Evolution Exit Scam Shows Multisig Isn’t Enough: We need Decentralization

This week another darknet market closed abruptly. The Evolution site operators stole millions of dollars worth of users’ bitcoins. This is only the latest in a series of “exit scams” where the operators of these centralized markets will run legitimately for months, even years, and then run off with all the funds at once.

When previous exit scams occurred, the proposed solution was implementing multisignature into the marketplaces. Users were told to only use marketplaces that offered multisig. This does make the users’ funds more secure – in theory. In practice, even though multisig was available in Evolution, it wasn’t widely used. People still trusted the centralized site operators with their Bitcoin.

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Why would people still misplace their trust when this pattern has become obvious? One reason is that they are dealing with illegal items. Not all items on darknet markets are illegal, but a substantial portion are. They have no legal recourse if something goes wrong. This means they look for the most trusted site in operation, the one with the largest network of other users. As the number of users increases, so does the notoriety, publicity, and demands on the site infrastructure. With the increased stress and scrutiny on the system, the site operators have little margin for error. If something does go wrong, or the pressure becomes too intense, then those site operators will exit while they still can, taking down the entire system.

Even in legal marketplaces, centralized systems share this flaw. The single point of control gives site operators the ability to determine the fate of the platform, and all its users.

How can this be prevented? We’ve already mentioned multisig. Evolution implemented it, but did so in a way that was intended to still retain power over users’ funds. They required users to deposit funds with them, and then move them into the multisig later. A centralized site operator doesn’t want to give up their ability to extract fees from its users, so they don’t have a strong incentive to make multisig easy to use. Also, multisig might protect funds, but it doesn’t prevent the platform from shutting down altogether.

The solution is to move away from the centralized systems completely. Removing the middleman will have enormous benefits for users. Consider the following benefits of decentralized markets:

  1. Markets are persistent. There’s no central point of control that can be taken down, either by outside actors or internal ones.
  2. Funds aren’t centrally controlled. There’s no central authority to trust and no jackpot to steal. Individuals control their funds directly and likely use multisig for transactions.
  3. No fees. Trade occurs directly between parties; there’s no site operator to take a cut.
  4. No data aggregation. Site operators (and data thieves) profit from aggregation of data on centralized systems, but there’s no single trove of data on decentralized system.
  5. Trust and reputation are dynamic. In a centralized system, you are forced to trust the site operators, and the reputation system is static (as determined by site operators). In a decentralized system, you aren’t forced to trust any parties, and reputation systems can emerge without any control or censorship by central authorities.

Unfortunately for everyone on the internet, decentralized markets are still in their infancy. Over the last eight months OpenBazaar has teased the community with a taste of what the future of trade looks like. We are pushing hard, and are closer than ever to making it a reality. We know you wanted it yesterday, but our mission is not just to push out a product. Our goal is to create an open protocol for trade that will give users to power to push aside the central institutions that control online trade, and begin trading freely. It’s not a simple task, but with your help we’re getting close.