Darknet Guides

Understanding Multisig vs. Escrow vs. Finalize Early on Darknet Markets

Escrow, Multisig and Finalize early are the currently available payment options across various dark web marketplaces. It goes without saying that you should have already learnt how to use darknet markets before getting to the point of having to choose the method that you’ll need to pay vendors.

Just to brush through the entire process, you will need to get some crypto to spend as soon as you have successfully set your computer up to access Tor hidden services. The fact that you will probably be shopping for illicit items will mean that credit cards and PayPal will not work as payment options considering that law enforcement and third parties will easily trace the transactions back to you.

As such, the currency of choice is normally Bitcoin, or any of the other alt coins. Their use will depend on requirements of a particular dark web market in addition to vendor preference.

Bitcoin allows users to create a wallet without revealing your identity, although it is not as entirely anonymous as people expect. This is because all payments that have ever been made by users are typically stored on a public blockchain that’s viewable by anyone.

The best fix for this issue would be to utilize a Bitcoin mixing service when moving digital currency to your preferred marketplace shopping wallet. This process will make it extremely difficult for any law enforcement agent to figure out the origin of the cryptocurrency.

Otherwise, you may opt to use the more private crypto like the Monero (XMR) cryptocurrency.

You will have to take note of the fact that some markets, like AlphaBay, only support Monero. The main reason why such market operators choose this crypto over other alternatives is because of its anonymity and lack of traceability.

Figure 1: Monero is the mandatory and default payment option on AlphaBay Market.

Point to remember, privacy has been a major concern about virtual assets considering their central application across dark web marketplaces. The structural properties of the Bitcoin cryptocurrency makes it a far less safe option compared to Monero.

Even though Bitcoin transactions are not tied to the personal information belonging to their users, the transactions can be associated with user wallets. This defeats the crypto’s privacy in that law enforcement agents may easily expose a user’s identity through a number of methodologies.

On the other hand, Monero boasts a stealth address feature that make the virtual currency an idea candidate for darknet transactions. Stealth addresses are one-time addresses that cannot be traced back to the previously used address.

In case you are wondering about how you’ll be able to fund your wallet in order to start using Monero-only dark web marketplaces, be sure to check out our guide on how to buy Monero.

Otherwise, for Bitcoin, you will need to purchase some coins off a peer-to-peer exchange like LocalBitcoins (See below) or a wallet service with a built-in exchange such as Coinbase.

Figure 2: The Quick Buy page on LocalBitcoins

Obviously, some of the peer-to-peer crypto exchanges will require you to provide some form of identification in order to buy coins on their platform. The fact that you will be buying stuff over illicit darknet marketplaces will create the need for you to avoid the scenario where your purchases are tracked back to your real-world identity – be sure to transfer the purchased coins to the marketplace of your choice through a “coin mixer”.

Crypto mixing services tend to be very simple to use in that you will give the deposit address of your preferred marketplace to a coin mixing service that will provide you with a new address after scrambling your coins to ensure that they will not be traced back to your real world identity. For this, you will have to part with a percentage on each transaction that you will conduct.

The point to remember when working with peer-to-peer exchanges and crypto mixers is that prices may change a little from the time you buy the cryptocurrency and when you use them to buy stuff on a dark web marketplace. This means that when planning to buy a specific product, it’s advisable for you to exchange more than you need to take care of such a possibility – the extra coins can be sold later anyway.

Basics of Payment Systems on Dark Web Markets

Dark web transactions are always happening between strangers on the internet. It goes without saying that dealing with strangers online demands that you take extra care lest you get scammed – this happens a lot in dark web marketplaces.

Figure 3: A scammer alert posted on the Dread forum by a reputable DarkOde Market vendor.

The abovementioned reality drove dark web operators to figure out a system to stop vendors from taking buyers’ funds and disappearing without bothering to ship the products that were ordered.

One way that the problem of vendor scams is avoided is through the reputation systems that differ from one market to another. For instance, ToRReZ market utilizes a vendor ranking system that can help buyers make informed decisions by making sure that they only choose to deal with sellers that boast a good image as experienced vendors.

It is expected that high ranking vendors will guard their reputation as a high value asset and will be very unlikely to sacrifice it by trying to scam users (See below).

Figure 4: The vendor ranks tallied against items sold on ToRReZ market.

However, this does not mean that vendor reputation is the only thing to consider when buying from dark web markets because it turns out that a good reputation can be manipulated or entirely faked.

This brings us to the point of choosing a payment method that will not lead you to losses. The Escrow method is currently an industry standard on darknet markets that involve a trusted third party (typically the platform’s admin) to serve as an arbitrator between a buyer and seller whenever a disagreement arises.

The majority of dark web sites employ a central escrow service, which has a third party taking control of the crypto that you are paying with until you hit the finalize button to signal that you have received the goods you ordered.

In case the product you ordered does not making it to your destination, you will then get in touch with the escrow provider to request for a refund. This method goes a long way to prevent the possibility of vendors scamming people at the point of good delivery, although it introduces the new problem of the escrow agent disappearing with user funds – be sure to use only the recommended escrow sites to prevent the possibility of losing your funds in this manner.

Otherwise, some dark web marketplaces allow vendors with a very good reputation to require their buyers to Finalize Early. This method eliminates escrow protection.

The safest alternative to all the above is Multisig that demands some technical skills and knowledge to set up. It is also noteworthy that not all marketplaces are currently supporting this payment option although it protects buyers against any risk that an escrow provider will steal your crypto.

Escrow vs. Multisig vs. Finalize Early

A 2020 Digital Shadows analysis into the landscape of dark web markets highlighted the relationship between payment methods and user popularity. On the surface, it appears that darknet platforms that offered all three payment methods (Escrow, Multisig and Finalize Early) stood the test of time in taking over from Empire Market that exit scammed users.

DarkOde and ToRReZ markets, which have now replaced White House Market that closed down recently, support both Multisig and Finalize Early payment options (See below)

Figure 5: Table showing the dark web markets that support multisig to prevent the risk of exit scams.

As such, the Digital Shadows report indicated that Dark0de Reborn, Canada HQ, Monopoly Market, The Versus Project, and ToRReZ market fit the Dread guide’s criteria for their use of Multisig and preventing the risk of exit scams like Empire.

However, Icarus Market had at least three times the number of listings on each platform, with over 35,000 listings as of September 2020. This figure increased from 25,000 to 35,000 just in the space of one month. Icarus also had above average commission rates and allowed popular payment options: Bitcoin, Litecoin, and Monero.

Interestingly, the 2020 findings showed that Monopoly and the now-defunct White House Market rated highly owing to their use of the Monero cryptocurrency as a strict security measure. This was notwithstanding the fact that White House Market never supported multisig payments.

Escrow System

As mentioned already, the escrow system involves a dark web market holding a user’s funds during a purchase. As a user, once you confirm receipt of the goods you ordered, you will ask the platform to finalize the order and pay the seller.

Take note that orders may get finalized automatically after a certain period of time in cases where a user forgets to finalize manually. This works to prevent scenarios where vendors are kept waiting for ages before they receive their money.

In case you do not receive the product you ordered or are having some problems with it, you can always dispute the trade. This action will prevent the order from getting auto-finalized and you will have the opportunity to resolve the matter via the darknet market’s staff.

Once the market staff member gets in touch with the vendor to figure out a solution to the matter, they will go ahead and implement a number of actions.

Using ToRReZ market as an example: In cases where both vendor and buyer fail to reach an agreement, the platform’s admin will step in to make a decision of which party will win the argument. Here are some of the actions that can be taken to that effect:

  • Conclusion of the dispute with no blame being placed on either party. This will also mean that funds will be sent back to the buyer as no one will have lost the dispute.
  • The dispute can be closed with blame placed on either the vendor or buyer. In this case, funds will be sent back to the buyer but the market’s admin will penalize either the buyer or the vendor by increasing the tally on the number of lost disputes. This will definitely have a negative effect on the online image of the user in question.
  • Finalization of the order where funds will be released to the vendor and none of the parties will suffer punishment from the market admin.
  • An order will be finalized after a dispute is lost – funds will be released to the vendor but the market admin will prescribe a penalty to either the buyer of vendor by increasing the tally on the number of lost disputes.
  • Sometimes, a split refund may be done by the admin. It denotes a scenario where funds get split between buyer and vendor according to the respective item’s refund policy. This will also mean that none of the parties will bear the burden of a penalty.

Otherwise, the buyer can also choose to close and finalize the Dispute without assistance from the site admin.

Disadvantages of the Escrow System

The first disadvantage of Escrow is the risk that the trust given to the guarantor is misused. The case of AD0 vs. Sodinokibi highlighted the major weakness of escrow systems, that even when transacting parties conduct their due diligence and choose a guarantee with very good reputation, the possibility of being disappointed is still real.

The AD0 arbitration was more devastating considering that AD0 had spent many years building their credibility as the go-to transactional guarantor. In fact, they had made quite stellar name in the industry to the point of being considered thought leaders in Escrow – their alias was used severally as a byword for the Escrow process.

As reported by Digital Shadows, the AD0 case created massive ripples in the dark web community, specifically within the Russian-language underground spaces, where the long-held beliefs about the reliability of Escrow systems were ultimately questioned.

A number of dark web markets have tried to fix the challenges posed by traditional Escrow systems by automating the process. For instance, the now-defunct darknet marketplace MarketMS allowed users to dispute the quality of goods they received in order to get refunds.

According to its concept, the funds were not credited to a vendor until the 72-hour time window lapsed following a successful purchase. During this time, the buyer would initiate an arbitration case or decide to conclude the transaction. It turns out that this system was preferred by vendors that wanted to project a positive image to buyers looking to deal with trustworthy vendors.

Nonetheless, many dark web users seemed sceptical about using a fully automated Escrow system, they would only opt for it in cases where they are making inexpensive purchases. It turns out that many cybercriminals prefer getting a third party involved in their transaction rather than dealing with a fully automated system.

The other disadvantage with the Escrow system can be seen from the lens of the vendor. Using an Escrow service means that the vendor loses money through the commission charged for every transaction. Some Escrow service providers charge as much as 10 percent commission on all transactions, which obviously dents vendor profits.

For dark web platforms that designate a particular user to serve as their market’s guarantor service or offer an official system, one of the risks is pegged on the fact that the platform will need to assume financial responsibility for the actions of the said user. When such a guarantor fails to operate as expected, the dark web site will take the blame.

Finally, it is not very easy to find people offering to provide Escrow services. This can be a problem in cases where the buyer and seller do not have all the time in the world to complete a transaction.

As such, the transacting parties may be forced to endure long waiting times in the process of contacting a guarantor, filling out forms and waiting for the user to get online after finding time to play their role in a buyer-vendor transaction. In fact, the hustle of serving as a guarantor is so hectic that many dark web operators choose to hire other people to do the work on their behalf.

Multisig System

Multisig, also referred to as Multisignature, is considered to be a better technology than basic Escrow. It is typically employed by users looking to enhance the security of their Bitcoin transactions. Multisig addresses demand another user or users to sign a transaction before it can be broadcasted into the blockchain – the actual number of signatures is decided at the very beginning once the parties agree to create the address.

Multisig allows users to create 2-of-3 Escrow services when exchanging funds for products or services. Using a hypothetical example, when Buyer A is willing to pay Vendor A, the buyer will clear a transaction to a Multisig address that demands a minimum of two signatures from three parties (Buyer, Vendor and the Dark Web Market) in order to release the funds.

In case the Buyer and Vendor fail to agree on who should receive the funds (say Buyer A is demanding for a refund yet Vendor A is sure that they fulfil their obligations and deserve to be paid), both parties can appeal to the Dark Web Market.

The Dark Web Market will grant their signature in favour of either party so that either Buyer A or Vendor A can redeem the money after a dispute resolution process is complete. The difference between basic Escrow and Multisig systems is that for Multisig, no one will disappear with your funds because a transaction can only occur when two parties are involved (can be the Dark Web Market and Buyer A or the Dark Web Market and Vendor A or Vendor A and the Buyer).

There’s a number of factors that make Multisig outcompete basic Escrow services. They include:

  • Multisig prevents a scenario where markets and vendors exit scam buyers. This is a critical selling point considering how common exit scams on the dark web have become. With escrow, the market operators can decide to disappear with user funds without a trace.
  • In cases where a dark web marketplace is taken down for whatever reason, be it an exit scam, law enforcement operation or a devastating Distributed Denial-Of-Service (DDoS) attack, the funds held in Multisig will not be lost forever, stolen or confiscated by the police. As such, their owners may still be able to access if the buyer and vendor decide to contact each other and work together to redeem the funds – this will happen if they had already saved data about their transaction.
  • Multisig ensures that user funds remain protected is a threat actor succeeds to breach a dark web marketplace. In the case of basic escrow, an experience hacker will be able to steal user coins.
Figure 6: A Reddit user provides a simple illustration of why Multisig is better than basic Escrow.

Finalize Early

As a dark market user, choosing to Finalize Early will mean that you will give all your money directly to the vendor that you are transacting with. The vendor will get money as soon as you make the order – the analogy of giving a street dealer your money and letting them go round the street to get your product.

Quite obviously, this is very risky considering how easy it is to get scammed by a vendor that will choose to take advantage of the trust that you have accorded him. A vendor who has not built a credible image on a dark web market will most likely scam you because they will have little to lose once you expose.

Also, if you own a buyer account that has not registered a considerable number of successful orders or a reputable history, unscrupulous vendors will be happy to scam you.

Considering the fact that your account will not have gained enough credibility on the platform, you will easily lose your money because not one will believe you once you make a report that you were scammed by a vendor through Finalize Early.

Point to note, a number of vendors have been known to entice users to employ Finalize Early by offering considerably low prices for the same items that would cost more with basic Escrow or Multisig systems. As a rule of thumb, do not fall into this trap if you have not yet figured out whether Finalize Early will work for you.

The above scenario is quite common despite the fact that users are continuously discouraged from engaging Finalize Early when dealing with relatively new vendors on a dark web marketplace.

When Can You Finalize Early?

The clearest answer should be that when you are absolutely fine with possibly losing your funds, or your order, to a scammer.

Using an example, let’s say that you have $15 in your market wallet and you come across an attractive offer on the platform – such as a vendor offering to sell a small amount of drugs for the same amount you have in your wallet as an introductory offer. You may use Finalize Early to order the stuff and suffer a small dent in your wallet in case the drugs are not shipped to you.

You can also use Finalize Early in instances where you are 100 percent confident that the vendor you are dealing with will ship the goods you order from them. This is a very important consideration to make because you are best placed to understand exactly what basis your trust for such a vendor is built upon.

Still, take note that a number of reputable vendors have been seen to make Finalize Early as a requirement in their product listings but have gone ahead to scam users. An example of the famous vendors is LucyDrop who had created a robust reputation as an LSD seller.

LucyDrop used only Finalize Early whilst taking orders for three months with zero complaints from buyers. After some time, he stopped shipping orders and took off with more than $1 million in Bitcoin.

The above example serves an important lesson to all buyers that they need to careful when using Finalize Early even when dealing with trusted vendors.

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