When the cryptocurrency darkcoin launched earlier this year, it distinguished itself from dozens of bitcoin copycats by promising to keep users’ transactions far more anonymous than its predecessor. Now that promise is being tested in the Internet’s fastest-growing proving ground for privacy technologies: the online black market for drugs.

Over the last month, two of the dark web markets selling an anonymous, mail-order catalog of narcotics and other contraband have begun supporting darkcoin transactions. On a site called Nucleus, visitors can now use darkcoin to buy LSD, MDMA, and marijuana. On the competing market Diabolus, dealers accept it for cocaine, synthetic stimulants like ethylone and alpha-PVP, and even counterfeit Euros. Those two markets still represent only a tiny fraction of the growing dark web drug economy—most of which uses bitcoin exclusively. But darkcoin’s entrance could signal a new means of transaction in that underground industry, and one that’s far harder for law enforcement to trace.

A more private cryptocurrency

"Using [darkcoin] on Diabolus is no more difficult than using bitcoin, and we hope that this currency will receive more adoption because of its superior anonymity," a Diabolus administrator known as Accida wrote on the Reddit forum devoted to dark net markets two weeks ago. "Ultimately, Diabolus cares about protecting your security and anonymity, and we'll consistently take action to maintain it as best we can."

PVP-alpha, marijuana, and ecstacy being sold for darkcoin on the drug site Nucleus. Screenshot: WIRED

Since as early as 2011, when a bitcoin was worth less than a dollar, the drug trade has been attracted to the cryptocurrency as a means of divorcing money and identity. Bitcoin, after all, allows Paypal-like payments online with many of the anonymity advantages of cash. But that privacy is far from perfect. In fact, the public ledger of bitcoin accounting known as the blockchain means that anyone can trace a transaction to a pseudonym, if not a name. Without careful and cumbersome methods of protecting those pseudonyms—services like bitcoin "laundries" or local, in-person exchanges—it's often possible for blockchain watchers to learn who's sending bitcoins to whom.

Darkcoin is designed to scramble any attempts at blockchain tracing. Darkcoin users can, whenever they want, swap their coins with two other users, a process known as CoinJoin. That exchange is organized by a so-called Master Node, one of the servers that runs the darkcoin network in exchange for periodic payments in the currency. And since that coordination of CoinJoin transactions is protected by encryption, it's nearly impossible for an outside observer to match up darkcoin payments with anyone's identity.

Gateway: drugs

Despite all of that, darkcoin's creator Evan Duffield says he's never intended darkcoin to be used for dark web drug sales. But he can't stop drug vendors from being attracted to its privacy properties. "Yes, it was accepted and implemented by these two markets. I can’t really control that," he says. "The goal has always been to make a currency that’s privacy-centric and is more for mass consumer base types of things. It’s not just for buying drugs online."

But he still sees Diabolus' and Nucleus' adoption of darkcoin as a positive sign for his budding currency system. Bitcoin, he points out, got an early boost from Silk Road, which accepted it long before more mainstream vendors like Dell and Overstock.com. Duffield points to dozens of websites that already accept darkcoin payments, many in exchange for private web hosting or VPN services to encrypt and anonymize internet traffic. "Early on with bitcoin the only thing you could do with it was gamble and buy drugs. Then it got past that and was accepted on many sites all over the internet," says Duffield. "The same thing is happening with darkcoin."

Adoption by the narcotics underground could give darkcoin a needed injection of demand: A speculative bubble brought darkcoin's price to more than $13 in May, making it the second-most valuable cryptocurrency after bitcoin at the time. But since then, its exchange rate has plummeted back to less than $2; all existing darkcoins are now worth close to $8 million.

Booms and bust in value, however, have never mattered to the privacy-sensitive dark net economy as much as they do to cryptocurrency speculators. A currency's privacy properties, after all, have little to do with its dollar value, as the black market Silk Road administrator known as the Dread Pirate Roberts said after a bitcoin crash in 2013. “Bitcoin’s foundation, its algorithms and network, don’t change with the exchange rate,” he wrote in a message at the time. “It is just as important to the functioning of Silk Road at $1 as it is at $1,000." That may be even more true of darkcoin, which is specifically designed to allow anonymous transactions.

Since the FBI takedown of the Silk Road in October of last year, next-generation cryptomarkets have been evolving and experimenting, using features like multi-signature transactions and even peer-to-peer selling systems to better protect transactions from surveillance. But bitcoin's fundamental privacy problems persist. Darkcoin, along with other anonymous money projects like Dark Wallet and the still-in-development cryptocurrency Zerocoin could change that.

The underlying demand for more financial anonymity means darkcoin may soon be adopted by more of the dozens of small marketplaces that now compete in the crypto-economy, says cryptocurrency consultant and privacy advocate Kristov Atlas, who recently performed an audit of darkcoin. While he doesn't expect the newly dominant Silk Road replacement sites like Silk Road 2, Agora, and Evolution to begin accepting darkcoin any time soon, Atlas argues it could serve as a differentiator for lesser-know sites. "People are becoming increasingly aware of the need for mixing services when they’re using these dark web marketplaces. They’re aware that bitcoin in itself is not completely anonymous," Atlas says. Darkcoin's early adopters, he argues, are a sign that it could fill that privacy void. "If you want to find out whether a currency is good, one of the first places you look is people who need to do things anonymously like criminals and drug dealers. It's a vote of confidence in darkcoin."