An Overview of Early Darknet Markets

Many cryptocurrency users, libertarians, and dark web fans are familiar with the Silk Road tale and its infamous creator, Ross Ulbricht, who established the standard for other darknet markets that have followed in its footsteps. This article investigates some of the lesser-known markets that functioned on Tor concurrently with Silk Road. It also contains material regarding Silk Road that isn’t frequently reported by mainstream media stories, bloggers, or films, such as a recap of the first large vendor scam on a darknet market.

The Farmer’s Market

The Farmer’s Market is a little but fascinating footnote in the history of darknet markets. While it did not accept Bitcoin, it existed on the dark web around a year before Silk Road. Bitcoin was a digital curiosity without a practical use case for the first three years or so of its existence, and when it did establish a price, it was highly volatile. For these reasons, as well as the difficulty of obtaining BTC, it was not considered for usage by The Farmer’s Market.

The market began in 2006 on the clearweb (then known as Adamflowers), where independent producers could anonymously promote various types of illegal narcotics. Marijuana, LSD, MDMA, mescaline, fentanyl, and ketamine were among the most popular commodities advertised on the website. All orders were processed using an intermediate email account provided by the PGP-encrypted Hushmail service. The market administrators served as escrow agents, taking a cut from each transaction and sending the remainder to the independent merchants.

In addition to traditional money transfer methods like PayPal and Western Union, The Farmer’s Market accepted gold-backed digital currencies known as Pecunix and iGolder, which were potentially more difficult to trace (though not impossible). During its six or so years of existence, an estimated $2.5 million passed through the market, which had 3,000 consumers from 46 nations.

As with most other successful darknet markets, undercover law enforcement began purchasing drugs from The Farmer’s Market (when it was still known as Adamflowers) as early as March 2009, before it switched to Tor. In April 2012, the US Drug Enforcement Administration (DEA) led Operation Adam Bomb, which resulted in the arrest of 15 people suspected of being involved with the market, effectively shutting down its servers. In 2014, seven people pled guilty to drug trafficking and money laundering charges, led by a 45-year-old Dutchman called Marc Peter Willems.

The Silk Road

Silk Road, which launched in February 2011, was Bitcoin’s first true use case, as it employed Bitcoin to solve an issue where standard internet finance fails, namely operating as a currency for online drug trades. Ideas for a BTC-based online drug market were offered as early as June 2010, but were never implemented until the launch of Silk Road. After receiving his Master’s degree, the market’s chief operator and administrator, Ross Ulbricht, became interested in libertarian economic theory, writing in his personal diary that he wanted to create a market where “people could buy anything anonymously, with no trail whatsoever that could lead back to them.”

Silk Road was once summarily described by a satisfied customer as “the victory of decentralized cipherpunk thinking over traditional methods of blocking trade” and “a killer app for Bitcoin” for providing a high level of anonymity for its customers by combining Tor and Bitcoin in a way never seen before.

Silk Road was not just the first (crypto-accepting) darknet market; it was also the first online market to use the standard escrow method, which is still used in the majority of markets today. One of the market’s admins (perhaps Ulbricht) explained the escrow mechanism in a Bitcointalk post, which has been mostly unchanged in execution by other markets over the last 11 years:

So here’s how it works currently:

1. buyer places and order
2. funds held in escrow
3a. seller confirms shipment
3b. seller never responds, buyer’s funds are returned
4a. buyer confirms delivery and seller’s funds are released
4b. buyer claims that the order never came. Buyer and seller have a few days to come to a resolution. If no resolution is made, a silk road admin will review the case and make a judgement, which is usually to split the funds in escrow 50/50 (to date, only one order has come to this and is currently in the resolution process)
4c. buyer never responds, funds are released to seller” – Bitcointalk user
silkroad, Mar. 13, 2011

Silk Road rose to prominence after a Gawker piece published on June 1st, 2011, despite being incredibly niche and obscure for the first four months of its existence. Soon after, the site experienced a massive inflow of new users that it was unable to keep up with, forcing it to become members-only while the site was relocated to a better and more secure server. Silk Road subscriptions went for as much as 2 BTC during this brief period, which was still just about $60 at the time. The price of BTC plummeted to roughly $2 by the end of the year, making sales tough, but the community thrived.

By July 2012, Silk Road’s membership had increased to over 20,000 active users, with approximately 34 of all members being from the United States and the remainder from the European Union and the United Kingdom. A year later, the number of buyers had risen to nearly 145,000. The market was shut down in October 2013 after Ulbricht was arrested in San Francisco by the FBI. In its two and a half years of operation, the site processed about 1.3 million transactions, earning Ulbricht and other market administrators an estimated 614,305 BTC in commissions.

The Tony76 Incident

The week of April 20th, 2012, an established vendor known as tony76 pulled off Silk Road’s greatest vendor scam to that moment. Many merchants reduced their rates in honor of “4/20,” including tony76, who was already well-known in the market. Tony76 began offering large discounts on 22 goods posted for sale on April 17th, and even allowed delivery to foreign consumers for the first time.

Tony76 had been granted escrow bypass privileges with over 500 transactions under his belt at the time, which were (and still are) known as “Finalize Early,” or “FE.” This meant he could collect payment from his consumers before shipping any merchandise, which is exactly what he did.

Instead of fulfilling the discounted orders, Tony76 just rounded up the payments, which were approximately 1400 BTC (worth approximately $30k at the time), and fled with the money, defrauding all of his clients. Tony76 initially tried to accuse his clients for lying about non-delivery, but the proof became evident after dozens of buyers all reported the same problem. After the episode, the use of escrow became more prevalent, albeit it was never made required for other “trusted” sellers.

Tony76 sent his final comment to the Silk Road forum on April 24, 2012, claiming innocence despite overwhelming evidence to the contrary. Despite the fact that he was never seen or heard from again, prosecutors in the case against Ross Ulbricht believe that Tony76 was one of the alleged targets to be assassinated for their acts against his market. According to court filings, on April 8, 2013, Ulbricht reportedly paid a hitman about $500,000 in BTC to kill Tony76, believing the former vendor was part of a wider ring of scammers who had been ripping off the market for the previous year.

Ulbricht allegedly received a message from the hitman on April 15, 2013, stating that the “issue” had been “addressed.” Tony76’s exact identity has never been revealed, nor is it known if any individuals associated with Silk Road were murdered around the time of the alleged assassination. Because none of Ulbricht’s alleged “hits” were ever carried out, charges relating to them were eventually withdrawn during his sentencing.

The Armory

By late 2011, postings for firearms had begun to appear on Silk Road, despite the fact that there was no market category for them. Ross Ulbricht founded The Armory, a splinter market, in February 2012, motivated by a desire to keep things clearly designed to cause harm off Silk Road. The site was divided into five sections: Firearms, Accessories, Ammunition, Melee, and Non-Lethal. It was solely dedicated to weapons and clearly prohibited listings for poisons or contract killings.

Unlike the Silk Road, The Armory had little success as a marketplace. This was primarily due to its lack of listings and non-competitive pricing, which prospective consumers frequently criticized as “outrageous.” Guns are legal and frequently quite easy to obtain in the United States, where the majority of Silk Road consumers resided, hence The Armory faced more regulated competitors than Silk Road.

Finally, the majority of darknet market participants did not consider the benefit of not having to show ID or wait for a background check to be worth the significant premium placed on many of The Armory’s postings. In addition, acquiring a pistol illegally through the postal system appeared significantly more perilous than receiving drugs, which may be far easier to conceal. Market listings were also described as “mainly scammers seeking to score.” As a result, it is improbable that more than a few legitimate transactions ever occurred on The Armory.

The Armory had roughly 400 listings at its peak with a minimum order of $1050 in BTC, but sales volume was never enough to make it a profitable venture. Dread Pirate Roberts (Ulbricht’s admin alias) detailed the reasons for his decision to close down his controversial spin-off market in a forum post titled “Closing the Armory” dated Aug. 2, 2012:

“As most of you know, we are closing the armory.” Your initial thought is undoubtedly ‘why?’ It just wasn’t getting enough use. Spinning it off was done fairly abruptly at first, and while we supported it, it was a sort of “sink or swim” experiment. The volume hasn’t even covered server costs and is actually decreasing at this time. I had high hopes for it, but I believe it will require more serious thought and planning if we are to serve an anonymous weapons market.

The next inquiry is likely to be, “Can we now sell guns on Silk Road?” The answer there is emphatically NO. If we do support weapons sales again, we will do so on a separate website.” – Roberts, the Dread Pirate

Following The Armory’s shutdown, a number of markets with the same name have sprung up, however they have all been scam operations seeking to entice inexperienced purchasers into making BTC deposits in exchange for nothing.

Black Market Reloaded

It wasn’t long after Silk Road began to show signs of success before competition began to emerge, with four more darknet markets debuting in late 2012 and early 2013. Sheep Marketplace, RAMP (Russian Anonymous Marketplace), BuyItNow, and Atlantis were their names. Black Market Reloaded, the most notorious Silk Road competitor, was launched more than two years before these markets (BMR).

BMR, which launched in June 2011, just a few months after Silk Road, was a no-holds-barred darknet market that permitted the selling of almost anything imaginable. It placed no restrictions on what might be sold for Bitcoin in terms of goods or services, which means credit card details, malware, guns, poisons, and even explosives were available for purchase. The market also included a contract killings segment, however it was later removed after editors concluded that it was completely populated by fraudulent postings.

BMR not only specialized in ads deemed too unpleasant for Silk Road, but it also offered thousands of drug listings, giving Silk Road’s prior monopoly some competition. By April 2013, the market was seeing monthly transactions topping $400,000 and had about 7,000 items, compared to Silk Road’s 11,600 listings at the time. However, by early December 2013, the market had voluntarily shut down, with administrators claiming that it could not handle the rush of new clients following the demise of Silk Road and Sheep Marketplace.

A sting operation in January 2014 resulted in the arrest of a former BMR vendor who was utilizing the market to sell lethal dosages of abrin, a naturally occurring poison that is 75 times more poisonous than its more famous chemical sibling, ricin. The vendor sold a dose of poison to undercover law enforcement for $1,000 in BTC, which was caught on camera when he delivered the substance to a previously agreed-upon drop-off location.

Since the closing of Black Market Reloaded, the number of darknet markets has grown, with perhaps more than 100 such operations having come and gone. To date, no market has lived longer than seven years, as they all expire either voluntarily or involuntarily. Regardless, new markets emerge all the time, aiming to defy the odds by staying one step ahead of competition and law enforcement, with whom the business is locked in a never-ending cat-and-mouse game.

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