Privacy & Security

Drop Gangs: The New Face of the Dark Web

On May 29, 2015, a 31-year-old man stood before a federal judge in New York after being convicted of narcotics distribution, money laundering, computer hacking, and conspiracy. His sentence: two consecutive life sentences plus 40 years and a fine of nearly $200 million.

What had Ross Ulbricht, a nonviolent, first-time offender and Eagle Scout done to deserve a sentence more severe than many murderers receive? He had set up Silk Road, a website permitting individuals to engage in voluntary transactions free of the coercive authority of the state.

Silk Road was an e-commerce platform that in many respects resembled eBay, except that it existed in a restricted area of the internet nicknamed the Dark Web and was accessible only through encryption software called Tor. Like eBay, merchants could list merchandise for sale. Unlike eBay, Silk Road allowed merchants to list illegal items for sale; primarily illegal drugs. Payments were made in bitcoin, and the goods purchased were then delivered to their buyers, generally through the US Postal Service.

Ulbricht was convicted after an investigation and trial marred by serious prosecutorial misconduct. For instance, his sentence was based partially on allegations presented in an indictment that was later dropped, accusing him of murder for hire. Evidence for that indictment came from a corrupt DEA agent who was later sentenced to prison.

Substantial evidence also exists that investigators illegally used the National Security Agency (NSA) to spy on Ulbricht and Silk Road. NSA whistleblower Edward Snowden says it’s “unthinkable” that the NSA wasn’t involved. And that’s illegal; the NSA is prohibited from spying on US citizens unless there’s a provable connection to a foreign intelligence or terrorism investigation.

But the NSA doesn’t always follow the law. It sometimes uses its state-of-the-art surveillance capabilities to investigate criminal suspects in the US. It then turns the results over to prosecutors, who then claim they acquired this evidence legally. The practice is called parallel construction, but critics say it amounts to intelligence laundering.

Why was the US government so focused on Ulbricht and Silk Road? Mainly because the combination of an online distribution system and a potentially anonymous payment mechanism allowed anyone to buy or sell any product or service free of oversight by law enforcement, a central bank, or any other gatekeeper. Ulbricht, Silk Road, and similar online marketplaces operating on the Dark Web had to be taken down.

But the demise of Silk Road and similar marketplaces doesn’t mean the end of the dark web. It now has a new face straight out of a James Bond movie: the drop gang.

Here’s how it works: A drug dealer might invite a prospective customer to log into a chatroom on their smartphone using an encrypted platform like Telegram. Once the dealer and customer agree on a price, the buyer sends bitcoin or another cryptocurrency into a cryptographically driven escrow system. The dealer then drops off the drugs at an agreed-upon public location for later pickup, a so-called dead drop. Once the customer retrieves the drugs, the escrow system pays the dealer.

The use of dead drops is a time-tested espionage technique. George Washington used dead drops to operate his spy network in the Revolutionary War. More recently, convicted spy Aldrich Ames used dead drops to pass military secrets to Russia. He would leave top secret information at an agreed-upon location and later return to pick up his payment from Russian intelligence.

The use of dead drops means drop gang buyers need not reveal their identity to a black-market merchant. That eliminates the risk that law enforcement will be able to retrieve that information if the merchant is arrested. And because drop gangs generally aren’t inter-connected, dismantling them will be much more difficult than shutting down a centrally controlled website like Silk Road.

But there are some disadvantages to drop gangs for black market participants. They are more geographically limited than online marketplaces like Silk Road, since any items purchased are hand-delivered to a specific dead drop. And while Silk Road offered detailed reviews of merchants, it’s impossible for drop gang customers to know in advance if the seller is reliable. It’s easy to envision how police could set up a fake seller’s account on Telegram to entrap customers.

It’s likely that drug warriors and other supporters of the nanny state will demand more resources to shut down drop gangs. And they won’t hesitate to magnify the threat to society and engage in the same type of prosecutorial misconduct used to send Ross Ulbricht to prison for the rest of his life.

Still, drop gangs or other decentralized crypto-based commerce systems could eventually become the only recourse for individuals whose existence is marginalized by the state. In a cashless society where all payments must be made electronically, the ultimate punishment would be exclusion from the system. For instance, the state could exclude citizens from the system for infractions like unpaid taxes. The only way for an excluded person to survive would be through a drop gang-type system outside the financial mainstream.

Keep that in mind the next time you read sensational headlines about the threat that cryptocurrencies and drop gangs pose to our society.

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