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A Narcotics Everything Store

Alex Knorre

December 13, 2023

What a Russian darknet marketplace tells us about online sales

What a Russian darknet marketplace tells us about online sales

The illegal drug trade in the United States has evolved substantially over the last 20 years. The introduction of affordable mobile phones in the early 2000s was one catalyst for change; as shown in the brilliant TV show “The Wire,” cellphones enabled many drug dealers and consumers to avoid the exposure of open street markets and the violence often associated with them.

Then came a bigger disruption: With the growing adoption of internet technologies, cryptocurrencies such as Bitcoin and anonymous communication protocols such as The Onion Router (Tor), the drug trade became still harder for authorities to track and disrupt. Starting in 2011, Silk Road, an online black market that sold drugs and other goods and services, became the first modern darknet marketplace. Drug vendors operated on the marketplace, paid fees for it, and competed with each other for customers. All anyone needed to shop on the marketplace — and shop anonymously — was an internet connection and cash that could be converted into Bitcoin. After that, they would just need to shop anonymously on the marketplace, send the Bitcoin and get their package mailed.

Silk Road has since been replaced by much more mature online drug marketplaces — including Russia’s Hydra, which, as research by me and my colleagues reveals, can teach us a great deal about how mass sale of narcotics over the internet brings benefits as well as risks.

But first, let’s go back about a decade. When Silk Road moved a chunk of the drug trade online, it had to help sellers and buyers solve a potentially serious coordination and trust problem. How could anonymous users be sure that their transaction would be finalized, that they would not lose their money? What about the quality of the product? How to force the other party to carry out their part of the deal if they did not want to? Amazon has free, simple returns and an elaborate system for registering complaints. When a whole marketplace is illegal, such an infrastructure is far harder to build. 

To deal with these issues, Silk Road, as well as many darknet marketplaces later, used reviews, ratings and escrow mechanisms together with the centralized administration of the marketplace that could set and enforce rules on the platform. It and other darknet marketplaces organized internal controls to ensure that market transactions could be quick and efficient even when operating in the outlawed space.

Mass sale of narcotics over the internet brings benefits as well as risks.

The law enforcement response to the rise of Silk Road and its brethren about a decade ago has mainly focused on trying to shut down the marketplaces and prosecute their operators. Yet so far darknet markets have shown considerable resiliency. Silk Road was shut down in 2013 by the FBI and its creator, Ross Ulbricht, got two life sentences. It was tech whack-a-mole. Almost immediately, former administrators of Silk Road built Silk Road 2.0. In 2014, in the second year of operation, that was also shut down by law enforcement. Successor after successor has since popped up, with drug-related darknet marketplaces surviving an average of 232 days before their shutdown and inevitable reincarnation

Should we keep playing whack-a-mole? On the one hand, darknet drug marketplaces can be bad. They may increase drug use and abuse by making it easy to buy illegal substances. They concentrate drug dealers in one virtual place and make their business more scalable and profitable. By uprooting on the darknet markets, governments frustrate easy access to deadly drugs trade and reduce generalized trust in darknet markets.

On the other hand, online drug markets can be a good thing. Economists are trained to ask “compared to what?” In this case, online narcotics buying and selling seems to be a better alternative to street-level drug trade and its associated gang-related violence. And if economic theory holds, the market mechanisms that increase user trust and make sellers’ reputations more transparent, such as ratings, reviews, random quality control and escrow, should also result in the better quality of drugs sold. If allowed to operate without constant threat of closure, these marketplaces also have incentives to self-regulate, keep their customer base and thus mitigate risks for the clients. 

The law enforcement response to the rise of Silk Road and its brethren about a decade ago has mainly focused on trying to shut down the marketplaces and prosecute their operators. It was tech whack-a-mole.

A study I recently published with my co-authors, Artem Kuriksha and Priyanka Goonetilleke, focuses on one such story: Hydra, a Russian Amazon for illegal drugs. Hydra — not to be confused with a market of the same name in the United States — was a dominant online drug marketplace in Russia that existed for seven years, from 2015 until its shutdown by the U.S. and German authorities in 2022, seemingly as a response shortly after the start of full-scale Russian-Ukrainian war. Importantly, Hydra was not shut down by Russian law enforcement, nor does it look like they tried, even though drug use and dealing there are harshly prosecuted and harm reduction is deemed a bad Western influence that will damage the country. Rather, over that relatively long period, Hydra became the major website to go to in Russia if you wanted to buy some drugs. 

This was a fascinating real-world experiment revealing what happens to a drug darknet marketplace that’s allowed to flourish. 

Hydra’s scale is difficult for some to comprehend. Over its lifetime, Hydra grew into the world’s largest online drug marketplace with an annual revenue of approximately $1.7 billion, which at the time was nearly 10 times larger than the second-biggest international marketplace in the world, Dream Market. By our reckoning, 69% of the Russian population (about 100 million people) lived in cities, towns and parts of the countryside where Hydra-affiliated vendors operated locally.

Indeed, Hydra was so popular that vendors had illegal ads painted on the streets of cities, advertising drugs or jobs. In terms of drugs sold, 75% of them ranked by popularity were mephedrone, cannabis, amphetamines and alpha-PVP.

One thing that made Hydra stand out was its particular way of delivery. Instead of meeting or mailing, sellers hid the packages in locations across the urban landscape, such as parks, streets and yards of multi-apartment buildings, and then put the listing on their page on Hydra. What customers bought were coordinates and instructions to find the product.

Online markets for illegal drugs have a spectacular resiliency.

As it evolved, Hydra became not a ragged underground bazaar but a sophisticated, mature commercial platform. It employed some harm reduction approaches, such as free telemedicine consultations by a medical professional and selective drug-quality tests. It sold online classes for couriers — the workers who would place the drugs at dead drops — that taught how to reduce risks, along with an intricate system of ratings and reviews, an internal ad market for vendors and a mechanism for dispute resolution by the administration. 

Surely letting drugs be sold in such large quantities creates serious societal problems. But Hydra has simultaneously shown what happens to an online drug marketplace if you let it grow: It employs a range of mechanisms to reduce economic, health, and law enforcement-related risks for all the parties on the platform, especially customers. It becomes more efficient even while operating in a completely illegal setting. With that said, it still illegally sells dangerous substances.

There are still many unknowns that make it hard for us to make informed policy decisions about darknet drug marketplaces. However, merely bringing down these marketplaces might not be the optimal solution. As the leading scholar on illegal drug markets, Peter Reuter, mercilessly puts it, “None of the prevention, treatment or enforcement have demonstrated the ability to affect the extent of drug use and addiction; the best that government interventions can do is to reduce the damaging consequences.”

Because online markets for illegal drugs have a spectacular resiliency to coercive law enforcement approach and the potential to reduce harm, perhaps it is time to reconsider our approach.