Christian Janze

9th of October 2017

Jours fixes usually take place on the first monday of the month, starting at 5:00 p.m., in HoF E.01 / Deutsche Bank of the House of Finance (Campus Westend).

[Christian Janze, E-Finance Lab]

Co-Evolution of Bitcoin and Darknet Markets

Previous research indicates that Bitcoin is primarily used as a speculative asset rather than a currency. This is in line with statements of both public and private entities, which question the utility of privacy enhancing means of electronic payment for individuals other than criminals. However, these discussions are primarily based on anecdotal evidence and empirical research is sparse. Thus, we address the overall research question of whether pseudonymous cryptocurrencies are primarily used by criminals. 

Utilizing panel data of 296,875 unique product and service listings that were available on 19 darknet markets from June 2014 to July 2015, as well as Bitcoin blockchain transactions, we provide evidence for the co-evolution of Bitcoin and darknet markets. We find that transactions within the Bitcoin blockchain and the usage of transaction obfuscation services can be related to previous sales on darknet markets. The temporal lag can be attributed to escrow mechanisms employed by darknet markets. We contribute to the research stream of cryptocurrency usage behavior and discussions of regulators, governments and financial services firms.