Marketplaces on the dark web frequently processed more bitcoin transactions than BitPay last year, new research has found.

In a paper released this week, Kyle Soska and Nicolas Christin from Carnegie Mellon University revealed that even by conservative estimates the daily sales volume of six large-scale dark markets reached up to $650,000 in 2014.

The bitcoin merchant processor’s self-reported annual total, $158.8m, would produce a daily average of around $435,000.

The report reads:

“In the short four years since the development of the original Silk Road, total volumes have reached up to $650,000 daily (averaged over 30-day windows) and are generally stable around $300,000–$500,000 a day, far exceeding what had been previously reported.”

Previous studies have relied on the total number of listings on each site, however Christin and Soska estimated sales volume using sellers’ feedback scores, with each review counting as one product sold.

This was important, they say, as popular items could have numerous feedback scores that could even build up to over $1m in volume.

The chosen few

The researchers, who spent over two years scraping and analysing data from more than 35 different sites, also found a large discrepancy between their sellers.

A very small fraction – the elite – generated a significant profit. By contrast, the majority of sellers (70%) would never sell more than $1,000-worth of items.

“In fact, 35 sellers were observed selling over $1,000,000 worth of product and the top 1% most successful vendors were responsible for 51.5% of all the volume transacted.”

This has parallels with BitPay’s data, too. Rather than many smaller merchants receiving bitcoin payments, Tim Swanson, a visiting research fellow at SKBI in Singapore, suspects there are a select few retailers that account for the majority of its transaction volume, in line with the 80/20 rule.

In the firm’s most recent report, broken up by industry, gift card retailers accounted for 9% of its transaction volume. As there are so few gift-card-for-bitcoin services around, Swanson said, the lion’s share of activity in this sector was likely to come from just one or two of its 60,000 retailers, most likely Gyft and e-Gifter – the biggest on the market.

If this logic follows for the rest of the sections on BitPay’s chart, then it paints a view not of industries, but companies each taking up a share of its volume.

This appears to be supported by the number of small merchants, listed here, that have chosen to drop bitcoin as a payment option following poor sales.

Mixers, gamblers, spammers

Swanson came out with his best guess at the flow of money through the bitcoin ecosystem in April. What it showed was that merchant sales – illicit or otherwise – make up only a slice of transactions.

In actuality, bitcoin transaction volume that takes place ‘on-chain’ is dominated by a whole host of other services. The network is a test bed for many things – it costs very little to spam the network with tiny ‘dust’ transactions, for example.

The popularity of gambling sites such as Satoshi Dice, which at one point accounted for 50% of transactions on the network, continue. “In terms of on-chain transactions we know gambling transactions as a whole are likely the largest component of transaction volume,” Swanson said.

The same goes for bitcoin mixing services – of which there are at least seven in popular use. A study from Kristov Atlas released last September found that 2.6% of the 20,000 bitcoin transactions in his sample fitted the profile of SharedCoin transactions.

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