We Know Where You Are, What You Are Doing and We Will Catch You: Testing Deterrence Theory in Digital Drug Markets

There are online e-commerce markets that connect thousands of vendors with even larger groups of customers around the world, but intentionally obstruct the tracking of their vendors and customers. These e-markets are referred to as “cryptomarkets.” These “cryptomarkets” are used by some to trade in illicit goods and services and provide access to a greater variety of sellers and product than was possible in street trade. In 2015, the founder of a well-known cryptomarket called “The Silk Road” was arrested and convicted in the United States of America. When handing down the sentence, the judge referenced “deterrence theory.”This theory states that punishment deters crime and that highly publicised punishment may provide an even greater deterrence. Deterrence theory is based in the notion that people consider the risk of punishment before committing a crime. It follows that a greater perceived risk of getting caught or receiving harsh punishment would cause some to reconsider committing this crime causing the crime rate to drop. Past research on deterrence theory in practice has shown mixed results, suggesting that deterrence has just a weak effect on crime. Cryptomarkets offer a new opportunity to examine this theory. These markets are unique in how decisions about trades are made and how trust is formed and maintained. The Silk Road case presents an opportunity to test ideas about deterrence in the context of cryptomarkets.

Ladegaard wanted to test two ideas: if media coverage of advances in the investigation abilities of law enforcement agencies would reduce crime and if the high-profile conviction and sentencing of a key person would reduce trade in similar illegal markets. To do so, he collected mandatory feedback on trades in two cryptomarkets every day for 10 months. This data represents the trade trends for those markets. The researcher then compared these trends with reports collected from media sources and relevant forums to understand the lag between events, media coverage and changes in market trading. Ladegaard also looked into the commentary on online forums relating to cryptomarkets to provide further insight.

Neither the media coverage of the arrest nor the sentencing of the Silk Road founder appeared to have a deterrent effect on cryptomarket trading. Trade on online markets actually increased with the media coverage. However, this is not to say conclusively that the verdict and sentencing were completely ineffective as deterrents. We cannot know if there would have been even more trade if the trial result was an acquittal. Perhaps the sentencing did deter existing traders, but this effect was outweighed by an influx of new traders. Nonetheless, there does seem to be an effect from a high profile sentencing that runs contrary to the intention of the court to deter crime.

The forum commentary shows the prosecuted founder of Silk Road in different ways. Often, commentary portrayed him as an idealistic pioneer martyred for the cause of online freedom or for being an advocate against the war on drugs. Other comments depicted the founder as a poor child caught out of his depth for not knowing the basics of avoiding apprehension. These types of comments suggest a community that sees illicit online trade as a necessary expression of a higher moral standard than the current law, allowing their justification of illegal activity. Alternatively, the idea that human error led to the capture and conviction of the founder somewhat restores faith in the Cryptomarket mechanisms that protect traders.

The assumption that a strong penalty will deter further crime online is questionable. In this case, it seems that illicit trade increased after media coverage of the arrest and sentencing of the Silk Road founder. Decisions based on a better understanding of how online communities function and how decisions about criminal acts take place online could provide better outcomes.

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