What the drug trade is, how the drug trade works and why Silk Road didn't work and didn't matter

mircea_popescu it's so stupid this shit. im torn as towhether to do a write-up of why it's stupid and in the process prove i understand the drug trade all too well or just stfu.
benkay_ oh please do. then btctalk can add drug dealer to the list of epithets they spit

Perhaps you're wondering how I knew SR was irrelevant back when I was the only one knowing this. Perhaps you're wondering how come it worked out that the famous ruler of the drug superhighway made in the end less than a random fraudster. Let's cut through the wondering.

I. What the drug trade is and how it works.

The drug trade consists of moving contraband items over large distances. This contraband is produced in very limited geographical areas, and is consumed practically all over the world. Consequently, the druglords face the exact same problem car manufacturers face. It is a two fold problem : a) how to manufacture ; b) how to distribute.ⁱ

The production part does not interest us in this discussion. The distribution part works in the following manner : each area as a physically delineated spaceⁱⁱ has a main distributor. This guy's job is to receive shipments coming in, and pay for them. Shipments are rarely under a ton, and can often enough be ten, or even a hundred. This means that on very little warning this guy is capable of absolutely astounding feats of logistics. Consider that an average suitcase holds less than a million in new C notes, and those are rarely used if at all. This means that if he has to pay cash in old 20s for a ton of coke our guy will be able to produce at the very least FIFTY suitcases jammed full, or roughly a pallet. How many people do you know that can produce a pallet of old 20s by noon if you call them around ten in the am or so ? Leaving aside the ability to transport, cut, pack and seal within hours more sugar than you'll eat in a lifetime, these people can produce cash by the tens of millions at the drop of a hat.ⁱⁱⁱ

The main man has about half a dozen subs working for him, each responsible for a certain area to supply, with their own couriers and in some organisations their own muscle.^iv The main man also has redundant enforcer teams, who do actually kill people, in general at the rate of one a day. Per team. It is in fact important to keep them supplied with cases to work on, and an inability to do so usually results in gang warfare. Those people signed up to kill, and you'd better have what to keep them occupied. The main man never ever deals himself. You can perhaps buy a quarter ton every third week from him, you can perhaps buy a tenth of all he gets when he gets it, you definitely can not buying a kilogram, or half a kilogram from him.

The subs handle the kilogram-sized deals, but in the sense of 10-15, not in the sense of 1/4. They're the guys most people interact with when they're thinking they're talking business with a top guy, much like kids thinking the owner of a videogame arcade is somehow related to Sony or something. The subs keep contacts on an on again - off again basis with a large-ish stable of more or less trusted dealers, who in their turn push the dope to an amazing array of different cases ranging from rich and shy movie producers and trust fund kids buying by the pound for their own private parties all the way down to the ounce guys that spend their days on the streets and their nights in jail, getting routinely killed, maimed and convicted without possibility of parole.

By the time dope makes it to the whore, to the starlet, to the failed geek it was cut two or three times and went up in price tenfold. This, in a word, is the drug trade.

II. Why Silk Road didn't work and didn't matter.

Exactly contrary to the problem solved by the factory-and-dealership model employed by car manufacturers, flea markets such as for instance Ebay or Amazon work on the principle that both production and consumption are widely dispersed geographically, and take place in very many classes of items with low per class volume.

In this perspective, suppose you want to buy a garden gnome with a smiling face, a yellow hat, 6 inches tall. Nobody is going to manufacture one such gnome to spec for your needs. The odds of someone having a garden gnome you can settle for that they no longer need are indeed pretty small, but if you collate together an entire continent it becomes feasible. Moreover because junk is essentially worthless, you can have any piece of pre-owned garbage you want fundamentally for the cost of shipping it. This is the flea market model, and this is what eBay does very well.

This is also exactly opposite and perfectly inadequate for the drug trade : you don't have many countless classes of dope, you have like six. About as many as on the run car models there are. You don't ship cars from Ohio to Detroit or from Iowa to New York, you ship cars from Detroit where they're made and from New York where they're imported to wherever else.

The strengths of the flea market model are irrelevant for the drug trade : we don't need to discover where drugs are introduced in the system, we know already. We don't gain anything from collating this production together, you will never have cocaine shipped from NY to LA under any circumstances. We don't need to discover where drugs are consumed, we know already : everywhere. We don't gain anything from collating this consumption together, in effect we just become more vulnerable if we do. In short, the current and traditional model of trading drugs is so very much superior to the ebay model and for so very many excellent reasons that the Silk Road wasn't disrupting anything at all.^v

Also importantly, the flea market model abstracts the actual act of physical distribution from the entire process. Ebay can not exist if there's no USPS/FedEx etc to ship the stuff back and forth. Needless to say, shipping bulk dope through the mail does not work.^vi

This is why two years later the famous marketplace was struggling to move one kilogram of cocaine, and this is why it took them three weeks to make the sale, and this is why it actually had to be the owner buying it on his own account : because SR makes no economic sense whatsoever. To be perfectly clear : the average highway toilet is capable of selling out a kilogram in about half a day. SR was a worse drug marketplace than the average highway toilet.

Obviously the Ulbricht kid had no idea of any of the foregoing, as he had no idea of how ordering fake ids from gov't run shops is perhaps not the best thing to do while hot, as he had no idea about exactly how hits work.^vii He had no idea about anything.

But he figured that if you code a website then therefore you're a CEO, and if you're a CEO then therefore you "gotta do what you gotta do", which apparently includes torturing and "executing" married people who have children, alongside a whole lot of posturing. And it further includes going against fucking economic reality as obvious within your very hands by buying a kilogram of cocaine on your own account when nobody else of your supposed marketplace cares to do so. Because the growth of your marketplace this financial effort will engender makes the "investment" worth it. Just this last and to many eyes minor bit of stupidity is to me sufficient cause to send him to jail forever, because it's in no way different from the governmental, totalitarian idiocy we fight to liberate ourselves from. Think, what does Ross Bernanke do when "the economy" as he designed it fails to work ? He pushes it uphill! Because he's a little engine that can, because he can do anything. Right ?^viii

I never had the opportunity to tell this particular retarded kid posing as a CEO that he's a retarded kid, that he should shut the fuck up and go suck cock for a living, that a website isn't a business nor does it magically make you a CEO or a businessman or even cool. I've never had the opportunity to tell this particular retarded kid all the useful and important stuff I've told a lot of other retarded kids. Nevertheless, the moral of this entire adventure, as well as each and every other previous adventure, should be pretty fucking clear. I would hope.

Obviously, I hope in vain.

1. The legal sanction against their trade has chiefly one effect, and that is to accentuate an all too familiar characteristic of manufactured goods. While cars worth about 10k at the moment they're unloaded from the production line are on average sold for about 20k to the end consumer, drugs worth up to five dollars per gram in Columbia end up worth about ten in the hands of the first distributor and reach the end consumer at about twenty to thirty. They're also cut in the process. In any event no end consumer was ever unable to obtain his fix because fixes are illegal. Things just don't work that way, and never have. [↩]
2. Such as for instance a town, or either side of a river, or a certain valley or a certain university campus or what have you. [↩]
3. This, incidentally, is where the entire "give me a million and I'll double it in a week" stories come from. If you know one such guy and he trusts you it may just be the case you'll actually run into a genuine such request. If he was expecting six tons and he gets saddled with thirteen... well... gotta do something, and fast. Because this isn't exactly the field where you'll be taking any rainchecks, especially not if you want to continue living. [↩]
4. While they might and often do rough up deadbeats, they're not normally able or expected (or even allowed) to make their own hits. [↩]
5. It did do okay dealing obscure pills for weird emo kids that are too unique to snort mainstream dusts. This, of course, isn't a market. [↩]
6. This was possibly the one time when the DEA agents on the SR case suspected they're being set up : when the supposed "dealer" wanted them to mail him 1kg of coke. It's so wtf this notion it gives one pause. [↩]
7. The wtf surrounding that part can't well be put into words. So he makes a deal to buy some drugs from some people. These deals always without exception execute the following way : if your designated agent lives, the deal succeeded. If your designated agent gets killed, the deal went sour, and now you have to send your guys to kill those guys. These are in the strictest binarity the only two available ways for the deal to go down.

   Now imagine a guy who asks the people who sold him drugs to kill the very agent they sold the drugs to! It beggars belief, it's something like this :

   The geek should be thanking his lucky star that he was dealing with the feds rather than with who he thought he was dealing. Otherwise his rectum would have been a glove back in Spring. [↩]

8. In fairness, he did close down the arms dealership when that failed to work, so he's not completely obtuse. [↩]