Silk Road forums

Discussion => Silk Road discussion => Topic started by: ChillyP on December 26, 2011, 01:31 am

Title: A viable way of reducing exposure to fraudulent transactions on SR
Post by: ChillyP on December 26, 2011, 01:31 am
As even a small amount of research will quickly indicate, the structure of the Silk Road marketplace is certainly less than ideal. The efforts to preserve anonymity while also conducting valuable transactions has led to an inherent vulnerability to fraudulent behavior, even by relatively established and widely trusted parties. I've spent some time thinking about this, and unfortunately never had any major breakthroughs about what kind of system would eliminate the problems inherent in this one. I do have an idea that I'd like to bounce around. I'll be the first to admit that there are holes in this approach, but perhaps we can get some dialogue going and maybe iron out some of the details better.

What I think might be a way of improving the success of transactions here is an idea that is borrowed from the world of finance. Part of the risk in the purchase of a financial asset is that it may become completely worthless in the future and that your investment will be wiped out, much like how the value of your purchase on Silk Road is wiped out by a scamming seller. One of the ways this risk is effectively reduced in the financial world is through a mechanism known as securitization. Here, the assets to be purchased are pooled together (specifically, their cashflows are pooled together).  Take the classic example of mortgages in this instance. It's always a risk when you lend someone money for a house that they might not be able to repay at some point. If you had a situation where one person was lending another the entire amount of the mortgage, that one lender would bear all the risk, just like one buyer assumes all the risk when buying from one vendor on Silk Road.

If, on the other hand, you have ten lenders, and ten people who want to borrow the money for homes, you can effectively distribute the risk around. All the mortgages are pooled together, and then each investor gets a share of the total cashflow. If one borrower becomes unable to pay, then the remaining nine mortgages that are still performing are split among the ten investors. Everybody loses a little, but nobody loses everything. Take the extreme case that 9 out of ten of these mortgages fail -- each investor will still get at least SOMETHING, instead of being completely wiped out.

It's not hard to imagine how this could be applied to Silk Road. Instead of you buying from a single vendor, a group of buyers could come together and decide to diversify the sources from which they are purchasing. For example, me and two other buyers could come together and decide we want to buy 10 grams of coke, or roughly an eightball apiece. Instead of buying it from one vendor, we split the order among the 3 vendors with the best feedback. All three orders are then sent to one  address, the product is evenly distributed, and then mailed out to the other parties. If one seller turns out to be a scammer, everyone at least still gets 2/3 of their order.  If the quality of one vendor was dogshit, then at least 2/3 of your order is good.

Obviously this opens up the possibility of the one person who initially gets all the orders being shady themselves. As far as structuring such a deal solely with other anonymous Silk Road buyers goes, I think that risk would be unavoidable (I'll return to this point). BUT! If you know some trustworthy people in real life who share your interest in the wares of Silk Road, this could effectively be minimized. For example, I could find some friends who wanted to get in on a buy, send out orders to x-number of vendors, receive shipment myself or get everything delivered to a trusted friend, and then split everything up. It's fairly unlikely to end up completely burned in this instance, unless you are poor at selecting friends :) . 

The tradeoff here is an extra layer of complexity for reduced risk. In the ideal world, every vendor would have accurately described product that would arrive after you initiated the transaction. History here has shown that this isn't the case and that you always risk being 100% burned in one-on-one transactions. I think this way of doing deals on Silk Road would work great if you have real-life friends that you trust. It could even be done with anonymous buyers on Silk Road if one of them had established a high level of trust. If you look at some of the big scams here, it seems that the vendors split once they have a fat stack of orders, probably thousands of dollars worth. In this system, at least there is a little bit less incentive to take everything and run, simply because the take would be much less than that (in smaller structured buys, anyway).

Thoughts?
Title: Re: A viable way of reducing exposure to fraudulent transactions on SR
Post by: 77Tjm on December 26, 2011, 04:51 am
Sounds complicated. Buying from established vendors via escrow seems to work pretty well (In my limited experience).
Title: Re: A viable way of reducing exposure to fraudulent transactions on SR
Post by: PumpkinYeti on December 26, 2011, 04:59 am
1) Use only VERY HIGHLY rated vendors (99 or 100).
2) Use ESCROW.

Will prevent 99% of scams I'd guess.

The system is already in place to do (1) and (2).
Title: Re: A viable way of reducing exposure to fraudulent transactions on SR
Post by: xKurtz on December 26, 2011, 11:43 am
I think its a good idea for a small group of friends who are new buyers and who are asked to finalize early, or as an added protection on top of escrow among friends, but I can't see it as being used elsewhere on SR or as a real replacement for escrow. By staying in escrow a buyer can often get a 60+% refund, which is about equal to your 2/3 example. I suppose a group could simply buy from a larger number of vendors, but the more vendors they buy from the greater proportion of their investment is lost to shipping and they would not receive any bulk discount. I can't see this being integrated into the SR system itself because it relies on trust among buyers, further complicating the buying process.

The cases of vendors splitting once they have a fat stack of orders can be guarded against by staying in escrow because long before the shipment failure is resolved, the scamming vendor would probably be exposed and the mediator would likely side with the buyer and withhold the funds. In my opinion, the real issue which escrow doesn't protect against is selective scammers.

Title: Re: A viable way of reducing exposure to fraudulent transactions on SR
Post by: Dobbs on December 26, 2011, 09:03 pm
I have been on SR for a little over a month.  I have 24 completed transactions.  I have never, ever been ripped off and have never ripped off anyone else.  I deal solely with cannabis products and only finalized early once but not at the request of the seller.  Of course not all product offerings are in the same class (even though they are advertised as being primo), that's part of the game.  No one stays in business if they constantly ship out crap.  Once in a while a good seller might get away with it but not for long.  Its a self fixing system if its used properly.
Title: Re: A viable way of reducing exposure to fraudulent transactions on SR
Post by: subdude on December 28, 2011, 12:57 am
After just 2 months now I have yet to be scammed. Someone once sent me what I guess was maybe 10 grams of methylone accidentally.  I had no way to return it for obvious security reasons. So..just to say, I tried it after research.  Wow!  Now I'm an occasional buyer. Point here is, if you do your homework right you can make out just fine here. If I find out you fucked someone over I take it as fucking over my organization.  I will help blacklist your worthless ass.