dark web markets

How dark web markets and cryptocurrencies work and how they are used together?


How dark web markets and cryptocurrencies work and how are they used together?

Innovations in computer software and technology are often created with good objectives. Unfortunately, criminals rapidly employ novel technology to enhance prevailing criminal practices or produce new forms of crime. One of the state-of-the-art crime forms is the usage of cryptocurrency to execute transactions, mostly illegal ones, on the dark web. This blog is specifically aimed to raise awareness for experts and enthusiasts of the cybersecurity field. Explaining how dark web markets work and how cryptocurrencies work and how they are used together.

Before we talk about dark web markets, cryptocurrencies, and cybercrime, it is imperative to look for the theoretical basis.

Cybercrime: old wine in new bottles

Cybercrime is nothing but old wine in new bottles. It has been examined in the context of different criminological theories:

  • Routine activities’ theory: By Leukfeldt, and Yar (2016) in their paper, “Applying routine activity theory to cybercrime: A theoretical and empirical analysis”; 
  • Social learning theory: By Morris and Higgins (2010) in their paper, “Criminological theory in the digital age: The case of social learning theory and digital piracy”;
  • Space transition theory: By Jaishankar (2008) in his seminal study “Space transition theory of cybercrimes”. It has been found to be most suitable in explaining cybercrime and cybercriminals in a virtual environment. As per the author, such crimes are usually conducted by individuals with repressed criminal behaviour. Certainly, anonymity is an important motivating factor that we need to consider.

Consequently, the development of the dark web market can be examined in the context of Space transition theory. A dark web market is a commercial space built on darknets such as I2P or Tor. Various types of business are done on these black markets:

  • Brokering or selling transactions encompassing drugs;
  • Counterfeit currency;
  • Forged documents; 
  • Stolen credit card details; 
  • Weapons, cyber-arms; 
  • Steroids; 
  • Unlicensed pharmaceuticals; 
  • Others Illegal products; 

Therefore, fundamentally speaking, the dark web market is nothing but a mere transition of space from the physical to virtual realm. However, space in this context is highly dynamic and complex. Criminals in this environment who possess computer skills and cyber technology can get away from any surveillance or user identification.

Actually, the dark web functions similar to the regular internet, TCP/IP framework that sends FTP and HTTP traffic within and between networks. Nevertheless, it is not indexed by search engines (regular web) software such as Tor, I2P, and Freenet are needed to do that. The most used one is Tor which employs the idea of the ‘Onion Routing’. This technique in which the user data is first encrypted and then sent through various relays present in the Tor network:

onion routing

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    Cryptocurrencies and the illegal market of the dark web

    At present, there has been a considerable surge in the usage of dark web to purchase illegal products. For example, the UNODC World Drug Report 2019 estimates that people who purchased drugs over the dark web doubled from 4.7 percent in January 2014 to 10.7 percent in January 2019.

    This extraordinary surge can be attributed to the usage of cryptocurrencies especially bitcoin. As the leading payment method on the dark web, it is characterized by three features: lack of a central issuer or any legal entity, absence of regulation or law which affect conventional fiat money, and less vulnerability to political or economic problems.  In their essence, cryptocurrencies employ decentralised technology to allow the users to make secure transactions and store money. They operate on a distributed public ledger (Blockchain) which is a record of all transactions updated and held by nodes:

    Thus, it can be stated that the anonymity offered by dark web browsers and the absence of payment oversight. This feature of Cryptocurrency has been well used by criminals as new form of crime known as cryptocurrency-backed. The darknets enabled cybercrime and a process named as dealer to doorstep by Afilipoaie and Shortis (2015) in their research, From Dealer to Doorstep—How Drugs Are Sold on the Dark Net. It involves a buyer exchanging fiat money into cryptocurrency and making a purchase. The market holding the cryptocurrency in its escrow account in exchange for some commission and vendor receiving the payment when order is finalized in the form of cryptocurrency again exchanging it in the fiat money. Crypto-mixers (services that let users mix their coins with other users) are often used in transactions for added anonymity.

    Mutual data from four dark web marketplaces (Silk Road 3.1, Apollo Market, Empire Market, Elite Market) displays that drugs and digital products are the most prevalent category of illicit products purchased by cyber criminals using cryptocurrency. Especially in the COVID-19 pandemic period, the dark web has been dedicated to transactions of fraudulent vaccines, personal protective equipment, and hydroxychloroquine.

    The trend can also be witnessed in Southeast Asia, where criminals are using the Tor to engage in the full range of illicit activities. Although there have been law enforcement operations targeting dark web cybercrime. These operations are the outcome of international investigations that began outside the region, with only a small number of cases originating within the region itself. Cybercriminals perceive Southeast Asia as a relatively high-gain/low-risk operational environment.

    Consequently, to address cryptocurrency-backed darknets enabled cybercrime, following some basic steps can be a start: 

    • To develop a global policy that focus on research, training and capacity building support for different regions and countries; 
    • Increase stakeholders’ commitment and cooperation to sharing intelligence and enhancing international cooperation to counter dark web crime nationally, regionally and internationally;
    • Increase specialist political, policy and working knowledge concerning dark web services, intelligence gathering and cryptocurrency investigations by each Southeast Asian country and the regulation of cryptocurrency users and exchanges, especially employing the FATF virtual assets risk-based approach guidelines. 

    Following these steps can be a beginning to control cryptocurrency-backed darknets enabled cybercrime, a Frankenstein monster, which lurks in the realm of dark web and haunts law-enforcement agencies and policymakers all over the globe.

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