How an Online Drug Market May Have Pulled the Biggest Scam Yet

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AlphaBay, until recently the biggest online darknet drug market, has been offline since July 4, leaving a whole lot of online drug vendors and buyers in the lurch. The growing consensus is that admins have shut down the site, taking millions of dollars in crypto-currency with them in what could possibly be the largest “exit scam” in history. And in the subreddits dedicated to AlphaBay, the tone has gone from worried to grim.

The basic concept behind darknet markets has remained largely unchanged since the advent of Silk Road six years ago. Users access the markets via the Tor network, and buy and sell contraband, ranging from drugs to stolen credit cards to firearms, using crypto-currency like bitcoin.

The vulnerability to exit scams comes from how these marketplaces operate. AlphaBay (and nearly all online drug markets like it) use an escrow system, ostensibly to protect buyers and sellers. Let’s say you want to buy one kilo of uncut cocaine for $30,000, or about 12.75 bitcoin at current trading prices. You would contact the seller via the darknet market, provide where you want everything shipped using PGP encryption, and then hit order. Your bitcoin then goes into an escrow account maintained by the darknet market while you wait. Once the package arrives, you verify you got what you ordered, and sign back into the market and confirm. The market then sends the bitcoin to the seller and completes the transaction.

But when AlphaBay went offline, there were likely tens of thousands of orders still in AlphaBay’s escrow. And any users or vendors who kept crypto-currency in their “wallet” on AlphaBay’s servers are now unable to withdraw their money.

So how much are we talking here? So far, $4 million USD worth of bitcoin has been tracked that could be related to AlphaBay — but that’s likely just the tip of the iceberg. Another user claims to have tracked the money he or she was storing at AlphaBay to another wallet currently holding about $10 million in bitcoin, and which has seen over $6 trillion in bitcoin transferred through it at one point or another. Darknet market Sheep Marketplace made off with nearly $40 million when it went offline in late 2013, and another market, Evolution, took $12 million with it when it abruptly shut down in 2015.

But both of those sites likely saw fewer users and were active when bitcoin was significantly less valuable than it is now. According to the anonymous admin of DeepDotWeb, which acts as aggregator and news site about darknet markets, the amount of traffic it was sending to AlphaBay dwarfed anything he or she saw going to previous markets. This is partly just because AlphaBay had established itself as the top market after the last major shakeout in 2015, when previous market leader Agora abruptly shut down. But the admin also writes that darknet markets are also more popular than ever; DeepDotWeb’s traffic has more than doubled since 2014.

But even if AlphaBay did make off with all its users money, effectively cashing out this much bitcoin will be difficult. Bitcoins, despite their reputation for anonymity, are relatively easy to trace. Every transaction is recorded in a public ledger known as the blockchain. There are ways to obscure some of this via “tumbling” — essentially blending many different bitcoins together — but it’s much, much harder to do for large amounts of money, especially when people are suddenly watching closely. And the owner of Sheep Market, one of the first to pull a major exit scam, was busted after attempting to purchase a home under his grandfather’s name via his wife’s bank account.

It should be noted that it’s still unclear if AlphaBay actually did pull an exit scam — and it may never be proven one way or another. Posters claiming to represent AlphaBay have said the market is experiencing “downtime,” and should return to business soon.

Regardless, the potential loss of millions of dollars won’t slow down darknet markets. Vendors and users are already migrating to darknet markets Dream, Hansa, and the Russian-language site Ramp. As of July 12, all were open for business, selling everything from Ritalin from India to gummy bears dosed with MDMA. Barring some major shift in law-enforcement capabilities, there’s little governments can do about it. The rewards are too alluring for vendors — they can sell contraband to anybody able to receive mail. And the markets will continue to draw in new customers, who find themselves able to purchase whatever they want with just slightly more hassle than buying a floor rug off Overstock.com.

As one Reddit user put it: “After spending 20 years dealing with stupid, petty, ignorant ass bastards, the markets have taken things to a whole more sensible level. The cost of exit scams is minuscule compared to the foolishness that we would have to deal with if there were no markets.”

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An Online Drug Market May Have Pulled the Biggest Scam Yet