Ethics in a Business: Silk Road, a Case Study

Janhvi Mehta

Silk Road was an online black market and the first modern darknet market, which was often nonchalantly described as ‘the amazon for drugs’. It was best known as a platform for selling illegal drugs on the dark web. It operated as a tor hidden surface, therefore, the users were able to browse the website securely and anonymously, without the fear of potential traffic monitoring.

It was founded in February 2011, by Ross Ulbricht, under the pseudonym “Dread Pirate Roberts” (from a fictional character in the movie “The Princess Bride”). The name “Silk Road” comes from a historical network of trade routes started during the Han Dynasty (206 BC – 220 AD) between Europe, India, China, and many other countries on the Afro-Eurasian landmass.

Dread Pirate Roberts soon had grown quite a cult following, as his libertarian views appealed to users of the website. Moreover, he was interacting with the consumers via a chat box that he created, therefore getting feedback continually. Furthermore, the anecdotes posted on his website concluded strong morals, often stating, “I want to use economic theory as a means to abolish the use of coercion and aggression amongst mankind. Just as slavery has been abolished almost everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end.”

Despite the problematic nature of the business, he had come up with an innocuous way for illicit trading. To his credit, he was a pioneer when it came to using tor and crypto currency to avoid trouble with the law enforcement. Ulbricht had created a market which evaded government supervision but made it difficult to track anonymous transactions. To sustain inflow of revenue he increased oversight to ensure low transaction costs. Hence, he added measures of security by adding automated escrow payment system and an automated review system.

In October 2013, the FBI shut down the website, and arrested Ross Ulbricht, putting an end to his self-proclaimed revolution. Ulbricht was indicted on eight charges including money laundering, computer hacking, trafficking narcotics and attempting to have six people killed. Prosecutors had alleged that he paid $73,000 to hire a hitman to kill six different people. Although, no bodies were found, hence, he was not prosecuted on the alleged murder attempts. Ulbricht was sentenced to life imprisonment without a possibility of parole. However, multiple proxy websites such as Silk Road 2.0 and Silk Road 3 reloaded came online.

Based on data from 3 February 2012 to 24 July 2012, an estimated $15 million in transactions were made annually on Silk Road. Twelve months later, Nicolas Christin, the study's author, said in an interview that a major increase in volume to "somewhere between $30 million and $45 million" would not surprise him. Since, all of the transactions between suppliers and consumers were made through bitcoin to assure anonymity, Silk Road held buyers' bitcoins in escrow until the order had been received. So, Silk Road allowed suppliers to opt for the value of bitcoins held in escrow to be fixed to their value in US$ at the time of the sale. All the costs of changes in price of bitcoin were covered by the founder himself.

The moral high ground taken by the owner reflects the philosophy of the business. A successful business is managed by a person with a clear mind-set. For consideration, despite the unlawful nature of this venture, Silk Road proved to be a revolution for its kind.