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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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.