen shifts in the balance of power in the workplace that go well beyond the replacement of a paper schedule with an app.

Years of attacks on trade unions have reduced workers’ bargaining power. This is key to understanding today’s world of work. Economic theory says that the near full employment rates should enable workers to ask for higher pay – but we’re still in the middle of the longest pay squeeze for 150 years.

And while fears of mass unemployment didn’t materialise after the economic crisis, we saw working people increasingly forced to accept jobs with less security, be it zero-hours contracts, agency work, or low-paid self-employment.

The key test for us is not whether new laws respond to new technology. It’s whether they harness it to make the world of work better, and give working people the confidence they need to negotiate better rights.

Don’t get me wrong. Matthew Taylor’s review is not without merit. We support his call for the abolishment of the Swedish Derogation – a loophole that has allowed employers to get away with paying agency workers less, even when they are doing the same job as their permanent colleagues.

Guaranteeing all workers the right to sick pay would make a real difference, as would asking employers to pay a higher rate for non-contracted hours. Payment for when shifts are cancelled at the last minute, as is now increasingly the case in the United States, was a key ask in our submission to the review.

But where the report falls short is not taking power seriously. 

The proposed new "dependent contractor status" carries real risks of downgrading people’s ability to receive a fair day’s pay for a fair day’s work. Here new technology isn’t creating new risks – it’s exacerbating old ones that we have fought to eradicate.

It’s no surprise that we are nervous about the return of "piece rates" or payment for tasks completed, rather than hours worked. Our experience of these has been in sectors like contract cleaning and hotels, where they’re used to set unreasonable targets, and drive down pay. Forgive us for being sceptical about Uber’s record of following the letter of the law.

Taylor’s proposals on zero-hours contracts also miss the point. Those on zero hours contracts – working in low paid sectors like hospitality, caring, and retail - are dependent on their boss for the hours they need to pay their bills. A "right to request" guaranteed hours from an exploitative boss is no right at all for many workers. Those in insecure jobs are in constant fear of having their hours cut if they speak up at work. Will the "right to request" really change this?

Tilting the balance of power back towards workers is what the trade union movement exists for. But it’s also vital to delivering the better productivity and growth Britain so sorely needs.

There is plenty of evidence from across the UK and the wider world that workplaces with good terms and conditions, pay and worker voice are more productive. That’s why the OECD (hardly a left-wing mouth piece) has called for a new debate about how collective bargaining can deliver more equality, more inclusion and better jobs all round.

We know as a union movement that we have to up our game. And part of that thinking must include how trade unions can take advantage of new technologies to organise workers.

We are ready for this challenge. Our role isn’t to stop changes in technology. It’s to make sure technology is used to make working people’s lives better, and to make sure any gains are fairly shared.

Frances O'Grady is the General Secretary of the TUC.