The total value of Bitcoin sent to darknet markets increased by 70% last year, according to a report published yesterday by Chainalysis.
The darknet uses IP addresses that cannot be tracked or traced and cannot be discovered by most search engines. As such, it largely operates outside of the watch of governments and other regulatory bodies.
The report notes that darknet activity is mostly not influenced by Bitcoin’s price action, meaning it does not increase or decrease when Bitcoin’s price increases and decreases (this means it is “price inelastic”). In fact, the report notes that, in 2018, Bitcoin’s price had an inverse relationship with the value of darknet market transactions — when Bitcoin’s price fell, more total value was transacted on the darknet.
According to the report, the total value of darknet market transactions has increased steadily since 2011, which is the earliest year for which they provided data. In 2018, that total was $603 million, down 14% from the 2017 figure of $707 million. The report claims that this decrease in value can be attributed to the closing of Alphabay, a popular darknet market, in mid-2017, a time when darknet market activity fell by 60%.
Still, one of the report’s main conclusions is that the darknet market is very resilient — when one closes, another takes its place very quickly (a phenomenon the report calls the “whack-a-mole problem”). The report even notes that “there’s some evidence that darknet activity even increases after closures.”
Despite the general increase in Bitcoin transaction value of the darknet over the past 7 years, the percentage of Bitcoin’s total transaction value that is sent to the darknet has actually decreased. In 2017 and 2018, it was less than 1%, down from a high of about 6% in 2012.
It should be noted that, while the darknet is mostly associated with illegal transactions, cash is still the preferred method of transacting illicit activities — according to a 2018 Cointelegraph report, half of Bitcoin have been used for illegal purchases at some point, while 90% of U.S. dollars had contained traces of cocaine.