'Dread Pirate Roberts', Drug Prohibition and the Dark Web
By now it is well known that the proprietor of the 'Silk Road' internet marketplace for drugs and other illicit products has been busted by the FBI. Of course, the idea that the State should prohibit drug use by adults is highly questionable. If one studies the history of legislation in this regard, it soon becomes clear that while these prohibitions have been variously dressed up in Puritan morality or appeals to the need to preserve the 'Volksgesundheit' (the peoples' health), these laws really were largely protectionist measures.
For instance, it is no coincidence that marihuana use became illegal around the time chemical concerns such as Du Pont de Nemours introduced artificial fibers. Making the plant that produces marihuana illegal at the same time removed the biggest competition to artificial fibers – hemp.
Similarly, drug prohibition leaves the field of supplying the population with various uppers and downers in the hands of the pharmaceutical industry, which is producing dangerous psychoactive medication by the wagon loads these days. What the long term consequences of feeding the population with various benzodiazepines and other types of psychoactive drugs that influence the serotonin, norepinephrine or dopamine balance in the brain (such as the infamous and widely prescribed antidepressant Prozac) are is not really known, but we do know that a great many mass murderers that have gone 'postal' in modern times have been taking such psychotropic drugs.
Today here is a vast variety of anti-depressants, stimulants, 'mood stabilizers', anxiolytics and anti-psychotic drugs on the market that produce billions in profits for the pharmaceutical industry. We would wager that if the prohibition of currently criminalized drugs (most of which are produced by nature) were rescinded, this business would suffer a steep decline.
The senseless 'war on drugs' has not achieved a single one of its purported objectives. Drug use has not decreased because of it. However, it has had a huge cost both in terms of money and lives. So why is it continuing in spite of the crushing weight of evidence proving that it does more harm than good? That's simple: if you want to know why, follow the money.
A huge amount of money is made because certain drugs are illegal. If prohibition were rescinded, a major source of revenue for criminal cartels would dry up, and a great many minions of the State would see their jobs becoming redundant. Moreover, a major source of their funding would disappear as well, which is currently available to them via 'the same article we argued that the changing social mood could actually lead to an end of prohibition in spite of all the vested interests arrayed in favor of maintaining it.'. As we pointed out previously, this pays inter alia for the militarization of the police, which these days can deploy a great many lethal toys as a result of this source of income. In
The 'Dread Pirate' apparently believed in non-coerced free markets, which he cited as a major reason to open his online drug bazaar. What is perhaps not widely known is that he was actually not busted because of any weaknesses in the TOR-based 'dark web'. He simply made a number of stupid mistakes that allowed the authorities to track him down by employing standard investigative procedures. The following cartoon probably illustrates it well:
How to bust dark web users
(Image source unknown, via askqtp.com)
For readers interested in the technical aspects of the bust, this article at 'The Verge' has more detail on the topic. As the Verge maintains, the 'Dread Pirate' may have been busted, but the 'Dark Web' lives on. Note here that the TOR network is not merely something that is exclusively used by criminals. For many a regime critic and political dissident living in an authoritarian regime the anonymity of the 'Dark Web' is a literally a life saver. Naturally, governments everywhere dislike it, regardless of whether they are democratic or authoritarian: they dislike it simply because it is not under their control. However, there seems nothing they can do about it short of shutting down the internet altogether.
The Bitcoin Connection
In order to make anonymous payments on 'Silk Road' possible, the site used Bitcoin. In fact, when it became widely known that the drug marketplace accepted Bitcoin in payment, the price of the currency began its fantastic climb. This is no surprise, as these news were the first hard evidence that Bitcoin was actually used as a medium of exchange.
Bitcoin detractors everywhere no doubt rejoiced when Solk Road was busted: finally, a major prop helping the currency retain its value had been removed. Bitcoin duly suffered a 'mini crash' when the news hit, but it seems now that the currency's detractors have overestimated Silk Road's importance and underestimated the degree to which Bitcoin has become accepted as a store of value (it is not yet a widely used medium of exchange, but it would probably be correct to refer to it as a secondary medium of exchange by now).
After the initial crash, the currency quickly recovered, as dip buyers stepped in. Note also that Bitcoin has increased by nearly 100% in value since the low it made in July this year.
Bitcoin: after initially crashing on the news of the Silk Road bust, the currency has recovered almost the entire loss – click to enlarge.
We would note here that we still regard Bitcoin mainly as a trading sardine. However, it is possible to integrate its existence into monetary theory: one only needs to keep in mind that its exchange value is highly dependent on the fact that it is convertible into standard money issued by governments. Monetary theorists are debating whether the currency can really be regarded as 'money'. After all, it is not a commodity with a preexisting use value, such as is the case with gold and silver.
However, it can at the same time not be denied that it has arisen in the market. No government committee decided one day 'let there be Bitcoin'. Instead a couple of computer nerds created the currency for the sheer fun of it. In the meantime, it has evidently become a serious contender in the world of currencies. Its rising exchange value suggests that it is widely regarded as a better money than the monies issued by States.
It is easy to see why this is so: although Bitcoin is not a commodity money and has no preexisting use value, it must be 'mined' at great cost and effort. Moreover, its supply is strictly limited: there will never be more than 21 million Bitcoins in existence.
This fact alone makes it interesting to many people as a potential store of value, especially if its acceptance as a medium of exchange continues to increase. Naturally its cash-like anonymity remains a big draw as well. Consider in this context the example of the 'Saddam dinar' in Iraq: after the invasion of Iraq, the currency began to rise strongly. This was so because it continued to be accepted as a medium of exchange, and people knew at the same time that henceforth, printing of the currency would stop. The central bank of Iraq had been forced to cease to add to the supply of Saddam dinars.
Having said all that, until Bitcoin is more widely accepted in exchange (so far its use as a medium of exchange remains rather limited), the main prop keeping its value up is the fact that it can be converted into other currencies. If Bitcoin owners were not certain that they can indeed exchange their Bitcoins for dollars, euro, etc. at anytime at a Bitcoin exchange, its value would immediately come into question. In the end, it is just a collection of bits and bytes – the fact that it is not a commodity money remains its most severe flaw. It is therefore probably best regarded as an extension, or adjunct to existing paper monies.
Bitcoin: nothing but bits and bytes – and yet, a currency that has arisen in the market
Charts by MtGox Bitcoin exchange
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
10 Responses to “Bitcoin and the Silk Road Bust”
Most read in the last 20 days:
- India: The World’s Fastest Growing Large Economy?
Popular Narrative India has been the world’s favorite country for the last three years. It is believed to have superseded China as the world’s fastest growing large economy. India is expected to grow at 7.5%. Compare that to the mere 6.3% growth that China has “fallen” to. India's quarterly annualized GDP growth rate since 2008, according to MOSPI (statistics ministry) - click to enlarge. The IMF, the World Bank, and the international media have celebrated...
- Gold Sector Update – What Stance is Appropriate?
The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
- Don’t Blame Trump When the World Ends
Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook. One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
- What is the Best Time to Buy Stocks?
Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity? Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
- Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
- Trump and the Draining of the Swamp
Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
- Gold and Silver Divergence – Precious Metals Supply and Demand
Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
- Making America Great Again – How to Judge Policy
A Simple Formula MIAMI – How do we know if new programs will make the economy better... or worse? Here’s a simple formula: W = rv (w-w – w-l) That is, wealth is equal to the real value of win-win exchanges minus the loss from win-lose exchanges. Yes, dear reader, it’s as simple as that. Like a whittler working on a piece of wood, we’ve shaved so much off, there is nothing left of it... except the essential heartwood. When devising a win-win,...
- When Trumponomics Meets Abenomics
Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway] Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
- The Great Wailing
Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations. Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any... You’d think Washington had been invaded by Goths, now...
- Receive a One Percent Gift When Buying or Selling a Home
How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine. Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell. The people who took this photograph probably want to...
- Silver Futures Market Assistance – Precious Metals Supply and Demand
Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Taking off for real or not? Photo credit: NASA Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...