Prior to the Healthcare.gov debacle, stories about Snowden and the NSA collecting folks’ information were more prominent in the news. As a privacy advocate who tinkers with technology, I naturally followed these stories. When I was searching for a distribution of Linux to use for security testing I came across articles discussing online black markets and Bitcoins. You can compare these black markets to Napster on steroids. I will do my best to explain how they work without using and technobabble or legalese.
Here’s what we will run through today:
– What is a Black Market?
– What is a Bitcoin?
– How do These Markets Function?
What is a Black Market?
There are many black markets in the world. Black market makes us think of illegal things. Certainly black market demand exists for illegal things. These include drug sales, violence for hire, human trafficking, organ stealing, and illegal pornography. Ironically, the majority of black market money exists for things we don’t generally consider illegal. For example, if a nation tries to control their currency exchange rate, such as China or Venezuela do, entrepreneurs will engage in triage to beat the government set spot and profit. This currency based black market is worth billions of dollars annually. Basically, the entrepreneur is transacting with a customer at a better value than the government says you can offer. They then use the currency as they see fit. (This is triage.) I do not understand how this is that much different than a US Citizen going to WalMart and buying a good manufactured in China because it is cheaper than one manufactured in the US. I do not mean to dismiss the dangers of illegal black markets. Anytime someone chooses to harm another person, such as by engaging in human trafficking, this person is way out of any sensible moral boundaries and should be dealt with accordingly.
What is a Bitcoin?
Bitcoins are a type of currency that was created because a lot of people do not trust that their money will hold its value. Until 1973 the value of the US dollar was tied to gold. This prevented the government from printing unlimited money. Now it is not tied to anything and some people do not trust that the government will not screw up; whereas Bitcoins are capped at a total amount that cannot be exceeded. Additionally, lots of Bitcoin fans enjoy to anonymity it offers. Bitcoin transactions are hard to trace due to encryption. The difficulty in tracing Bitcoins has made them a popular way to pay for literally anything embarrassing or illegal. From escorts in Las Vegas to large companies that ship with discreet packaging, accepting Bitcoins has become a fairly common practice. The value of Bitcoins moves rather drastically, due partly to its relatively low volume. 10-20% shifts in value are common in a single day. A single Bitcoin is presently worth approximately $230. Using the most conservative projection I could find, if Bitcoins were used for 5% of illegal black market transactions – they would need to be worth several thousand a piece. The FBI recently conducted its first major Bitcoin seizure from an alleged criminal. Converted into US currency, the amount was in the healthy 8 figures. If they cash it all in, they are silly. They could do way more damage using them for counter-intelligence transactions. This would require the Feds hacking their target to get around the encryption, but it would not be the first time.