According to a new report published by Chainalysis, the darknet has recovered from its modest decline in 2018, rising 70% to constitute over $790 million worth of cryptocurrencies on the darknet markets in 2019 - more than ever before. This may come as a surprise for some, bearing in mind all the news of exit scams and busts in 2019.
While this clearly indicates that the darknet market is booming, it should be emphasized that the $790 million is only 0.08% of the total market share of cryptocurrencies - so the claim that cryptocurrencies are only used by criminals is evidently false. Still, in 2018 the darknet market share was only 0.04% which means that it has doubled within a time span of just 12 months.
The report also gives information from where cryptocurrencies flowed into the darknet: 38.6% from P2P exchanges, 31.8% from centralized exchanges, and 8.8% from exchanges deemed “high-risk.” This means that less than 22% of the transactions came from dedicated wallets. The picture is similar for crypto leaving DNMs: 42.8% of cashed-out currency went to centralized exchanges and 23.2% to P2P exchanges; unnamed services accounted for 11.7%, while darknet markets got 9.1% and high-risk exchanges 4.7%. Noteworthy here: Only 4% were processed through crypto tumblers such as Chipmixer.
The data above also confirms that the increase in revenue is driven by more purchases rather than larger ones. The median purchase size has remained relatively constant in USD value, but we see that the number of transfers once again jumped significantly, from 9 million to 12 million. This suggests that either more customers bought from darknet markets in 2019, or that old customers are making more purchases.
The report also takes a more detailed look at markets that are not drug-related: Especially UniCC was looked at, as one of the fastest-growing credit card markets on the darknet. UniCC took in at least $22.7 million worth of cryptocurrency in 2019, making it the fourth most active market last year. Activity remained relatively steady over the course of the year, peaking in April. Based on that total sales figure and estimating an average cost of $10 per card, Chainalysis estimates that UNICC sold card data belonging to nearly 3 million customers.
Chainalysis points out that its most interesting find was that darknet markets’ transaction activity appears to be less influenced by the ebbs and flows of the cryptocurrency markets and other forms of seasonality compared to other services. The graph above shows a comparison of total Bitcoin transaction volume between darknet markets and three other types of services over the course of 2019. While all categories see spikes in July around the same time as a Bitcoin price surge, darknet markets exhibit a much less dramatic spike than the others. Looking across the entire year, darknet markets’ transaction activity remains within a much narrower volume range, suggesting that customer behavior is less influenced by changes to Bitcoin’s price.
In summary, the report admits that the picture is unlikely to change in the future. The most popular and profitable sites remain to be drug-focused markets. But, as the report admits, the problem with shutting down markets is that other ones fill the void extremely quickly. As of the end of 2019, there are at least 49 active darknet markets, so both users and vendors are spoilt for choice when seeking a new one. Not only that, but it’s easy for them to coordinate with one another to find new markets on forums such as Dread, a Reddit-like discussion site devoted to darknet markets. So for the authorities this is a rather awkward whack-a-mole game to play. For this reason, we can expect further growth of the darknet market infrastructure in the future.