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German youth is arrested for darkweb trades, while decentralised markets come online

A German court jailed a young man last week who allegedly ran a multi-million-euro drugs business on the darknet. Almost a tonne of illegal narcotics were sold from his bedroom.

A German court jailed a young man earlier this week, local newspapers dubbed him the “bedroom dealer.” Police described the 20-year-old’s internet operation as highly sophisticated, and refer to him as Maximilian S.

Since late 2013, the young man has engaged in what Norbet Goebel, the presiding judge at the Saxony high court in Leipzig, called “highly criminal activity,” having “flogged almost a tonne of narcotics.” The defendant was sentenced to seven years in juvenile detention.

In an attempt to fly under the radar, Maximilian tried to decentralize his operation by renting a computer server in the Netherlands, and using IP addresses spread throughout Germany. Communication took place via encrypted emails, and the illicit substances were sent by registered mail. Payments were often made in bitcoin, and any cash was primarily held in bank accounts under false names, using false IDs.

Bild, a German publication, reported that police only began investigations into the bedroom dealer after his neighbours had illegally opened parcels left in the hallway, outside the front door of the apartment in which he resided. The police were notified, and a large scale investigation took place.

“In the end this was about only one thing,” Prosecutor Andre Kuhnert stated at the trial. “He wanted to be the greatest and best in the online drugs trade.”

Among the drugs were hashish, ecstasy tablets, cocaine, LSD and prescription pills. Police reported Maximilian had sold 914 kilos of drugs, worth approximately €4 million. When he was arrested, in February, 300 kilos of illegal narcotics were found.

The products were offered on the darknet, through the The Onion Router (TOR) network, keeping messages encrypted and secret. Tor was released as opensource freeware in 2004, and was initially used for anonymous communications within the Military.

While the drug dealer may have had aspirations of being the “best,” his volumes pale in comparison to online marketplaces that connect buyers and sellers.

One of the most notorious trade sites was Silk Road, which sent the media into a frenzy when Ross Ulbricht was arrested at Greenpark Library, San Francisco, in 2013. He was known as the Dread Pirate Roberts (DPR) and is being held responsible for the billion dollar operation.

FBI“From February 6, 2011 to July 23, 2013 there were approximately 1,229,465 transactions completed on the site. The total revenue generated from these sales was 9,519,664 Bitcoins, and the total commissions collected by Silk Road from the sales amounted to 614,305 Bitcoins. These figures are equivalent to roughly $1.2 billion in revenue and $79.8 million in commissions, at current Bitcoin exchange rates.”
— – FBI

Ulbricht, 31, was found guilty on Feb 5, 2015, around the same time Maximilian was being investigated. He was sentenced to life in prison on May 29, after the FBI had confiscated more than 144 thousand bitcoin.

Evolution then became the biggest online marketplace for narcotics, and used bitcoin exclusively. Launched in 2014, by an individual known as ‘Verto,’ the site shut down just a year later. The platforms administrators left with US$12m worth of bitcoin, held in escrow accounts for traders.

Many of the sites users then moved to Agora, one of many centralised alternatives that facilitate more transactions than Maximilian could dream of, from his cell. But, many of these alternative sites suffer from an achilles heel, centralised control.

OpenBazaar, on the other hand, is an open source project which is set to launch later this month. The focus is to create a decentralized network for peer-to-peer (P2P) commerce online, using Bitcoin.

The project, which was formerly known as DarkMarket, won the Toronto Bitcoin Expo Hackathon in April, for demonstrating a fully functional P2P market platform with a robust decentralized infrastructure. Openbazaar was able to display that commerce can take place without the risk of outside actors disrupting the service.

“OpenBazaar is a different approach to online commerce. It puts the power back in the users’ hands.”
—  – OpenBazaar

Instead of buyers and sellers going through a centralized service such as Silk Road or Evolution, OpenBazaar connects them directly. “Because there is no one in the middle of your transactions there are no fees, no restrictions, no accounts to create, and you only reveal the personal information that you choose,” states the projects documentation.

The platform has been compared to Craigslist, with a focus on anonymity. Despite this aspect being attractive to illicit product traders, the developers have made it very clear that they do not condone these activities    .

A separate project called Shadow is also dedicated to anonymity. The projects developers are currently working on building a decentralized anonymous communication, commerce and currency platform.

“Shadow offers an entire privacy based platform which aims to establish an anonymous economy, with multiple features that give people all the financial freedom and privacy they should have.”
—  – Shadow

The team recently announced that their decentralized marketplace will be going into alpha at the end of this month, having started work on in July 2014. “Now, a whirlwind of a year down the road, Shadow has evolved from a simple idea into one of the most advanced crypto projects to date,” states the Shadow team.

The inspiration for Shadow, which was started in July last year, was the decentralised currency ShadowCash, whos team wanted to design a digital currency which functioned like cash, notes and coins are yet to be tracked effectively by any authorities.

The Shadow team are adamant that illicit markets are not the platforms focus. The provision of anonymity in their marketplace is designed for users such as “a journalist looking for a neutral place to gather and discuss information outside of public networks, possible whistleblowers looking for an unmonitored area to collect and store sensitive materials, people who want to buy and sell goods or services without worrying about local restrictions or transaction fees, or simply anyone who – on general principles – isn’t interested in having their records monitored or captured by anyone.”

While the developers of these platforms may well want to distance themselves from the online world of illicit drug dealing, in a paper released by Usenix, in association with Carnegie Mellon University, research shows that the sale of contraband online could have a positive impact on society. The darknet transactions abolish face to face interactions, which reduces the potential for violence. In addition, the online marketplaces provide escrow systems, which can prevent financial risk.

Usenix“The common point between all these marketplaces is that they actually are not themselves selling contraband. Instead, they are risk management platforms for participants in (mostly illegal) transactions. Risk is mitigated on several levels.”
—  – Usenix

Whether or not decentralise anonymity focused platforms are built for illicit trade or not, they are designed to allow users to sell whatever they wish. Should this new breed of marketplaces replace centralised options, Maximilians attempt to be the best online drug dealer may well appear amateurish in comparison.


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