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Although many have shown a lot of angst about Bitcoin use on Silk Road, buying drugs is far from a major use of Bitcoin.

As the recent Forbes Article about Dread Pirate Roberts, the man behind Silk Road, points out, Silk Road is estimated to be doing about $30-45M in annual revenue. They also report that Atlantis, a newly launched competitor to Silk Road, did around $500k in revenue in the first two months of operation, so annualized to about $6M. Combined we’re talking at max $50M in annual revenue. Now it isn’t good that $50M of drugs is being sold for Bitcoin, but this needs to be put into context for total Bitcoin transaction volume. According to Blockchain.info, average daily Bitcoin transaction volume has been around $25-30M for the last 30 days. That annualized out to about $9-11 billion in annualized transaction volume. So about 0.5% of Bitcoin transactions were to buy drugs.

Wikipedia claims that the illegal drug trade constitutes 1% of world GDP. Bitcoin seems to underindex to other payment mechanisms for buying drugs.

  • Chris Smutny

    Jeremy, love your writing and BitCoins, but I think you are comparing apples and oranges.

    For BitCoins, you are comparing drug transaction volume against currency trading volume. For non BitCoin transactions, you are comparing against GDP. Seems a fairer comparison would be keeping the denominator the same, in other words, the volume of currency transactions.

    Global FX volume is around $1,460 trillion for 2010. This is substantially more than the global GDP number of $36 trillion that Wikipedia mentions (albeit for different years).

    Using that denominator, you come up with 0.02%. That is substantially less than the 0.5% for BitCoins.

  • http://lsvp.wordpress.com jeremyliew

    Chris, I used Bitcoin transaction volume, not Bitcoin trading volume (which would be more like Global FX volume). That being said, your broader point is fair as there is just no perfect way to measure Bitcoin GDP. Bitcoin transaction volume includes all movement of bitcoin, not just payment for goods and services. So if I was to move money from one of my wallets to another, or if change came back from a transaction, these would all be included in Bitcoin transaction volume. That being said, i don’t think that the error is more than an order of magnitude, which is still not a majority use case.

  • http://twitter.com/salwilliam Salvatore Delle Palme

    Also, let’s not assume Silk Road and Atlantis are the only venues for spending Bitcoin on illegal drugs. But Jeremy makes a great point that Bitcoin is in the same ballpark as the dollar and other national currencies in terms of its relationship to the proliferation of the illegal drug trade.

  • Richard

    No, you’re still way off.

    Let’s make an example of a person buying $100 of weed on the silk road. How do he go about doing that?

    The person probably buy some coins off of coinbase, launders them through a wallet or two, and then send to the silk road. So even though only one drug purchase was made, perhaps $400 in drug-related transactions have already taken place.

    The same goes for the seller, who now has $100 (minus silk road’s fee) in his wallet. He probably moves the coins through several wallets until it is somewhere where he can convert it to cash.

    In this example, the $100 silk road weed purchase actually accounts for thousands of dollars of drug-induced transactions. It’s easily an order of magnitude problem.