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Dark Web Marketplaces: Part 2 of 3

posted on: Fri Dec 29 2017

This is part two of a three-part series.

In our earlier blog post, “Dark Web Marketplaces: Part 1", we explained how The Onion Router (TOR) morphed into an early version of what is now known as Tor. The Online Router Onion routing software was initially developed in the mid-1990s by a US Navy lab and later refined by DARPA. It was originally designed to protect online intelligence communications by masking the identities of users.

By 2005, the underworld of the Dark Web was ripe with criminals taking advantage of the anonymity veil this platform provided. At the time, Wired magazine estimated that fraudsters were distributing “more than half a million (pirated) movies every day.” The IT research firm IDC estimated that software piracy was already costing businesses $34 billion.

The Tor Project took shape in 2006 with funding from the Electronic Frontier Foundation (EFT), a non-profit digital rights group based in San Francisco. The EFT, a nonprofit originally founded to protect internet civil liberties, helped maintain the software for what became known as the Tor anonymity network. Tor’s usefulness in mining legitimate data from the enormous Deep Web—the universe of unseen Internet data surrounding its subset dubbed the Dark Web—was a key reason for the formation and ongoing support of the Tor Project. 

Tor permits users to anonymously surf the Dark Web, chat and send instant messages. Tor is used by people for both legal and illicit purposes. For example, freedom activists in China use Tor to prevent discovery by government authorities, while cyber criminals use it to illegally exchange stolen information and goods. 

Another pillar required to build Dark Web marketplaces was a method of value exchange not controlled or traceable by government. After all, what good is a “big score” if a government can freeze the criminal’s bank account or assets?

Bitcoin, the untraceable decentralized cryptocurrency, emerged from the Dark Web in 2009. It was immediately embraced by the Internet’s underworld. The History of Bitcoin is a fascinating odyssey. A notable milestone occurred in May of 2010 when the first “real-world” transaction took place—Laszlo Hanyecz, a programmer in Florida—offered to pay 10,000 Bitcoins for a pizza, a value of $25 USD at the time. Today, that pizza would have been purchased for the equivalent of $160 million USD.

With Tor and Bitcoin now established, the Dark Web spawned the first "darknet marketplace" in early 2011 with the launch of Silk Road. Accessed through Tor and taking only Bitcoin as currency, it was named after the ancient network of trading routes linking China and the West. Digital traffic on the new Silk Road surged, tripling the value of Bitcoin within just a few days.

Silk Road quickly became a platform for illicit transactions, including illegal drugs, pirated media, pornography, stolen financial credentials, weapons and more. Silk road transactions reportedly totaled more than $1.2 billion between 2011 and 2013.

However, an expose blog by Gawker led the FBI to shut down the website and arrest its founder, Ross William Ulbricht, who used the pseudonym “Dread Pirate Roberts.” Ulbricht was later convicted of eight criminal charges and sentenced to life in prison.

The Guardian published an article in May of 2014 titled: “Life after Silk Road: How the Darknet Drugs Market is Booming”. Out of the wreckage of Silk Road, new sites like Agora, Evolution, Pandora, Outlaw, BlackBank and others metastasized. These sites picked up where Silk Road left off. The Dark Web was a rapidly expanding universe. 

For example, the legendary site AlphaBay was officially launched on the Tor platform three days before Christmas in 2014. Less than a year later, AlphaBay was the largest Dark Web marketplace with over 200,000 users. It trafficked stolen credit card account information, credit card skimmers, fraud tools and other illegal goods. In March of 2015, AlphaBay made headlines for advertising stolen Uber account credentials for $1 each. Eventually, Uber revealed hackers had stolen confidential information on 600,000 drivers as well as the names, email addresses and phone numbers of some 57 million Uber users.

Last summer, AlphaBay went dark over the July 4th weekend. At first, the site’s users thought the AlphaBay administrators had pulled an “exit scam” to make off with millions in cryptocurrency in play between the buyers and sellers using the site.

Soon they discovered that "Operation Bayonet", led by the US Drug Enforcement Agency (DEA), had shuttered the site and hunted down its administrator, Canadian Alexandre Cazes, in Thailand. Cazes—who was just 26 years old—was later found dead in his jail cell, an apparent victim of suicide. AlphaBay, which had swelled to more than 400,000 users at the time, had been responsible for over $1 billion in narcotics sales according to Acting FBI Director Andrew McCabe.

Unfortunately, it seems that as soon as one Dark Web marketplace goes offline, others spring to take its place. The Dark Web continues to be a vast and rapidly expanding ocean of data, dealers, and new software permutations. Domestic and International fraud threats abound.

Fortunately, fraud protection innovators like Kount are combining the power of Artificial Intelligence/Machine Learning and fraud expertise to prevent stolen credit card, identity and account data from harming online sites and their customers. Download our eBook, "Two Heads Are Better Than One: Artificial Intelligence + Human Insight" for valuable insights into how AI works in ways beyond the limitations of human capability to stay ahead of fraud.

Artificial Intelligence + Human Insight

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