Bitcoin and Anonymous eCommerce

Although Bitcoin has been in the news frequently as of late, mostly for its remarkable fluctuations in value over the past year, two stories in the past few weeks provide a revealing look into the disruptive potential of purely electronic, and largely anonymous, currency and payment systems. Last week, an online marketplace known as Silk Road was shuttered by the Department of Justice one day after its owner, Ross William Ulbricht, was arrested in San Francisco.  Weeks before, in late September, a similar site known as Atlantis ceased operations, likely as a result of imminent action from law enforcement.

Both sites operated with complete anonymity for all parties, including their owners (until Ulbricht’s arrest, obviously).  Yet it is estimated that Ulbricht earned tens of millions of dollars in commissions from sales on his site, whose traffic consisted predominantly of trade of illicit drugs and other contraband.  In a time where companies know more and more about our online actions and transactions, these markets served as a platform by which buyers and sellers could interact in complete anonymity to one another and any third party.

The sites required that users employ Tor, a program and open network which makes it nearly impossible for regulators to trace the Internet activity of its users.  The sites themselves emulated popular online marketplaces like eBay, even allowing users to rate sellers.  Bitcoin, the "PayPal" in the scheme, is not truly anonymous (transactions are logged in Bitcoin’s ledgers), but through the use of simple laundering techniques these sites made it such that no transaction which occurred within the marketplace would be known to the outside world.  The sites themselves were hardly innovative, but were primarily successful as early adopters of Tor and Bitcoin as massively disruptive web technologies.  

Ultimately, these two marketplaces met their demise as a result of a lack of caution on behalf of their owners and operators.  Both groups had begun to get comfortable publicizing their platforms rather than operating in the shadows - Ulbricht had even recently given an anonymous (and somewhat arrogant) interview to Forbes about Silk Road.  

However, the underlying technologies remain, and it is inevitable that more sophisticated iterations of this model, and more cautious owners, will emerge.  Conceivably, a platform for anonymous, untraceable electronic payment may be adopted outside the Dark Web, particularly as cash transactions – the original form of anonymous payment – become fewer and fewer.  Such a model would serve as an interesting counterpoint to innovations like Google Wallet, which despite many cool features, exists predominantly to collect as much information about our transactions as possible.