economics

We caught up with Martin Dittus to find out some basics about darknet markets, and why they’re interesting to study.

Darknet marketplaces are typically set up to engage in the trading of illicit products and services, and are considered criminal in most jurisdictions. Image: Dennis Yip (Flickr).

Many people are probably aware of something called “the darknet” (also sometimes called the “dark web”) or might have a vague notion of what it might be. However, many probably don’t know much about the global flows of drugs, weapons, and other illicit items traded on darknet marketplaces like AlphaBay and Hansa, the two large marketplaces that were recently shut down by the FBI, DEA and Dutch National Police. We caught up with Martin Dittus, a data scientist working with Mark Graham and Joss Wright on the OII’s darknet mapping project, to find out some basics about darknet markets, and why they’re interesting to study. Firstly: what actually is the darknet? Martin: The darknet is simply a part of the Internet you access using anonymising technology, so you can visit websites without being easily observed. This allows you to provide (or access) services online that can’t be tracked easily by your ISP or law enforcement. There are actually many ways in which you can visit the darknet, and it’s not technically hard. The most popular anonymising technology is probably Tor. The Tor browser functions just like Chrome, Internet Explorer or Firefox: it’s a piece of software you install on your machine to then open websites. It might be a bit of a challenge to know which websites you can then visit (you won’t find them on Google), but there are darknet search engines, and community platforms that talk about it. The term ‘darknet’ is perhaps a little bit misleading, in that a lot of these activities are not as hidden as you might think: it’s inconvenient to access, and it’s anonymising, but it’s not completely hidden from the public eye. Once you’re using Tor, you can see any information displayed on darknet websites, just like you would on the regular internet. It is also important to state that this anonymisation technology is entirely legal. I would personally even argue that such…

It’s important that we take a multi-perspective view of the role of digital platforms in contemporary society.

Digital platforms strongly determine the structure of local interactions with users; essentially representing a totalitarian form of control. Image: Bruno Cordioli (Flickr CC BY 2.0).

Digital platforms are not just software-based media, they are governing systems that control, interact, and accumulate. As surfaces on which social action takes place, digital platforms mediate—and to a considerable extent, dictate—economic relationships and social action. By automating market exchanges they solidify relationships into material infrastructure, lend a degree of immutability and traceability to engagements, and render what previously would have been informal exchanges into much more formalised rules. In his Policy & Internet article “Platform Logic: An Interdisciplinary Approach to the Platform-based Economy”, Jonas Andersson Schwarz argues that digital platforms enact a twofold logic of micro-level technocentric control and macro-level geopolitical domination, while supporting a range of generative outcomes between the two levels. Technology isn’t ‘neutral’, and what designers want may clash with what users want: so it’s important that we take a multi-perspective view of the role of digital platforms in contemporary society. For example, if we only consider the technical, we’ll notice modularity, compatibility, compliance, flexibility, mutual subsistence, and cross-subsidisation. By contrast, if we consider ownership and organisational control, we’ll observe issues of consolidation, privatisation, enclosure, financialisation and protectionism. When focusing on local interactions (e.g. with users), the digital nature of platforms is seen to strongly determine structure; essentially representing an absolute or totalitarian form of control. When we focus on geopolitical power arrangements in the “platform society”, patterns can be observed that are worryingly suggestive of market dominance, colonisation, and consolidation. Concerns have been expressed that these (overwhelmingly US-biased) platform giants are not only enacting hegemony, but are on a road to “usurpation through tech—a worry that these companies could grow so large and become so deeply entrenched in world economies that they could effectively make their own laws.” We caught up with Jonas to discuss his findings: Ed.: You say that there are lots of different ways of considering “platforms”: what (briefly) are some of these different approaches, and why should they be linked up…

Despite the vigour of such claims, there is actually a lack of academic consensus about the impacts of digital connectivity on economic development.

It’s about time. However, despite enthusiasm, there is a lack of academic consensus about the impacts of digital connectivity on economic development. Image: Nicolas Friederici.

Vast sums of money have been invested in projects to connect the world’s remaining four billion people, with these ambitious schemes often presenting digital connectivity as a means to achieve a range of social and economic developmental goals. This is especially the case for Africa, where Internet penetration rates remain relatively low, while the need for effective development strategies continues to be pressing. Development has always grappled with why some people and places have more than others, but much of that conversation is lost within contemporary discourses of ICTs and development. As states and organisations rush to develop policies and plans, build drones and balloons, and lay fibre-optic cables, much is said about the power of ICTs to positively transform the world’s most underprivileged people and places. Despite the vigour of such claims, there is actually a lack of academic consensus about the impacts of digital connectivity on economic development. In their new article, Nicolas Friederici, Sanna Ojanperä and Mark Graham review claims made by African governments and large international institutions about the impacts of connectivity, showing that the evidence base to support them is thin. It is indeed possible that contemporary grand visions of connectivity are truly reflective of a promising future, but it is equally possible that many of them are hugely overblown. The current evidence base is mixed and inconclusive. More worryingly, visions of rapid ICT-driven development might not only fail to achieve their goals—they could actively undermine development efforts in a world of scarce resources. We should therefore refuse to believe it is self-evident that ICTs will automatically bring about development, and should do more to ask the organisations and entities who produce these grand visions to justify their claims. Read the full article: Friederici, N., Ojanperä, S., and Graham, M. (2017) The Impact of Connectivity in Africa: Grand Visions and the Mirage of Inclusive Digital Development. Electronic Journal of Information Systems in Developing Countries, 79(2),…

Are there ways in which the data economy could directly finance global causes such as climate change prevention, poverty alleviation and infrastructure?

“If data is the new oil, then why aren’t we taxing it like we tax oil?” That was the essence of the provocative brief that set in motion our recent 6-month research project funded by the Rockefeller Foundation. The results are detailed in the new report: Data Financing for Global Good: A Feasibility Study. The parallels between data and oil break down quickly once you start considering practicalities such as measuring and valuing data. Data is, after all, a highly heterogeneous good whose value is context-specific—very different from a commodity such as oil that can be measured and valued by the barrel. But even if the value of data can’t simply be metered and taxed, are there other ways in which the data economy could be more directly aligned with social good? Data-intensive industries already contribute to social good by producing useful services and paying taxes on their profits (though some pay regrettably little). But are there ways in which the data economy could directly finance global causes such as climate change prevention, poverty alleviation and infrastructure? Such mechanisms should not just arbitrarily siphon off money from industry, but also contribute value back to the data economy by correcting market failures and investment gaps. The potential impacts are significant: estimates value the data economy at around seven percent of GDP in rich industrialised countries, or around ten times the value of the United Nations development aid spending goal. Here’s where “data financing” comes in. It’s a term we coined that’s based on innovative financing, a concept increasingly used in the philanthropical world. Innovative financing refers to initiatives that seek to unlock private capital for the sake of global development and socially beneficial projects, which face substantial funding gaps globally. Since government funding towards addressing global challenges is not growing, the proponents of innovative financing are asking how else these critical causes could be funded. An existing example of innovative financing is the…

Applying elementary institutional economics to examine what blockchain technologies really do in terms of economic organisation, and what problems this gives rise to.

Bitcoin’s underlying technology, the blockchain, is widely expected to find applications far beyond digital payments. It is celebrated as a “paradigm shift in the very idea of economic organisation”. But the OII’s Professor Vili Lehdonvirta contends that such revolutionary potentials may be undermined by a fundamental paradox that has to do with the governance of the technology. I recently gave a talk at the Alan Turing Institute (ATI) under the title The Problem of Governance in Distributed Ledger Technologies. The starting point of my talk was that it is frequently posited that blockchain technologies will “revolutionise industries that rely on digital record keeping”, such as financial services and government. In the talk I applied elementary institutional economics to examine what blockchain technologies really do in terms of economic organisation, and what problems this gives rise to. In this essay I present an abbreviated version of the argument. Alternatively you can watch a video of the talk below. https://www.youtube.com/watch?v=eNrzE_UfkTw&w=640&h=360 First, it is necessary to note that there is quite a bit of confusion as to what exactly is meant by a blockchain. When people talk about “the” blockchain, they often refer to the Bitcoin blockchain, an ongoing ledger of transactions started in 2009 and maintained by the approximately 5,000 computers that form the Bitcoin peer-to-peer network. The term blockchain can also be used to refer to other instances or forks of the same technology (“a” blockchain). The term “distributed ledger technology” (DLT) has also gained currency recently as a more general label for related technologies. In each case, I think it is fair to say that the reason that so many people are so excited about blockchain today is not the technical features as such. In terms of performance metrics like transactions per second, existing blockchain technologies are in many ways inferior to more conventional technologies. This is frequently illustrated with the point that the Bitcoin network is limited by design…

Outlining a more nuanced theory of institutional change that suggests that platforms’ effects on society will be complex and influence different people in different ways.

The "Airbnb Law" was signed by Mayor Ed Lee in October 2014 at San Francisco City Hall, legalising short-term rentals in SF with many conditions. Image of protesters by Kevin Krejci (Flickr).

Ride-hailing app Uber is close to replacing government-licensed taxis in some cities, while Airbnb’s accommodation rental platform has become a serious competitor to government-regulated hotel markets. Many other apps and platforms are trying to do the same in other sectors of the economy. In my previous post, I argued that platforms can be viewed in social science terms as economic institutions that provide infrastructures necessary for markets to thrive. I explained how the natural selection theory of institutional change suggests that people are migrating from state institutions to these new code-based institutions because they provide a more efficient environment for doing business. In this article, I will discuss some of the problems with this theory, and outline a more nuanced theory of institutional change that suggests that platforms’ effects on society will be complex and influence different people in different ways. Economic sociologists like Neil Fligstein have pointed out that not everyone is as free to choose the means through which they conduct their trade. For example, if buyers in a market switch to new institutions, sellers may have little choice but to follow, even if the new institutions leave them worse off than the old ones did. Even if taxi drivers don’t like Uber’s rules, they may find that there is little business to be had outside the platform, and switch anyway. In the end, the choice of institutions can boil down to power. Economists have shown that even a small group of participants with enough market power—like corporate buyers—may be able to force a whole market to tip in favour of particular institutions. Uber offers a special solution for corporate clients, though I don’t know if this has played any part in the platform’s success. Even when everyone participates in an institutional arrangement willingly, we still can’t assume that it will contribute to the social good. Cambridge economic historian Sheilagh Ogilvie has pointed out that an institution that…

What if we dug into existing social science theory to see what it has to say about economic transformation and the emergence of markets?

Protest for fair taxi laws in Portland; organisers want city leaders to make ride-sharing companies play by the same rules as cabs and Town cars. Image: Aaron Parecki (Flickr).

Cars were smashed and tires burned in France last month in protests against the ride hailing app Uber. Less violent protests have also been staged against Airbnb, a platform for renting short-term accommodation. Despite the protests, neither platform shows any signs of faltering. Uber says it has a million users in France, and is available in 57 countries. Airbnb is available in over 190 countries, and boasts over a million rooms, more than hotel giants like Hilton and Marriott. Policy makers at the highest levels are starting to notice the rise of these and similar platforms. An EU Commission flagship strategy paper notes that “online platforms are playing an ever more central role in social and economic life,” while the Federal Trade Commission recently held a workshop on the topic in Washington. Journalists and entrepreneurs have been quick to coin terms that try to capture the essence of the social and economic changes associated with online platforms: the sharing economy; the on-demand economy; the peer-to-peer economy; and so on. Each perhaps captures one aspect of the phenomenon, but doesn’t go very far in helping us make sense of all its potentials and contradictions, including why some people love it and some would like to smash it into pieces. Instead of starting from the assumption that everything we see today is new and unprecedented, what if we dug into existing social science theory to see what it has to say about economic transformation and the emergence of markets? Economic sociologists are adamant that markets don’t just emerge by themselves: they are always based on some kind of an underlying infrastructure that allows people to find out what goods and services are on offer, agree on prices and terms, pay, and have a reasonable expectation that the other party will honour the agreement. The oldest market infrastructure is the personal social network: traders hear what’s on offer through word of mouth and…

Examining the voluntary provision by commercial sites of information privacy protection and control under the self-regulatory policy of the U.S. Federal Trade Commission (FTC).

Ed: You examined the voluntary provision by commercial sites of information privacy protection and control under the self-regulatory policy of the U.S. Federal Trade Commission (FTC). In brief, what did you find? Yong Jin: First, because we rely on the Internet to perform almost all types of transactions, how personal privacy is protected is perhaps one of the important issues we face in this digital age. There are many important findings: the most significant one is that the more popular sites did not necessarily provide better privacy control features for users than sites that were randomly selected. This is surprising because one might expect “the more popular, the better privacy protection”—a sort of marketplace magic that automatically solves the issue of personal privacy online. This was not the case at all, because the popular sites with more resources did not provide better privacy protection. Of course, the Internet in general is a malleable medium. This means that commercial sites can design, modify, or easily manipulate user interfaces to maximise the ease with which users can protect their personal privacy. The fact that this is not really happening for commercial websites in the U.S. is not only alarming, but also suggests that commercial forces may not have a strong incentive to provide privacy protection. Ed: Your sample included websites oriented toward young users and sensitive data relating to health and finance: what did you find for them? Yong Jin: Because the sample size for these websites was limited, caution is needed in interpreting the results. But what is clear is that just because the websites deal with health or financial data, they did not seem to be better at providing more privacy protection. To me, this should raise enormous concerns from those who use the Internet for health information seeking or financial data. The finding should also inform and urge policymakers to ask whether the current non-intervention policy (regarding commercial websites…

The role of finance in enabling the development and implementation of new ideas is vital—an economy’s dynamism depends on innovative competitors challenging and replacing complacent players in the markets.

Many of Europe’s economies are hampered by a waning number of innovations, partially attributable to the European financial system’s aversion to funding innovative enterprises and initiatives. Image by MPD01605.

Innovation doesn’t just fall from the sky. It’s not distributed proportionately or randomly around the world or within countries, or found disproportionately where there is the least regulation, or in exact linear correlation with the percentage of GDP spent on R&D. Innovation arises in cities and countries, and perhaps most importantly of all, in the greatest proportion in ecosystems or clusters. Many of Europe’s economies are hampered by a waning number of innovations, partially attributable to the European financial system’s aversion to funding innovative enterprises and initiatives. Specifically, Europe’s innovation finance ecosystem lacks the necessary scale, plurality, and appetite for risk to drive investments in long-term initiatives aiming to produce a disruptive new technology. Such long-term investments are taking place more in the rising economies of Asia than in Europe. While these problems could be addressed by new approaches and technologies for financing dynamism in Europe’s economies, financing of (potentially risky) innovation could also be held back by financial regulation that focuses on stability, avoiding forum shopping (i.e., looking for the most permissive regulatory environment), and preventing fraud, to the exclusion of other interests, particularly innovation and renewal. But the role of finance in enabling the development and implementation of new ideas is vital—an economy’s dynamism depends on innovative competitors challenging, and if successful, replacing complacent players in the markets. However, newcomers obviously need capital to grow. As a reaction to the markets having priced risk too low before the financial crisis, risk is now being priced too high in Europe, starving the innovation efforts of private financing at a time when much public funding has suffered from austerity measures. Of course, complementary (non-bank) sources of finance can also help fund entrepreneurship, and without that petrol of money, the engine of the new technology economy will likely stall. The Internet has made it possible to fund innovation in new ways like crowd funding—an innovation in finance itself—and there is no…

What role is new Internet connectivity playing in changing these sectors—which are often seen as slow to adopt new technologies?

Behind the material movement that takes tea from the slopes of Rwanda’s ‘thousand hills’ to a box on a shelf in Tesco, is a growing set of less visible digital data flows. Image by pasunejen.

Production of export commodity goods like tea, coffee and chocolate is an important contributor to economies in Africa. Producers sell their goods into international markets, with the final products being sold in supermarkets, here in the UK and throughout the world. So what role is new Internet connectivity playing in changing these sectors—which are often seen as slow to adopt new technologies? As part of our work examining the impacts of growing Internet connectivity and new digital ICTs in East Africa we explored uses of the Internet and ICTs in the tea sector in Rwanda. Tea is a sector with well-established practices and relations in the region, so we were curious if ICT might be changing it. Of course, one cannot ignore the movements of material goods when you research the tea sector. Tea is Rwanda’s main export by value, and in 2012 it moved over 21,000 tonnes of tea, accruing around $56m in value. During our fieldwork we interviewed cooperatives in remote offices surrounded by tea plantations in the temperate Southern highlands, tea processors in noisy tea factories heavy with the overpowering smell of fermenting tea leaves, and tea buyers and sellers surrounded by corridors piled high with sacks of tea. But behind the material movement that takes tea from the slopes of Rwanda’s ‘thousand hills’ to a box on a shelf in Tesco, is a growing set of less visible digital data flows. Whilst the adoption of digital technologies is not comprehensive in the Rwandan tea sector (with, for example, very low Internet use among tea growers), we did find growing use of the Internet and ICTs. More importantly, where they were present, digital flows of information (such as tea-batch tracking, logistics and sales prices) were increasingly important to the ability of firms to improve production and ultimately to increase their profit share from tea. We have termed this a ‘data-driven value chain’ to highlight that these new…