Hydra: Lessons from the world's largest darknet market

• Published date: 01 November 2023
• Author: Priyanka Goonetilleke,Alex Knorre,Artem Kuriksha
• Date: 01 November 2023
• DOI: http://doi.org/10.1111/1745-9133.12647

DOI: ./- .

SPECIAL ISSUE ARTICLE

CYBERCRIME AND CYBERSECURITY

Hydra: Lessons from the world’s largest darknet

market

Priyanka Goonetilleke1Alex Knorre2,3Artem Kuriksha1

Department of Economics, University of

Pennsylvania, Philadelphia, Pennsylvania,

USA

Department of Computer Science,

Boston College, Chestnut Hill,

Massachusetts, USA

The Institute for the Rule of Law,

European University at Saint Petersburg,

St. Petersburg, Russia

Correspondence

Alex Knorre, Department of Computer

Science, Boston College, Chestnut Hill,

MA , USA.

Email: a.v.knorre@gmail.com

Funding information

AFOSR MURI, Grant/AwardNumber:

FA---

Abstract

Research Summary: We present a comprehensive

description of Hydra, the largest darknet marketplace in

the world until its shutdown in April . Wedocument

the main features of Hydra such as dead-drop deliv-

ery,feedback and reputation system, escrow, and dispute

resolution. Using data scraped from the platform, we

quantitatively examine the scale and the structure of the

marketplace. We find that it has been highly competi-

tive, geographically covering at least % of the Russian

population and trading a wide variety of drugs, while

also allowing the wholesale trade of drugs and precur-

sors. The dead-drop delivery system used on Hydra was

expensive, as the courier costs comprised a substan-

tial proportion of the sale price of drugs on Hydra. We

contribute to the research on drug cryptomarkets by

studying an unprecedentedly large non-Western market-

place that existed substantially longer than any other

known darknet market.

Policy Implications: The phenomenon of Hydrashows

that shut-down policies applied to darknet marketplaces

have a large effect and implicitly shape the whole drug

market. Without these policies, a pervasivedigitalization

of the drug trade can occur. The major cost of allow-

ing marketplaces to grow is the probable increase in the

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

©  The Authors. Criminology & Public Policypublished by Wiley Periodicals LLC on behalf of American Society of Criminology.

Criminology & Public Policy. ;:–. wileyonlinelibrary.com/journal/capp 735

736 GOONETILLEKE  .

consumption of illegal drugs due to convenience for con-

sumers and facilitated cooperation between suppliers.

This cost must be weighed against the potential bene-

fits, including a higher quality of drugs, a decrease in

potential violence, and the incentives for a large market-

place to self-regulate. The case of Hydra also suggests the

relevance of financial regulation to limit the growth of

darknet marketplaces.

With the establishment of the Silk Road in , drug cryptomarkets emerged as a novel means

of the drug trade (Christin, ). Since then, the number of anonymous online drug markets

has expanded and online trade has become a common way to buy and sell illegal drugs (United

Nations Office on Drugs and Crime, ). A multitude of studies have examined the organiza-

tion of drug cryptomarkets (Aldridge et al., ), including the coordination between buyers and

sellers (Bakken et al., ) and methods to maintain marketplace trust such as reviews, ratings,

and escrow services (Barratt & Aldridge, ; Morselli et al., ; Munksgaard & Tzanetakis,

; Przepiorka et al., ). The research has also evaluated how parties in cryptomarketsavoid

risks related to law enforcement (Aldridge & Askew, ; Hutchings & Holt, ) and specifi-

cally the effects of law enforcement shutdowns of individual marketplaces.One important finding

from these studies is the resiliency of the online drug trade to law enforcement interventionswith

the closure of major vendors and marketplaces merely causing participants to migrate to alter-

nate vendors/platforms (Décary-Hétu & Giommoni, ; Ladegaard, ; Ouellet et al., ).

This has contributed to the debate on the effectiveness of the primarily coercive responses from

law enforcement, such as prosecuting sellers and marketplace administrators and shuttingdown

marketplaces. Given the finite resources allocated to combating illegal drug use, there is inher-

ently a policy trade-off. Hence, some scholars argue for dealing with illegal drug use through

the lens of harm reduction instead of criminalization and law enforcement, continuing a debate

that began prior to the onset of the online drug trade (Curtis & Wendel, ;Huntetal.,).

However, in assessing the impact of darknet marketshutdowns, the literature has focused on the

Western experience. Such a narrow focus without an appropriate counterfactual of what would

occur in the absence of these shutdown policies does not allow for a complete assessment of the

effectiveness of these policies.

This study addresses this gap in the literature by focusing on a single yet dominant drug

marketplace that existed for  years, was situated in Russia, did not have significant compet-

ing marketplaces, and was the largest drug cryptomarket in the world. Based on the available

evidence from media investigations and other nonacademic sources, prior to its shutdown in

April ,the majority of the retail drug trade in Russia was conducted through Hydra,the

largest darknet marketplace in the world at the time. Unlike their Westerncounterparts, Russian

drug enforcement appears not to have directly attempted to close Hydra, despite regular arrests

of low-level market participants, for example, couriers (VICE, b). As a result, Hydra existed

for a substantially longer period than any other popular darknet marketplace, thus allowing it to

grow significantly larger than any market that has ever operated in the United States or Western

Europe. During its years of operation, the marketplace developed an ecosystem that allowed for

anonymous communication between multiple segments of the drug market, from wholesalersto

GOONETILLEKE  .737

end consumers. While it only served the Russian-speaking world, the success of this marketplace

provides useful insights into the future of the retail drug trade and the potential implications of

allowing a darknet marketplace to grow and develop over several years.

Our paper describes Hydra in two ways. First, we providea comprehensive account of the orga-

nization of the Hydra marketplace and the core services and mechanisms that contributed to

its success. Operating on The Onion Router (Tor) network, Hydra facilitated the anonymity of

market participants by using cryptocurrency for payments and dead-dropsfor deliveries. At the

same time, Hydra was a marketplace with active self-regulation, a system of advertisement for

individual sellers/shops, and a feedback system of reviews and ratings for individual items and

sellers. It also employed dispute resolution and special statuses, such as “trusted sellers.” Finally,

Hydra attempted to provide its own version of conventional harm reduction strategies. It selec-

tively tested some of the drugs offered on the platform to ensurequality and provided telemedicine

consultations for customers.

Second, using listings and review data scraped from Hydra, we examinerelative demand across

drug types on the platform, the spatial and price variation of listings, and the composition and con-

centration of the drug market on the platform.We observed over , unique dead-dropped

drug packages throughout Russia in April  and found that mephedrone (%), cannabis (%),

amphetamine (%), and alpha-PVP (%) were the most popular drugs on the marketplace.Hydra

operated in , different settlements (cities, towns, and countryside) in every region of Rus-

sia, providing potential instantaneous accessto illegal drugs for % of the Russian population.

Larger cities had a higher concentration of sellers and drug listings. More expensive drugs were

distributed predominantly in wealthier areas, in particular around business districts. Wealso ana-

lyze the market concentration using the Herfindahl–Hirschman index (HHI) and find that the

online market of illegal drugs was extremely competitive, both in generalas well as at the level of

individual drug types and regions. We estimate a model to disentangle the distribution cost from

the sale price of drugs sold on Hydra. Wefind that the dead-drop system is a costly type of delivery;

for some drugs, the distribution cost accounts for more than % of the price of the median dead-

drop. Finally,we turn to reviews, which anecdotally were important for customers on Hydra. We

analyze the text of reviews and find that the language used by reviewers reflects multiple dimen-

sions of customer experience, while ratings left by users are usually less informative and skewed

toward the highest possible value of . Our findings suggest that it is the text of reviews that is

likely to matter.

We then turn to analyzing the implications of our findings for public policy. Hydra had been

a dominant darknet marketplace operating in Russia from its emergence in  until  and

developed into a sophisticated platform. A crucial effect of the shutdown policies exercised by

most governments is that no large marketplace similar to Hydra emerged in those countries.

Hence, Hydra allows us to better understand the benefits of these policies by serving as a counter-

factual for what could occur in their absence. Weuse our analysis of Hydra to highlight several key

components of the policy trade-off behind shutdowns. On the one hand, an established market-

place has incentives to self-regulate and presents an environment in which sellers haveincentives

to sustain a good reputation. This might increase the quality of drugs and the welfare of customers.

In addition, compared to in-person trade, online marketplaces are associated with reduced vio-

lence. On the other hand, a large online drug marketplace is likely to increase both the demand

for and supply of drugs due to convenience and decreased risks for customers as well as the facil-

itation of communication and trade between market agents on the supply side. Once participants

have shifted their transactions online, it appears that they readily migrate to new platforms.

In Section , we provide an overview of the current research on drug cryptomarkets, situate

Hydra within the context of this research,and review the history of the online drug trade in Russia.