Bitcoins: Currency for the drug lords

Posted on 12 July 2011

No central bank, no inflation, untraceable. Are they for real?

By Fang Shihan

Illegal services available online - payable by bitcoin only.

BITCOINS are every anarchist’s fantasy. Digital, untraceable, lacking a central authority to screw things up and oh, accepted as payment for the Amazon.coms of the illicit drug industry. So you can get high and stick it to the man at the same time with low probability of getting caught. And that’s why New Nation Man loves it.

But more than just an oddity, Bitcoins have the potential to be a viable currency. Here’s why.

All currencies in the world have value only by government decree. Like bitcoins which are essentially just lines of code, paper money has no intrinsic value and are viable as a medium of exchange only when a large entity (the treasury for example) gives it credibility by ensuring the currency will never collapse.

It may be difficult to visualize how codes and coins can be utilized in the same manner – but it can be. Each dollar coin for example, comes with a unique serial number and can only be used for one transaction before it ‘belongs’ to someone else. LIkewise, each bitcoin transaction must be verified and therefore witnessed by 6 other bitcoin users before it gets approved, ensuring that each bitcoin can only be used once.

And since bitcoins have no central administration, it uses a central database spread over a peer-to-peer network to track transactions. Supply is limited to 21 million bitcoins. There are 6.5 million in existence now and three-quarters of all bitcoins would be mined by 2017. Bitcoins are also divisible down to 8 decimal places, ensuring finer granularity [1] of the currency.

Technicalities aside, the question is: who guarantees the viability of the bitcoin?

To quote one blogger, “bitcoin value is entirely virtual—a Bitcoin is only worth what another person thinks its worth”.

Doesn’t exactly instill tons of credibility to any would-be Bitcoin adopter. But Bitcoin bears are missing the one key comparative advantage: Bitcoins are untraceable and thus, a potential safe haven for the gangs, drug lords and the like.

There is already in fact an online store selling drugs from weed to acid pills. All payable by bitcoins and delivered to your doorstep with minimum purchase. Another bitcoin-friendly site offers assassination services.

Unfortunately, it takes more than a just a little technical expertise to get to the sites at the moment. The fun stuff is accessible only via the anonymising network TOR, which took this author a few hours to figure out.

But the potential’s still there. Drugs are recession proof – depressed, jobless people turn to drugs for relief while the nouveau riche in the emerging markets have more purchasing power for lifestyle drugs – and if traded with bitcoins, could provide some serious credibility for the longevity of the system.

Drugs, pornography, assassination services, prostitution and the like will forever exist. With constant demand comes a constant supply of supporting economies. Who’s to say bitcoins could truly replace the greenback in the illicit industries?

Think about it. If a heroin trader from Afghanistan wanted to replenish his cocaine stock from Peru, he’d have to buy a stash using cash now. But Bitcoins make business transactions so much easier and (more emphasis here) untraceable.

Obviously the bitcoin system comes with its flaws as well.

Bitcoins were much easier to mine previously, requiring no more than extra processing power from one’s CPU. But mining rigs (consisting of some hardcore computing power) are now required to generate the same amount of currency. As supply is fixed, bitcoins can only grow in smaller denominations as they’re adopted by more people, creating an unfair advantage for hoarders.

For example, geeks who donated their CPUs early in the mining game would have enjoyed the price spike from $0.40/btc to $17/btc. Hoard it until the supply maxes out and and they would enjoy an even higher purchasing power at $34/btc for instance.

Next, assuming the system is easily replicable, there’s no stopping the Chinese or even Russians from creating their equivalent of the bitcoin system. With US authorities clamping down on illicit activities in the bitcoin system, it’s only a matter of time before the very people backing up the bitcoin credibility (drug lords) would move to a similar space with friendlier governments.

The bitcoin system exists on a contradictory duality of principals – being absolutely anonymous yet absolutely transparent. So while it would be feasible for smalltime gangs to launder their money via bitcoins, “attempting major illicit transactions with Bitcoin”, in the words of Bitcoin developer Jeff Garzik, “is pretty damned dumb”. An account transferring a million dollars in bitcoins would stick out even worse than a bruised vein. In any case each account has a $1000/day withdrawal limit, hardly the cashflow volume of drug lords.

Lastly, security is an issue: a surprise hack of the largest bitcoin exchange, Mt. Gox is only the beginning of what could turn into a burgeoning security problem. Bitcoins are largely used within the more security-conscious geek community. But if Bitcoins truly become more attractive to the casual investor, or casual entrepreneur, security breaches could occur faster than a script kiddie typing “db_autopwn”. A security breach of Mt. Gox, or even the bitcoin system itself is more akin to a hijacking of the currency printing factory than a measly bank robbery.

So can the bitcoin ever replace the greenback?

Probably not, but it could potentially be a very good alternative currency for transactions deemed less-than-legal in mainstream society.

Let’s face it: drugs, pornography, assassination services, prostitution and the like will forever exist. With constant demand comes a constant supply of supporting economies. Who’s to say bitcoins could truly replace the greenback in the illicit industries? And having said that, what’s stopping the casual forex investor from riding on the illicit wave and buying some bitcoins?

This post was written by:

- who has written 554 posts on New Nation.

Belmont plays the guitar, made Jamie Yeo sing his song, shook hands with Susilo Bambang Yudhoyono, swam in the river above Bangladesh, visited Nagaland, outsmarted pickpockets in KL, was the editor of The Campus Observer and worships the writings of Nassim Taleb and Christopher Hitchens. He intends to be an astrophysicist, take up salsa and watch Led Zeppelin live at least once before offing it.

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  • DetachedObserver

    As someone who is interested in Bitcoin and sees it as a good case study into how currencies and money work, I would like to highlight that the security breach at Mt. Gox has nothing to do with how Bitcoin was implemented and everything to do with Mt. Gox’s system being penetrated by malicious hackers.

    In theory, banks and other financial institutions in the real world can be similarly breached. In practice, these institutions place great emphasis on security procedures which make these breaches a near impossibility.

    Of course, for Bitcoin to remain viable and flourish as an alternative to fiat currency, it will need robust, trustworthy institutions which are definitely not Mt. Gox.

  • jn

    It seems a little odd to put such a focus on illicit transactions.
    I see it’s greatest potential in convenience for making low or zero-fee purchases with ecommerce merchants around the world. For those who don’t have a credit card, or wish to buy or sell services worth only a few pennies it could be a great system.
    As a way of transferring money to friends and family around the world it’s also great.
    Currently the software is primitive, and more bitcoin related services (and merchants) need to arise before it’s really useful to the general public.

  • dacoinminster

    I love bitcoins, but they are useful for way more than drugs.

    I recommend that you all read up on bitcoins, then buy a bit to play with.

    I personally use and recommend http://www.tradehill.com for buying/selling bitcoins. They have lower fees than the main exchange (mtgox), and their website seems more professional, IMHO.

    Also, I happen to have a code that will get you 10% off your trading fees there for life: TH-R1168

    Enjoy!

  • Cathal

    Wow. This focus on the potential criminal uses of such a powerful new technology is really depressing.

    I don’t care if you take drugs, but please don’t pretend that illicit services are the main appeal of Bitcoin. It’s still nowhere near as good as cash at anonymous transactions, and an international, fast, low-friction, cheap transaction service is very valuable for legal trade.

    Bitcoin is the leading edge of financial technology, and it would be a real shame if it got tarred with the brush of criminality.

    “Another bitcoin-friendly site offers assassination services.”
    [Citation Needed]

  • Rgbrgb

    Maybe we should ban the greenback and € as well. I hear criminals like to use them when they transact. Coming to think of it, maybe we should also ban cars, trains and airplanes as well since criminals regularly transport their produce using these means.

  • Rgbrgb

    What you fail to note is simply this Bitcoins are popular bc they are simple and hassle free. Now you are suggesting that we should regulate and put in place red tape to make it convoluted, complex and a pain to users. Be more balance please. This is gutter journalism at it’s finest.

  • http://newnation.sg sh

    Hi guys,

    Late reply only because I’ve just gotten my computer back from the repair shop. So no access to the internet or anything bitcoin related until I’ve gotten connectivity again. That’s one disadvantage of the bitcoin innit?

    The focus on criminal activity is necessary because for the bitcoin to be used as fiat money, it needs to be backed by something concrete. As I mentioned in the article, the USD or the Euro is credible for use only because its backed by a central authority. The bitcoin is backed by nothing but its users.

    Will try to get a screenshot of the site that offers financial transactions. Tor is slow as hell.

  • http://newnation.sg sh
  • http://letselschade.weebly.com/ letselschade

    This website online is really a walk-by means of for all the info you wished about this and didn’t know who to ask. Glimpse right here, and you’ll undoubtedly uncover it.

  • Ryan

    There’s one Bitcoin exchange service SGitcoin for Singaporeans. They support local bank transfer!
    http://www.sgitcoin.com/