Use of Bitcoin in Darknet Markets: Examining Facilitative Factors on Bitcoin-Related Crimes

Abstract

Bitcoin, created in 2008, has become the most widely accepted virtual currency in the world. Some believe that Bitcoin will play a significant role in both e-commerce and money transfers, whereas others believe that Bitcoin transactions are more likely to be used by criminals creating fraudulent investments and engaging in drug trafficking and money laundering. This study addresses (1) whether the traditional criminological concepts are applicable in explaining criminal activities in virtual space, (2) what factors contribute to Bitcoin-related offenses, and (3) what lessons could be learned from the current study of Bitcoin-related criminal cases.

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Fig. 1

Notes

  1. 1.

    A node refers to a full client who stores the blockchain and can share the blocks and transactions across the network with all the transactions as opposed to a lightweight client who operates without storing the full blockchain (Drost, 2017).

  2. 2.

    In United States of America v. Ross William Ulbricht, a.k.a. “Dread Pirate Roberts,” a.k.a. “DPR,” a.k.a. “Silk Road” (2014), Ulbricht was charged with conspiring to violate U.S. narcotics laws; knowingly and intentionally using a communication facility to commit a felony; and conspiring to commit computer hacking. He was sentenced to life imprisonment and 5 years, 15 years, and 20 years imprisonment for each of the three other counts. He was also ordered to pay a monetary penalty of $500.00 and forfeiture of $183,961,921.00.

  3. 3.

    Jones and Davis were site administrators on Silk Road. Nash, an Australian citizen, was the primary moderator on the Silk Road discussion forums. They were charged with narcotics trafficking conspiracy and computer hacking conspiracy. Nash pleaded guilty and faces a mandatory minimum sentence of 10 years and a possible deportation. Jones also pleaded guilty as a government witness; Davis is in Ireland and he is awaiting extradition to the United States (see United States of America v. Andrew Michael Jones, Gary Davis, and Peter Phillip Nash, 2015). Clark was a senior adviser to Ross Ulbricht, the owner and operator of the Silk Road website. Clark advised Ulbricht on a regular basis regarding various aspects of operating the website. He was also charged with narcotics trafficking conspiracy and money laundering conspiracy and is awaiting sentencing (United States of America v. Roger Thomas Clark, 2015).

  4. 4.

    Sadler, White, and Donagal were drug vendors on Silk Road. Sadler was charged with conspiracy to distribute drugs. He was sentenced to five years of incarceration (see United States of America v. Steven Lloyd Sadler and Jenna M. White, 2013). Donegal and his codefendants were charged with conspiracy to manufacture and possess with intent to distribute drugs, sale of counterfeit drugs, and international money laundering. He was sentenced to serve 70 months (see United States of America v. Jeremy Donagal [a.k.a. “Xanax King,” a.k.a. “XK”] et al. [2014]).

  5. 5.

    Faiella and Shrem provided a Bitcoin exchange service between Silk Road and their customers. They were charged with operating an unlicensed money-transmitting business and conspiracy to commit money laundering. Shrem received two years of imprisonment and forfeiture of $950,000.00 and Faiella was sentenced to four years of imprisonment and forfeiture of $950,000.00 (see United States of America v. Robert M. Faiella, a.k.a. “BTCKing” and Charlie Shrem ( 2013 ).

  6. 6.

    Force and Bridges were federal agents assigned to the Baltimore Silk Road Task Force to investigate illegal activity in the Silk Road marketplace. Force used fictitious personas (e.g., “French Maid”) to communicate with Ulbricht, and threatened to expose him if he did not pay him. Both agents were charged with wire fraud and money laundering. Force received three years of incarceration and Bridges received six years of incarceration (see, United States of America v. Carl Mark Force and Shaun W. Bridges, 2015).

  7. 7.

    A controlled delivery is a technique used by law enforcement when they know that illegal drugs are detected but allowed to move forward under the control and surveillance of law enforcement so that they could monitor the activities.

  8. 8.

    Ali Shukri Amin was a Virginia resident who was accused of providing material support and assistance to the Islamic State in Iraq. He ran a Twitter account called @AmreekiWitness and asked followers to support financially ISIL using BTCs (see United States of America v. Ali Shukri Amin, 2015; Counter-Extremism Project, 2015). He was sentenced to 11 years in prison.

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Kethineni, S., Cao, Y. & Dodge, C. Use of Bitcoin in Darknet Markets: Examining Facilitative Factors on Bitcoin-Related Crimes. Am J Crim Just 43, 141–157 (2018). https://doi.org/10.1007/s12103-017-9394-6

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Keywords

  • Bitcoin
  • Silk Road
  • Cybercrime
  • Deterrence
  • Space transition theory