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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In defence of orientalism, the case against Twenty20, and why Ken should watch Son of Saul

My week, from Age Concern to anti-semitism.

Returning late from a party I never much wanted to go to, I leap up and down in the middle of the Harrow Road in the hope of flagging down a taxi, but the drivers don’t notice me. Either they’re haring down the fast lane or they’re too preoccupied cursing Uber to one another on their mobile phones. My father drove a black cab, so I have a deep loyalty to them. But there’s nothing like being left stranded in NW10 in the dead of night to make one reconsider one’s options. I just wish Uber wasn’t called Uber.

Just not cricket

Tired and irritable, I spend the next day watching sport on television – snooker, darts, cricket, anything I can find. But I won’t be following the Indian Premier League’s Twenty20 cricket again. It’s greedy, cynical, over-sponsored and naff. Whenever somebody hits a boundary, cheerleaders in cast-off gym kit previously worn by fourth-form Roedean girls wave tinsel mops.

Matches go to the final over where they’re decided in a thrashathon of sixes hit by mercenaries wielding bats as wide as shovels. Why, in that case, don’t both teams just play a final over each and dispense with the previous 19? I can’t wait for the elegant ennui of a five-day Test match.

Stop! Culture police!

I go to the Delacroix exhibition at the National Gallery to shake off the sensation of all-consuming kitsch. Immediately I realise I have always confused Delacroix with someone else but I can’t decide who. Maybe Jacques-Louis David. The show convincingly argues that Delacroix influenced every artist who came after him except Jeff Koons, who in that case must have been influenced by David. It’s turbulent, moody work, some of the best of it, again to my surprise, being religious painting with the religion taken out. Christ’s followers lamenting his death don’t appear to be expecting miracles. This is a man they loved, cruelly executed. The colours are the colours of insupportable grief.

I love the show but wish the curators hadn’t felt they must apologise for Delacroix finding the North Africans he painted “exotic”. Cultural studies jargon screams from the wall. You can hear the lecturer inveighing against the “appropriating colonial gaze” – John Berger and Edward Said taking all the fun out of marvelling at what’s foreign and desirable. I find myself wondering where they’d stand on the Roedean cheer-leaders of Mumbai.

Taking leave of the senses

My wife drags me to a play at Age Concern’s headquarters in Bloomsbury. When I see where she’s taking me I wonder if she plans to leave me there. The play is called Don’t Leave Me Now and is written by Brian Daniels. It is, to keep it simple, about the effects of dementia on the families and lovers of sufferers. I am not, in all honesty, expecting a good time. It is a reading only, the actors sitting in a long line like a board of examiners, and the audience hunched forward in the attitude of the professionally caring.  My wife is a therapist so this is her world.

Here, unlike in my study, an educated empathy prevails and no one is furious. I fear that art is going to get lost in good intention. But the play turns out to be subtly powerful, sympathetic and sharp, sad and funny; and hearing it read engages me as seeing it performed might not have done. Spared the spectacle of actors throwing their bodies around and singing about their dreams against a backdrop painted by a lesser, Les Mis version of Delacroix, you can concentrate on the words. And where dementia is the villain, words are priceless.

Mixing with the proles

In Bloomsbury again the next day for a bank holiday design and craft fair at Mary Ward House. I have a soft spot for craft fairs, having helped run a craft shop once, and I feel a kinship with the designers sitting bored behind their stalls, answering inane questions about kilns and receiving empty compliments. But it’s the venue that steals the show, a lovely Arts and Crafts house, founded in the 1890s by the novelist Mary Ward with the intention of enabling the wealthy and educated to live among the poor and introduce them to the consolations of beauty and knowledge. We’d call that patronising. We’re wrong. It’s a high ideal, to ease the burden of poverty and ignorance and, in Ward’s words, save us from “the darker, coarser temptations of our human road”.

An Oscar-winning argument for Zionism

Speaking of which, I am unable to empty my mind of Ken Livingstone and his apologists as I sit in the cinema and watch the just-released Academy Award-winning Son of Saul, a devastating film about one prisoner’s attempt to hold on to a vestige of humanity in a Nazi death camp. If you think you know of hell from Dante or Michelangelo, think again. The inferno bodied forth in Son of Saul is no theological apportioning of justice or deserts. It is the evisceration of meaning, the negation of every grand illusion about itself mankind has ever harboured. There has been a fashion, lately, to invoke Gaza as proof that the Holocaust is a lesson that Jews failed to learn – as though one cruelty drives out another, as though suffering is forfeit, and as though we, the observers, must choose between horrors.

I defy even Livingstone to watch this film, in which the Jews, once gassed, become “pieces” – Stücke – and not grasp the overwhelming case for a Jewish place of refuge. Zionism pre-dated the camps, and its fulfilment, if we can call it that, came too late for those millions reduced to the grey powder mountains the Sonderkommandos were tasked with sweeping away. It diminishes one’s sympathy for the Palestinian cause not a jot to recognise the arguments, in a world of dehumanising hate, for Zionism. Indeed, not to recognise those arguments is to embrace the moral insentience whose murderous consequence Son of Saul confronts with numbed horror. 

This article first appeared in the 06 April 2016 issue of the New Statesman, The longest hatred