'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 We would wager that if the prohibition of currently criminalized drugs (most of which are produced by nature) were rescinded, this business would suffer a steep decline.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 If prohibition were rescinded, a major source of revenue for criminal cartels would dry up, and a great many minions of the State would see their jobs becoming redundant.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
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10 Responses to “Bitcoin and the Silk Road Bust”
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