Will Bitcoin lose it’s dominance on the darknet?

Bitcoin is the currency of choice on the multiple darknet markets. These are hidden sites mainly used for drugs and other contraband. Bitcoin’s psuedo-anonymity and decentralized nature make it appealing for online transactions of this nature. Bitcoin has been used extensively on the darknet since Silk Road launched in 2011.

A lot has changed since Silk Road. Cryptocurrencies have gotten more complex and improved on Bitcoin’s innovative design. In particular, cryptocurrencies Monero and Zcash both have built in privacy protection and absolute transaction anonymity that Bitcoin doesn’t have. Bitcoin has also recently had problems with high transaction fees and slow confirmation times, so these other coins will likely be able to handle more transactions simultaneously. AlphaBay, the leading darknet market, began accepting Monero in August 2016, and you can see the effect on the price in the chart:

monero_price

While users like the privacy features, the lower fees, and faster transaction times, they complain that the existing tools for Monero, like wallets, are hard to use and they have concerns about price volatility. As developers improve on these problems and the ecosystem evolves further, it’s not hard to foresee Monero getting more mileage. AlphaBay also recently began supporting Zcash.

Bitcoin still has some advantages at the moment. It was the first mover and first to achieve widespread adoption by users and marketplaces, thus every market accepts it. With adoption comes a community with tools and support. For example, while Bitcoin does not have the built in privacy features of Monero or Zcash, there are multiple coin tumblers or coin mixers that make it more difficult to track transactions (though these methods have their drawbacks). Bitcoin is also the easiest to exchange for cash using sites like Local Bitcoins. This means someone selling drugs would first have to exchange their Monero for Bitcoin in order to turn their profits in to cash.

The online drug marketplace was an early, substantial business use case for Bitcoin and what happens there may be a precursor for other markets. The darknet is a also big business, with some estimates that Silk Road alone pulled revenues of over $100 million per year. Right now, some competing currencies offer technical advantages over Bitcoin. Will users move to using these competing currencies or will Bitcoin maintain dominance?

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