Friday, October 4, 2013

I come here not to bury the Silk Road, but to praise it.

Two days ago, the Feds finally shut down the Silk Road, the online marketplace for drugs, guns, hitmen and other miscellaneous highly illegal items. They arrested a man, Ross William Ulbricht, alleged to be the founder of the site. He went under the alias 'The Dread Pirate Roberts'. This name is taken from the movie 'The Princess Bride', and is actually a pretty excellent alias given the nature of his work:
A pirate of near-mythical reputation, the Dread Pirate Roberts is feared across the seven seas for his ruthlessness and swordfighting prowess, and is well known for taking no prisoners.
It is revealed during the course of the story that Roberts is not one man, but a series of individuals who periodically pass the name and reputation to a chosen successor. Everyone except the successor and the former Roberts is then released at a convenient port, and a new crew is hired. The former Roberts stays aboard as first mate, referring to his successor as "Captain Roberts", and thereby establishing the new Roberts' persona. After the crew is convinced, the former Roberts leaves the ship and retires on his earnings.
If you believe the allegations about Ulbricht contained in the various affadivits, he is (to quote Stephen Hawking's memorable description of Sir Isaac Newton), by all accounts, not a pleasant man. He allegedly tried to organize not one but two attempted murders - first of a former employee that was likely to squeal to the FBI, and second of a person trying to blackmail him by threatening to release information about Silk Road drug suppliers.

(As a side note, the latter reminds me of the Morgan Freeman quip in The Dark Knight):
Let me get this straight. You think that your client, one of the wealthiest, most powerful men in the world, is secretly a vigilante who spends his nights beating criminals to a pulp with his bare hands; and your plan, is to blackmail this person? Good luck.
So it's not hard to see what's ugly and destructive about the Silk Road. Having never been interested in purchasing drugs, murder-for-hire services, guns, or anything else on the site, I had no interest in its continuation. To the extent that the world would be better off with fewer murders and illegal guns (and probably with fewer drugs as well), it's a good thing that it's gone.

But let's just pause for a moment and appreciate what a truly astonishing feat of engineering and business the Dread Pirate Roberts was able to pull off. 

This was a website that let you buy drugs off the internet and ship them to your house via the postal service. 

It did this with remarkable success, facilitating more than a million transactions between strangers. Estimates of its revenues are as high as $1.2 billion, with commissions of almost $80 million.

That's a pretty darn serious business operation right there. How many celebrated startups ever generate revenues of $1.2 billion in their first two years? Or ever?

And think about the constraints the business was operating under. 

As I wrote about in March, anonymous drug sales over the internet have perhaps the steepest challenges of information asymmetry and moral hazard of any market I can imagine. How do you stop people shipping grass clippings instead of marijuana? Or ensure that customers pay when shipments may not arrive? Or convince people to give out their postal address to strangers when ordering drugs online, not knowing whether they're sending it to a federal agent?

Here's a great essay on how they managed to solve these problems. But suffice to say, it's pretty impressive. 

This is also a business that's going to be incredibly difficult to get off the ground in the first place. Suppose you're the chief of marketing for an online drugs site. How exactly are you going to run your campaign? You can't call up Saatchi and Saatchi and arrange a billboard campaign paid from the company checking account. And who do you even contact for customer and supplier outreach? Drug sellers are somewhat cagey about putting their email addresses up to be contacted. Even if the idea of an online drug marketplace seems feasible once it's already going, it would be a nightmare trying to get it started.

What about other challenges from the business environment? If you're creating your hypothetical startup, making the AirBnB of self storage, or the Dropbox of the pets world or whatever, you might get competitors trying to undercut you, or unpredictable shifts in the regulatory environment that make it hard to compete. 

Here, you have every law enforcement agency in the world furious at your existence, sparing no expense to try to hunt you down. You need to run the entire business while being completely anonymous. Remember, this whole site was operating within plain sight of the FBI for over two years. Charles Schumer complained about it back in June 2011. The continued existence of the Silk Road was a massive embarrassment to the US Government, and hell hath no fury like the US Government scorned.

I'll say this - you don't need to like drugs at all to recognise that the Dread Pirate Roberts was a God damn genius. I wish he'd turned his efforts to something more socially useful than selling drugs online. But be that as it may, the Silk Road is one of the most remarkable startup stories in the history of the internet.

(previous Silk Road discussion here)


  1. I'm always impressed by people who are able to get away with such feats. This sort of reminds me of an Eddie Izzard skit when he's commenting on different mass murderers and he talks about several examples of leaders who were able to live out their lives in reasonable conditions and jokes, "Well done." ( It's oddly comedic, because in spite of the awful result of their actions they were able to do something no one else either thought of or would dare to even try and pull off even if they wanted to.

    It's also events like this that make me wonder about the difference between successful and unsuccessful people -- if it is either something that can be explained by the decision to act or if it is something deeper.

    1. That's an excellent clip. There really ought to be more comedy on historical subjects.

      Yeah, it's true about the strange feeling when watching people who've achieved unusually difficult things. In the startup world, sometimes it's managing to spot something that was difficult to do, but makes sense in hindsight (AirBnB, Uber). But the Silk Road is even more weird - even after I've seen it, I can't quite believe that it could exist. That takes some serious vision.