Information and Darknet Blackmarkets
The darknet describes a part of the internet that can only be accessed with specific software. Typically, this software is Tor, a tool most notable for making tracing network traffic and identifying users in the darknet extremely difficult. Thus Tor has found great success in those who seek higher levels of privacy and anonymity, among whom include, unsurprisingly, criminals trading illegal goods and services such as drugs, firearms, and hacks. Many darknet marketplaces have emerged to facilitate trade between buyers and vendors; they are the blackmarket perversions of popular sites such as Ebay and Amazon.
An interesting and ironic question then arises: How do these marketplaces for criminals by criminals protect their vendors and sellers?
Perhaps the most important challenge is asymmetric information. The vendor knows the quality of his good, but the buyers do not. Worse yet, both buyers and vendors are anonymous and mistrustful. Darknet markets also offer little recourse in the event of a scammed buyer; the vendor often cannot even be identified, much less sued. Product return is also a non-option. The most site administrators can do is try to ban the vendor. But if too many buyers get scammed–if the market becomes full of lemons rather than drugs–then the entire marketplace fails, so safeguards are necessary.
Funny enough, the most commonplace and effective countermeasure is a rating/review system. The system provides signal information on the quality of the goods, and it also provides signal information on the buyers who leave the review. If a vendor has many positive reviews, and one buyer submits a negative review, that buyer may be instead suspected of deliberate sabotage. This is not unimaginable, after all; there are buyers who try to obtain goods for free by threatening to leave negative reviews[2], not to mention competing vendors who may not be too scrupulous about bringing down their competitors. Many marketplaces also have accompanying forums in which vendors and buyers can further identify fraudulent buyers or vendors, thus protecting both buyers and vendors.
A side effect of putting in place a rating system is that the barrier to entry rises over time. No reviews becomes a low quality signal, discouraging buyers from going to new vendors unless those vendors offer unique products. Some marketplaces take this to a further extreme, and begin closing off the marketplace to new vendors after a certain period of time.
There are other options besides a ratings system that depend on the good. Marketplaces for stolen credit cards, for example, may offer “verification” procedures to check the validity of the credit card details offered (such as whether the card has been disabled at the time of sale). In this manner, the buyer receives additional information on the validity of the good.
Another effective option is escrow. Escrow describes a situation where a third party receives the payment from the buyer when the transaction begins and disburses it to the vendor if the transaction completes successfully. Darknet marketplaces can act as that third party. This offers some protection to the buyer in case of fraudulent goods, but the administrators behind the marketplace are anonymous criminals themselves. Consequently, there have been numerous cases where marketplaces suddenly vanish, along with upwards of millions of dollars that were held in escrow[3].
Sources:
- http://motherboard.vice.com/read/darknet-drug-dealers-have-a-trust-problem-and-they-want-to-fix-it
- https://www.reddit.com/r/DarkNetMarkets/comments/24qfkb/vendor_protection_against_scam_attempts/
- http://www.computerworld.com/article/2898667/darknets-evolution-drug-marketplace-poofs-along-with-12-million-in-bitcoins.html
- https://www.deepdotweb.com/dark-net-market-comparison-chart/
Great article. You mentioned escrow as a protection to darknet markets (DNM) buyers and multisig transactions. One thing that is missing here, im my opinion, is the PGP element- the way DNM vendors and buyers communicate. Daniel.