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The projected economy of Silk Road

October 3, 2013 by max

With the recent takedown of the illegal TOR-based merchant site Silk road some interesting numbers have been released in this (PDF link) criminal complaint . This gives a unique and interesting look at the economy behind the site.

Here are some raw numbers directly from the linked criminal complaint:

  • Silk road was initially launched around January 27, 2011.
  • Dread Pirate Roberts, the alleged owner and main administrator of the site, has on July 21, 2013 received 3.237 transfers of Bitcoins to his account, virtually all of which are labelled “commission”.
  • The commission rates vary between 8 and 14% depending on the size of the transaction (larger transactions have lower commission)
  • Dread Pirate Robert’s Bitcoin account page on Silk Road held equivalent to $3.4 million on july 23, 2013.
  • A small administrative staff has helped police the forums, and do other tasks. They have received a payment in Bitcoins  equivalent to $1.000 to $2.00 a week.
  • During the 60 day period from may 24, 2013 to july 23, 2013 1.217.218 messages were sent through Silk Roads privte messaging system.
  • From february 6, 2011 to july 23, 2013 1.229.465 transactions were completed on the site involving 146.946 unique buyer accounts and 3877 unique vendor accounts.
  • The total revenue generated from these sales was 9.519.664 bitcoins
  • The total commission collected by Silk Road from the sales amounted to 614.305 bitcoins. These figures are roughly equivalent to $1.2 billion in revenue and $79.8 million in commissions at current bitrcoin exchange rates.

So let’s look at the economics of being a large-scale criminal mastermind that runs a TOR-based drug trading commerce site.

The site has been in operation for around 2 years, and in that timeperiod the owner has managed to turn it into a business with a billion-dollar turnover. Pretty impressive.

To get an idea of the scale the maintenance and operations needed to keep the operation going we are given the following clues:

  • a little more than 1 million transactions were completed in the 2 years the site was operational. 
  • The site had around 150.000 buyer accounts and 4.000 vendor accounts.
  • around 2000 private messages were sent a day.
  • Dread Pirate Roberts has received a little more than 3000 bitcoin transactions in one day  on July 21, 2013.
  • On average around 1600 transactions have been completed every day since the start in 2011. Assuming a growth period this is consistent with the 3000 transactions received in one day as stated above.

Assuming that 2% of the visitors to the site make a transaction this gives 150.000 unique daily visitors based on the assumed 3000 daily transactions on july 21, 2013. Behind this is a database holding transaction history of the 1 million transactions, user account info for around 150.000 users, and other maintenance stuff. On top of this comes a forum, which was run on a separate server. This is not a mom-and-pop website, but well within the reach of one dedicated and talented programmer/sysadmin – presumably Dread Pirate Roberts.

The server and bandwidth cost of this operation should be negligible, and would probably come to a few thousand $ a month at most. On top of this comes pay for an administrative staff whose job it presumably is to weed out bad seeds, answer forum questions, settle disputes, etc. Assuming a staff of 10 people this comes to   around $80.000 a month.

So from these guesstimates we can get a broad overview of the economics of the operation.

Projected budget for 2013 – presuming the site was still operational:

Revenue: We know that revenue was $1.2 billion over 2 years, we know that an average transaction was $976 ($1.2 billion/1229465 transactions), and we know that in one day in july Dread Pirate Roberts received 3237 Bitcoin transactions. Assuming that this was a normal day (which doesn’t seem unreasonable with the given numbers, accounting for some growth during the time the site was operational) this comes to a daily turnover of $3.159.312, giving a projected yearly revenue of  $1.1 billion

Operating expenses (as explained above): $1 million

Vendor expenses (Revenue minus commission) It is stated that the commission varied between 8 and 14%. If we assume an average 0f 9% this equals vendor expenses of $1001 million

Profit for 2013 (assuming the site was still operational): $98 million

Not bad for a 2 year old site. Too bad it was terribly illegal.

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