Social Studies
Black Markets
Introducing Markets
Black Markets
Introducing Markets
- Essential Questions
- Do all markets function the same way around the world?
- No they do not, there are lots of markets that function differently around the world. These can range from free markets, to closed markets and political influences as well (i.e Capitalism vs. Communism)
- What (or who) determines the prices of goods and services?
- That depends on the market system. Within a closed market, major government control means that it is the government that ultimately decides the price of a product. Within a free market, it is the producers and consumers that decide the price, based off the factors of supply and demand and consumer input.
- What is money – and where do the different types of money derive their value?
- Money is very oftenly mixed with currency in the modern world, currency is any legally backed system of money, such as the dollar or euro that has value within a certain marketplace. This differs from physical goods, such as gold or silver, which are called commodity money. Money is any form of accepted payment for a good or service, historically, money might’ve been a barter system. This was a system where people traded things to gain others, such as 1 oxen for 1 kilogram of sugar.
- To what degree can governments control prices or quantities of goods and services exchanged?
- Within the modern world, that degree also depends on the marketplace. In places such as Switzerland and Singapore (countries that promote free economies), the government has limited degree in controlling prices. They are still capable of placing trade embargoes on the goods or banning it completely from being sold. In places such as China or North Korea however, the government has a tight grip on all of those factors, ranging from whether or not the good can make it to the marketplace to the specific amounts of goods that will be produced.
- Do all markets function the same way around the world?
- Key Terms to Learn
- supply | demand | deadweight loss | regulation
- Supply: A measure of how much a particular resource, good, service or product can be provided to a population. Along with demand, this is a key factor in deciding prices, quantity and quality of goods.
- Demand: The desire of producers, consumers and marketplaces of a particular service, good or product. Along with supply, demand will decide prices, quantity and quality of the final good in a marketplace.
- Deadweight loss: A term used to describe when supply and demand are not in equilibrium. Specifically, this is when consumers feel like the price of a good or service is justified when compared to the actual usefulness of the product. Thus customers are less likely to purchase the product, causing demand to go down. Meanwhile, the inefficiently allocated resources mean that there is a reduction in the overall welfare of a society. Most causes of deadweight loss are blamed on the government, these include laws such as minimum wage, price controls, living wage and taxes.
- Regulation: Essentially a system of government control over a marketplace, regulations are the use of law by the government for various economic places. These range from preventing market failure, stopping illegal transaction/purchases, instigating rules on environmental protection and defining what is and isn’t allowed.
- perfect competition | imperfect competition | monopoly
- Perfect competition: An almost utopian concept, Perfect competition is a market structure in which five key criteria are met: 1. All firms sell an identical product 2. All firms have no control over the price of their product 3. All firms have a relatively small market share 4. Clients have complete information about the products and the prices of each firm 5. Firms are allowed to enter and exit the marketplace at their own will. Sometimes referred to as pure competition, perfect competition is the opposite of monopoly and allows for a sustainable marketplace.
- Imperfect competition: Every single market in the world right now has imperfect competition, since they do not meet all the requirements for a pure competition market listed above.
- Monopoly: Monopoly occurs when only 1 firm dominates an entire sector, sale of product or industry. Monopolies are characterized by the lack of any competition and the ability for that firm to control the price of their product. Governments are sometimes responsible for establishing monopolies, yet it is considered their economic duty to prevent such a system from ever existing.
- taxes | tariffs | embargoes | sanctions | arbitrage
- Taxes: Perhaps one of the most well-known terms of economic matters, taxes are involuntary fees placed on corporations and individuals within a population in order to finance government activities and decisions. Tax Evasion is when one does not pay their due taxes and is punishable by high fines or even imprisonment in most countries. There are 3 main types of taxes (excluding Tariffs, which are defined below). The first of these is Income Tax, which is a percentage of individual and corporate earnings given to the government. The next is Sales Tax, which are taxes placed on certain goods or services. The final one is Property Tax, which is based on the value of land and property assets an individual or firm has. Beneath these three however, lie many more concepts of tax. The most common amongst the developed world right now is progressive tax, wherein the Income Tax percentage changes based on an individual’s income rather than remaining the same for everyone.
- Tariffs: Simply put, a tariff is a tax placed on imported goods and services. Tariffs are a good way for governments to strengthen local businesses by discouraging any foreign products from entering the country. A specific tariff is a fixed fee based on the good or service (i.e $500 on any automobile), while an Ad-valorem tariff is established based on a certain percentage of the price of the product (i.e 15% of a furniture’s value).
- Embargoes: As discussed within History, an embargo is a government act that bans trade or commercial activity to any country. One example of this would be the recent Qatar embargo, wherein many Middle Eastern states forbid any firms from trading with Qatar.
- Sanctions: Embargoes fall under the category of this topic. Sanctions are penalties imposed by a government on foreign states. There are several different types of sanctions, all of which were discussed in History, but the most relevant ones here are the five types of trade sanctions. Firstly, trade sanctions are penalties imposed by governments on other countries (they can be unilateral, one country to another, or multilateral, many countries to many others). These trade sanctions can include quotas, tariffs, non-tariff barriers (NTBs), asset freezes, seizures or embargoes. Quotas are regulations regarding the quantities of goods that can be imported or exported within a specific period of time. Tariffs are, as defined earlier, high import taxes on certain goods to limit foreign competition. Non-tariff barriers are restrictions/requirement on goods that do not take the form of a tax, these include licensing, packaging and product standards. Asset freezes (otherwise known as seizures) are preventing assets from a certain country or corporation from being moved or sold. We discussed embargoes in History and above, but these are basically complete bans on trade between two nations or a corporation.
- Arbitrage: In unequal markets, arbitrage is the economic term used to describe the simultaneous purchase and sale of any asset by either a corporation or individual. By doing so, the responsible party benefits from exploiting the price differences throughout different markets. Arbitrage is the offspring of market inefficiency, where one exists, the other is bound to be present.
- bazaar | souk | exchange | swap meets | boot sales
- Bazaar: Getting into the more physical aspects of economics, a bazaar is an enclosed marketplace or street where goods and services are sold. Originating from Middle Eastern countries, bazaars are now key parts of a lifestyle in North Africa and Middle Eastern culture. Bazaars generally sell a variety of goods, though specific bazaars also exist where dozens of firms sell the exact same good.
- Souk: Similar to a bazaar, a soul is an open marketplace where many different firms sell either the same or different goods and services. Like the bazaar, Souks originated from Arab culture. Seasonal and permanent souks exist, with the former only being around for as long as the good is available (i.e a certain Spice souk only existing for as long as the spices are in season). Unlike the bazaar however, souks are open, meaning that there is no cover to protect producers and customers from the climate.
- Exchange: This can refer to any of the multiple definitions of exchange. To be on the safe side, I will explain all of them. The first is a straight exchange, where a product or service is obtained by the payment of an equivalent product or service (i.e exchanging a single cow for 2 kilograms of wheat). The second is more economical, wherein the currency of one country is given in order to obtain the equivalent amount of currency in another country (i.e exchanging 1 US Dollar for 32 Thai Baht). The final definition is that an exchange is a system or marketplace in which commercial transactions of goods, services, commodities, currency and shares can be carried out between two or more countries.
- Swap meets: Commonly referred to as a Flea Market, a swap meet is a type of bazaar or marketplace where individuals can rent space to sell or barter (trade) merchandise. The goods sold here usually include antiquities, used goods, cheap items, collectibles and sometimes fake goods.
- Boot sales: Otherwise known as Car Boot Sales, this is an informal marketplace popular in the UK where individuals come together to sell household and garden goods. They’re known as car boot sales because each individual usually sells their goods out of their car boots.
- stock market | futures market | trade agreement
- Stock market: Honestly, I have no idea how to define a stock market. Essentially consider this a marketplace where the issuing and trading of stocks that public companies are occurs. If you wish to research this topic even further, be my guest.
- Futures market: Similar to a stock market, a futures market is where people join auctions to buy and sell commodities and future contracts that will be delivered on an agreed date sometime later. Examples of this type of market include the New York Mercantile Exchange, the Kansas City Board of Trade, the Chicago Mercantile Exchange, the Chicago Board of Options Exchange and the Minneapolis Grain Exchange.
- Trade agreement: Self-explanatory, a trade agreement is a contract or other document regarding trade between two or more countries. Bilateral (two countries only) or multilateral (more than two countries) trade agreements are usually characterised by the Free Trade type. Within this type, both countries agree not to impose any sanctions on one another.
- laissez-faire | optimal functionality
- Laissez-faire: Essentially the French term for a free market, Laissez-faire is an economic system/marketplace where the private parties are free from government intervention. Such intervention includes regulation, privileges, tariffs and subsidies. The term originates from a French phrase, loosely translating to “let (it/them) do it” but in the economical context it is better defined as “let go”
- Optimal functionality: Similar to the same phrase used in science, optimal functionality is essentially when a corporation is able to balance how much is input into the production of a good/service and how much of that good comes out the other side of the production facility. This may also refer to the specific point that companies need to meet demand but sustain supply as well.
- supply | demand | deadweight loss | regulation
- Essential Questions
- Where do contracts derive their authority?
- This is one of the more critical thinking questions that can’t just be researched and answered directly. Contracts mostly derive their authority from the two nations that sign it, with the diplomats shaking and signing documents that represent an official agreement between two states. The authority inside the contract itself is usually in the form of consequences, wherein it is clearly stated what will happen to the signatory who violates any of the contract’s terms.
- How do contracts vary between countries?
- Generally speaking, it is the style in which the clause is written that differs between countries. This includes the language, clauses and division of certain parts of the contract.
- Do all contracts imply a transaction of some sort?
- Yes, contracts are by definition legal documents that stipulate some sort of transaction between two or more parties. Any legal document that does not include this will not be considered a contract.
- How are contracts negotiated? Be sure to explore the basics of negotiation.
- Essentially, contracts are negotiated much the same way you would haggle with a storekeeper for a better price. The parties would lay out their offers and if the other one accepts, then they will usually shake on it before an actual paper is written up. Once the paper is written up are signed, then the contract has officially been enforced and will remain so until it becomes invalid.
- Does every contract have an offer and acceptance? If so, does an offer need to be explicitly accepted for the contract to be binding?
- Firstly, in the field of contract law, offer and acceptance are the building blocks behind every contract. An offer is when a firm or shop makes an open call to anyone willing to accept the promise of the offeror (i.e a 15% discount on a book) and acceptance is when an offeree agrees to be mutually bound to the terms of the contract (i.e paying the discounted price for the car). Most contracts are done in this way, with one party making their offer and the other either accepting it or making another offer. Similar to a game of tennis, offers will bounce back and forth until one part finally agrees, or accepts, the terms of a contract. As for the second part of the question, an offer does need to be explicitly accepted by both parties for the contract to be legalized and binding. When shaking on a deal with a new landlord (or any contractual agreement), both parties need to express that they are willing to accept the terms of the contract before it can be binding.
- Are offers on the market contractual obligations?
- Contractual obligations are the duties that each party is legally responsible for within a contract. For example (following on from the car example above), if you pay the price for the car and a receipt (in this case the contract) is given, then you cannot return the car expecting a refund and the shopkeeper cannot demand it back without any further legal issues. In this way, even offers on the market are contractual obligations, as you are not only willing to accept the offer, you are also aware of the duties entrusted to you when the contract is binding.
- Where do contracts derive their authority?
- Key Terms to Research (Examples)
- formation | offer | acceptance | agreement
- Formation: The term used to describe the process of a contract being formalized or written up.
- Offer: As discussed above, an offer is an open call to the opposite parties willing to accept the promises of the offeror. These include prices, discounts, terms and conditions
- Acceptance: The next stage in the process, this is where a person willing to accept the offer comes forward and accepts the terms of the contract. Thus making him/her/they legally bound to it.
- Agreement: The agreement is where both parties finally explicitly acknowledge their willingness to be mutually bound by the contract. In some cases this may be a simple handshake, verbal communication or signing.
- rights | liabilities | breach | estoppel
- Rights: With obligations comes rights, to all parties who signed the contract. Rights are the privileges or specific actions you are allowed to take without any penalty or legal punishment. These rights are usually required by the law or decided on by both parties. In working contracts for example, these rights include the right for paid holidays and rights to minimum wage.
- Liabilities: Similar to obligations, liabilities refer to the responsibilities an individual or corporation has in a contractual agreement. These include actions that hold the violator capable of being prosecuted or held for compensatory payment. For example, if after you purchase a warranted product it breaks, the company has the liability of fixing or replacing that product due to the contractual conditions.
- Breach: When one party does not adhere or honor the rules of a contract, then a breach of the contract has occurred. These breaches can come in the form of a party violating the terms and agreements or refusing to be held liable despite contractual rules. When this happens, the contract is then invalid and the violating party can then be prosecuted by the law. A minor breach occurs when a party does not live up to the expected performance/specifications of the opposition (i.e a mechanic hired to replace a car part with a specific one uses another one that doesn’t negatively impact the performance). If this occurs, the violator cannot be sued for specific performance, merely actual damage (i.e you cannot tell the court to demand the mechanic replace the car part with the desired one, you can only recover the price difference between the car part the mechanic used and the one you wanted them to). In a major breach however, is when a party violates a condition within the contract (i.e if the contract explicitly stated the type of car part to be used as a replacement), yet the violator can still only be sued for actual damages.
- Estoppel: A legal rule of evidence which prevents a party of a contractual agreement, held in court, from making denials or claims that contradict the truth. Estoppel also is used to support a claim for damages of the violating party by the other party(ies) in the contract.
- duty of care | condition | consideration | capacity
- Duty of care: Falling under obligation, duty of care is the responsibility of a party to avoid acts that would harm other parties/individuals involved in a contractual agreement. This includes the manufacturer’s duty to ensure the product is safe and non-hazardous, or the consumers’ duty to maintain good care of a product (especially if it’s an organic one).
- Condition: Much like business deals, conditions are possible future events that, when it occurs, will decide the existence or expiration of obligations, liabilities and rights. So for example, on the condition that your new Macbook breaks within 2 years, then Apple has the obligation to fix it or replace it.
- Consideration: After offer and agreement are successfully passed, consideration is the payment/exchange that must be made in order for the contract to be legally binding and valid. In most everyday agreements, this takes the shape of money, while historically it might’ve been a trade of objects.
- Capacity: A person’s legal ability to sign/make a contract. Anyone deemed incapable or incompetent of following through with a contract (including the mentally ill or legal minors) are then not allowed to sign said contract.
- terms (implied vs. express) | misrepresentation | duress
- Terms (implied vs. express): Expressed terms are terms that are explicitly stated, either by a verbal exchange or in the writing of a contract. Implied terms are not expressed with such obviousness, as they are clearly obvious to both parties in the contract (these include the mutual trust between the signatories and confidence that they will uphold their parts of the contract).
- Misrepresentation: In the signing of a contract, a misrepresentation occurs when one party (usually the offeror) makes a false statement or promise that contradicts the facts (i.e a landlord promises 20 acres of farmland, when instead it is actually 15 acres of commercially valued land). When misrepresentation occurs, the violator can be sued for monetary losses made by the purchase/exchange. But the main condition that warrants the liability of misrepresentation is that the client was relying on the claims of the offeror for the purchase.
- Duress: Duress is essentially the coercion of contractual law. Duress is the term used to describe wrongful pressure or threats made to a person or corporation, forcing them to enter an agreement they wouldn’t if given free will. If duress is found, then the contract is null (invalid) and the aggressor will most likely be persecuted by the law.
- collateral | quid pro quo | caveat emptor | force majeure
- Collateral: This can refer to several things, within the world of economics, collateral is material pledged by a borrower to a lender of a loan in case the borrower is unable to repay the loan in a specified amount of time. In contractual fields however, a collateral contract exists as a secondary agreement to the main contract, mainly used to persuade a person to enter the main contract in the first place.
- Quid pro quo: A latin phrase that translates to “this for that”, quid pro quo is essentially the mutual consideration (payment/exchange) that occurs between the parties of a contract, thus making the agreement binding, legal and valid.
- Caveat emptor: When a product does not have a warranty, then the buyer assumes responsibility for checking the quality and safety of said product before deciding whether or not to make the purchase and sign the contract. Another latin phrase that translates to “let the buyer beware”. In contracts, this will usually mean that both parties are responsible for ensuring that the payment made is true or the exchange of materials is genuine.
- Force majeure: Yet another latin phrase that means “superior force” is essentially a black swan event of sorts (remember that from last years’ social studies?). Essentially a force majeure is a clause within a contract that frees all parties involved from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs that prevents them from carrying out those obligations. These event include war, riots, strikes, crimes and events described by the legal term “act of god” (any natural disaster).
- smart contracts | oral contract | written contract | adhesion
- Smart contracts: With the world of technology constantly allowing many legislative and economic interactions to take place more efficiently, the world of contracts are no different. A smart contract is a computer protocol with the aim of facilitating, verifying or enforcing the negotiation and performance of a contract. Smart contracts also allow for transactions of considerations to be made without a third party necessary.
- Oral contract: Rather self-explanatory, an oral contract is a contract where the terms and conditions have been agreed upon by verbal communication, usually agreed upon by a shaking of hands. Although it is increasingly common for governments to require a written proof the contract being made, either evidence that the oral contract was made or an actual document being written.
- Written contract: The more common type of contract, a written contract is a contractual agreement made on a document stating the terms and conditions of the transaction, usually agreed upon by signatures of both parties.
- Adhesion: Otherwise referred to as a standard form contract, a contract of adhesion is when only 1 party determines the terms and conditions of the entire document, with the other party unable to negotiate more favorable terms. Thus this creates a “take it or leave it” situation where the less powerful party must either sign the contract on unfavorable terms or risk losing the agreement.
- legal regulation | statutory regulation | formalities | remedies
- Legal Regulation: Some contracts might contain clauses regarding legal regulations in the case of a violation of terms and conditions or obligations. These are regulations set by the government regarding the legal action appropriate for a violation of the contract.
- Statutory Regulation: The process of checking and ensuring that a business is following official government rules by a government organisation. If the business is found in violation of the law, then it is highly likely they will be forbidden from making any contracts and the public will be warned accordingly.
- Formalities: The formalities in a contract are used to describe the necessary elements needed for the contract to be considered legal and authentic. In history, these meant sealing contracts under wax seals or written impressions of a seal (these contracts that were “signed, sealed and delivered” were considered higher priority than simple written ones) in recent years with the rise of technological platforms (see smart contracts), formalities have been relaxed a lot on contract writing.
- freedom of contract | sanctity of contract | reasonableness | negligence
- Freedom of contract: A cornerstone of laissez-faire economies, freedom of contract is the freedom of public or private individuals or groups to form contracts without any government restrictions. These include price-fixing, minimum wage or competition law.
- Sanctity of contract: The idea that once parties have signed a legal, binding contractual agreement that they honour their obligations under the contract as opposed to breaching it and simply paying for the damages.
- Reasonableness: When a party is unable to meet the obligations, the standard of reasonableness gives them a chance to explain the reason behind their performance (or lack thereof) in an effort to avoid overly strict clauses or legal consequences. Whether or not the provided reason is enough to escape the law is determined by an experienced third party, generally a court.
- Negligence: Commonly confused with breach of contract, the difference between that and negligence can be summed in these two questions. Breach of contract asks “did you deliver what you said you would?”, while negligence asks “when you delivered goods or services, did you make errors in doing so?”. Take this example, if a firm agrees to sell you a computer but then sells that computer to another person at a higher price, then that is breach of contract (as the agreed good was never delivered). Negligence would be if that computer was damaged in the process of delivery. Negligence and breach of contract are confused in court cases, where both can be ruled to the violator. Since the firm agreed to deliver a working computer, if it turned up broken then they both didn’t deliver what they said they would and made errors in the delivery process.
- formation | offer | acceptance | agreement
- Essential Questions
- What makes black markets necessary?
- Firstly the basic definition is necessary, a black market is a forum/place where goods and services are sold/exchanged illegally. The term “black” can either come from the illegal nature of goods or services themselves, or the illegal state of the transactions being made. Otherwise known as shadow markets, black markets exist when people in a society wish to exchange goods that are prohibited by the government. For many people, this includes goods and services they will probably never be able to conventionally purchase in their lifetimes. Another case that makes black markets necessary is licensing restrictions, when workers are unable to invest the time and money into obtaining those licenses. Yet another case is when people are unable to work legally and need to generate an income (such as illegal immigrants). The final main reason why a black market exists is due to the fault of a government, especially in setting price ceilings to create shortages.
- What distinguishes a black market from other kinds of markets—do they function differently?
- Obviously black markets do function differently from other kinds of markets, firstly the goods sold are illegal and the transactions made are usually of an illegal nature. All government regulations are thrown out the window in a black market, no taxes, price-fixing or competition laws. Black markets also avoid economic data, as transactions are unrecorded and not submitted to any official body.
- Are black markets better suited for the offline or online worlds?
- In the modern world, there is certainly more potential for black markets on the online platform. This is because the rise of many illegal and underground marketplaces (such as the Deep Web) has allowed the transactions occurring in black markets to go unnoticed by the public and governments.
- What kinds of goods and services are traded on black markets?
- Organs, drugs, prostitution, endangered species, babies, weapons and human trafficking are among the most common items found in black markets, though even the most conventional seeming goods can be sold on the black market if they’re illegal in a nation.
- Is there a difference between a black market and an informal market?
- Firstly, an informal market (otherwise known as a grey market) is a marketplace devoid of taxes and government monitoring. These include marketplaces defined above such as flea markets, boot sales as well as some souks and bazaars. A black market differs from these because informal markets mostly sell legal goods and services, whereas black markets do not. However, both are not included in calculating economic statistics such as GDP or GNP. Thus while they are very similar, black markets and informal markets have a few differences.
- Do governments benefit more from eliminating black markets or from regulating them?
- Although they seem extremely negative, governments actually benefit slightly more from regulating black markets as opposed to completely eliminating them. Obviously once government intervention occurs it is no longer a black market. This is because governments can profit from the black markets, allowing their economies to become more powerful globally. While the goods sold in the black market are certainly questionable, the government, by regulating the quotas of goods can limit the negative effects of their sales. Furthermore, the funding and investment into completely stomping out all black markets would be much higher than simply regulating them.
- Is the new popularity of cryptocurrencies in part of a function of their usefulness on the black market?
- Certainly, with the rise of cryptocurrencies (see below for further research), their usefulness on the black market has exponentially increased. This is because cryptocurrencies enable much more secure and secret transactions online, thus expanding the ability for the black markets to operate without needing to physically be active.
- Does the term ‘black market’ refer to a specific marketplace in any given country, or can there be many black markets even in the same place?
- Just like conventional marketplaces, black markets can refer to many black markets in the same place. Just like there’s a marketplace for food, machinery or automobiles, there’s a black market for each type of illegal good sold. You would be surprised how many separate, independent black markets can operate within a certain sector of a country.
- Are there contracts in the black market? If so, are they legally enforceable, and who should be responsible for enforcing them?
- As the transactions in black markets are conducted with extreme secrecy and aren’t recorded, there are hardly any physical contracts you can find about deals made here.
- Does anyone regulate black markets?
- No, with no government intervention and official leadership teams, black markets are essentially free markets where the consumers and producers decide what they can do .
- Are there any countries in which black markets are formally endorsed by the authorities?
- In official records, no, though it is extremely possible that some countries secretly coexist with black markets or even support them.
- What makes black markets necessary?
- Key Terms to Learn (Examples)
- underground economy | shadow economy | informal economy | unreported economy
- Underground economy: Simply a synonym for the system of a black market, an underground economy is a term used to refer to illegal economic activity. This includes the sale of illegal goods or services or otherwise legal transactions not complying with government regulations.
- Shadow economy: Another synonym for underground economy.
- Informal economy: As defined above when discussing informal markets, informal economy is the set of economic activities that are not protected or regulated by the state. This includes self-employment in unregistered businesses and wage employment in unprotected or unregistered jobs.
- Unreported economy: An unreported economy is a sector of economic activity or a marketplace where the activities are not reported to authorities for documentation. These include total income, profit, sales and taxes.
- black market | grey market | white market
- Black market: As defined above, a black market is a forum/place where goods and services are sold/exchanged illegally. The term “black” can either come from the illegal nature of goods or services themselves, or the illegal state of the transactions being made.
- Grey market: Also referred to as the parallel market, the grey market is a market where products are transacted without the authorisation of the manufacturer. While these distribution channels are legal, they are not provided by the original producer. There is a thin line between the grey and black market. If a shopkeeper is the unauthorised dealer of a video game, then the product would’ve been sold in the grey market. If the video game itself was illegal, then it would be within the black market.
- White market: As the name suggests, the white market is the intended, legal, authorised and official marketplace where goods and services are transacted and government regulations are followed.
- import cycle | fluid supply | compounding crime | commission-free
- Import cycle: Simply put, the import cycle is the system which a product has undergone to enter a certain marketplace. From its initial production to the transportation methods used to bring it overseas and to the marketplace. Within the black market, this refers specifically to the use of smuggling and other illegal operations to import goods from outside into the marketplace.
- Fluid supply: A fluid supply refers to when a black market can smuggle in enough contraband to constantly meet demands for it. Very beneficial when demand is consistent and sufficient in relation to supply, but disastrous if one or the other is not in balance.
- Compounding crime: Otherwise known as compounding a felony, this is a crime punishable by misdemeanor, in which either the prosecutor or victim of a crime accepts any form of payment under the agreement that they will not let spill any information that may lead to the prosecution of a perpetrator (the felony).
- Commission-free: A term used in the currency exchange, "commission free" is a term used to describe when agent does not require a payment for their services in transacting a piece of business. The most common use of this term is in the currency exchange market, where agents advertise no extra cost for their services.
- counterfeiting | smuggling | black money | money laundering
- Counterfeiting: Now we’re getting into the more crime-related sections of black markets and the way they operate. Counterfeiting is the crime of producing and selling fakes or replicas of a product. The most stereotypical term here is counterfeit money, where the payment is not genuine and has no actual commercial value when inspected closer.
- Smuggling: Smuggling is a huge problem in the world today, not just in black markets. It is the act of moving any illegal goods into or out of a country. Punishment for smuggling is usually a heavy fine, confiscation of the smuggled goods and imprisonment for the smugglers.
- Black money: Any money earned through illegal activity which is controlled by government regulations is considered black money. Anyone possessing black money must hide it, spend it only in the underground economy or give it an air of legitimacy through money laundering (see below). While the most common source of black money is transactions on the black market, simply evading government tax also generates black money.
- Money laundering: As touched on above, money laundering is the act of making it look like black money was obtained through legitimate methods. It is dangerous for individuals and organizations to use their black money in official channels without risking being caught. There are three main steps involved in the laundering process: placement, layering and concealing. Placement refers to the act of introducing black money into official financial system in some way (i.e banks or deposits). Layering is the act of concealing the actual source of the money using complex transactions and record manipulation. Finally, concealing is the act of acquiring that money in seemingly legitimate methods. It should be noted that, with the rise of online payments and cryptocurrencies such as Bitcoin, that money laundering is much more difficult to detect.
- price ceilings | market failure | underground | contraband
- Price ceilings: A regulation by governments that controls the maximum price a product or service can be sold for in official marketplaces. As underground marketplaces do not have any government regulation, their products have no price ceilings. Price ceilings are emplaced to prevent prices from rising too high due to any economic conditions.
- Market failure: Market failure is exactly what it sounds like, a circumstance in which the allocation of goods, resources and services is not efficient. Usually, market failure is identified if another solution is devised where one party benefits without negatively impacting another.
- Underground: Any illicit economic activities that take place without government monitoring or regulation.
- Contraband: Imported or exported illegal goods that are either in defiance of a complete ban or without payment of duties and import/export taxes or other customs procedures properly undergone.
- underground economy | shadow economy | informal economy | unreported economy
- Black Markets to Explore (Examples)
- Organs | Gold | Art | Endangered Animals
- Organs: Organ black markets are a lucrative and very dangerous business. While organ and tissue donation markets are highly regulated by the government, the black market for it still exists. In many countries offering or receiving compensation for organ donations is illegal, thus giving the black market some advantage in popularity, as clients are repaid lots of money. In 2003, an infamous kidney black market was uncovered in South Africa. The donors were mostly from Brazilian sums, being flown to South Africa for their operations in a makeshift surgery room before being sent back home with $6,000 to $10,000 in their wallets. The South African middlemen were then able to sell off the organs for nearly $100,000.
- Gold: Once a valuable material only accessible to the rich and privileged, gold is now a lucrative mineral sold on the black market. Almost like slave labour, the sellers hire impoverished people to work ludicrous hours in deplorable conditions for laughable wages. They then sell off the gold for much higher prices than normally found.
- Art: You would have to be a fairly brave or extremely foolish (often both) person to even consider operating a black market on art. First of all, these art pieces can cost anywhere between $2,000 to millions. Second, these art pieces need to be stolen first before they can enter sale, a job that’s sure to get you a one-way ticket to prison if caught. Third, there are special government organisation set up to prevent such items from ever being purchased after they’ve been stolen. With big risks however, come big rewards. With a growing number of very rich clients and a decreasing number of artworks, the black market prices just keep getting higher.
- Endangered Animals: Perhaps one of the biggest black market areas to ever exist, endangered animals are being smuggled into other countries to new owners willing to pay a very high price. These animals are not transported carefully and the conditions in which they travel are deplorable and terrifying. Prices vary depending on what you order, a live tiger could burn a $50,000 hole in your wallet, while even it’s skin could fetch up to $35,000 (fun fact: it’s genitals would cost you $1,300, though I have no idea why you’d want a tiger penis sitting around your house). Obviously the first step in obtaining the animals is poaching, a crime that can end in a death sentence or a lifetime imprisonment. In Africa, the business is booming, with hundreds of endangered animals being poached and sold every year. But worldwide, the business is also catching on. Species sold include Pangolins (discussed further below), elephants, rhinos, tigers, turtles and monkeys. Luckily there are many government organization set up to deal with the trade at the source, by placing security forces with orders to stop any poacher trespassing on animal sanctuaries or wildlife reserves.
- Oil | Cigarettes | Slave Trade | Housing
- Oil: You’d be surprised how gargantuan the black market for oil is. An infographic (accessible here) estimates that every year $133 billion worth of crude oil and fossil fuels are being illegally smuggled and sold on the black market. To put that in perspective Kuwait, an oil-rich Middle Eastern nation, has an economy of $110 billion. Common methods involved in smuggling/stealing the oil include: bunkering, ship-to-ship transfers, tapping pipelines, piracy, bribery, laundering and adulteration. The impact on the world economy and environment is immense. While many well-known countries such as Mexico, Turkey and Greece have estimated losses of billions of dollars in revenue due to the stolen oil, the most impacted nations are located in sub-saharan Africa. In 2013, it was estimated that Algeria lost 1.5 billion liters of gas that were mostly destined for Morocco. Mozambique reports that 54% of all shipments in the capital of Maputo involve bribes to the higher ranks of government. Nigeria is perhaps suffering the most, with the country being estimated to have lost $400 billion since its independence in 1960 thanks to the black market for oil.
- Cigarettes: The black market here certainly has evolved with technology to help conceal the goods. The black market for cigarettes includes the illegal sale of banned cigarette brands, counterfeit packets and ones with unpaid duty. The business is particularly profitable in countries such as the UK and US, with the low prices convincing many young teens or adults to buy them. The shopkeepers have to be handed some credit here, the methods they use to conceal the pipes include fake walls, hidden rooms, manhole covers, washing powder boxes and fences.
- Slave Trade: With the recent refugee crisis, a disgraceful business from almost 3 centuries ago has resurfaced, the slave trade. The most impacted country is Libya, the “gateway to Europe” for many of the poor and helpless migrants. In Libyan refugee centers or on the dangerous Mediterranean crossing, the traffickers begin picking up any men capable of working and auction them off for fairly high prices (though not much compared to the other black markets on this list).
- Housing: Surprisingly, even a seemingly normal commodity is fetching good prices on the black market. In more developed countries like the UK, Australia and Sweden the housing black market involves the rent of rooms or housing to subtenants at much higher prices without taxation or regulations.
- Currency | Weapons | Medicine
- Currency: When governments set regulations on the amount of foreign currency one can have, it’s not hard to see why many people are turning to the black market. Interestingly enough, this is a field of operations for those looking to launder their illegally made cash. Yet perhaps the most infamous type of currency being sold on the black market is counterfeit cash, allowing many to seem richer than they actually are.
- Weapons: Imagine being a soldier fighting against a terrorist group, seeing a weapon you know that terrorist group would never have been able to acquire using conventional means. This is the weapons black market, a lucrative underground marketplace where individuals sell and smuggle advanced weaponry into the hands of other individuals wishing for an aggressive form of self defense.
- Medicine: In a world where the most expensive but necessary treatments require confusing legal documents and large paychecks, the black market of medicine is flourishing now more than ever before. In a way, the medicine black market can be painted in a better light. It allows people in rural countries with lacking healthcare to gain access to life-saving medicines that would’ve otherwise been impossible to acquire.
- Silk Road 1.0 – 3.1 | Darknet | Acropolis
- Silk Road 1.0 - 3.1: We are not referring to the ancient trade route from the Middle East to China, we are referring instead to the first darknet market (a digital marketplace requiring proper authentication and software to access). Founded in 2011, sellers had to pay premiums to be able to trade on the site and in 2013, the first version was shut down by the FBI, who also managed to imprison it’s founder “Dread Pirate Roberts” (a username for Ross William Ulbricht). Yet a year later, Silk Road 2.0 would come online, only to be shut down and it’s operator arrested in 2014. Yet only hours after the 26 year old from San Francisco was captured, Silk Road 3.1 came online, yet to face the hammer of justice from law enforcement.
- Darknet: A darknet is, as discussed somewhere above, a network that can only be accessed through special software, authorization and configuration. The dark web is the part of the world wide web that is hidden thanks to darknets, using encryption and non-standard communication protocols to facilitate the exchange of black market goods.
- Acropolis: This is actually an interesting darknet, since the Acropolis (named after the ancient structure in Greece) is actually a black market for books. Believe or not, the reason why it is a black market is because the books mainly concern topics such as hacking, security and fraud, topics many governments ban. It also houses a fairly substantial marketplace for drugs such as Cannabis and other stimulants.
- Organs | Gold | Art | Endangered Animals
- Introductory Questions to Answer
- What is a cryptocurrency, and can a cryptocurrency be considered a form of money?
- If you take away all the noise around cryptocurrencies and reduce it to a simple definition, you find it to be just limited entries in a database no one can change without fulfilling specific conditions. This may seem ordinary, but, believe it or not: this is exactly how you can define a currency. Only the owner of the currency has the key needed to unlock the transactions and send the currency. As such, it is hard to counterfeit cryptocurrency. Because there is no need for a middleman, they are immune to government interference or manipulation. Bitcoin is one of the first decentralized cryptocurrencies. Few people know, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and still most important cryptocurrency, never intended to invent a currency. In his announcement of Bitcoin in late 2008, Satoshi said he developed “A Peer-to-Peer Electronic Cash System.“
- What does it mean for a currency to be decentralized and unregulated?
- A market structure that consists of a network of various technical devices that enable investors to create a marketplace without a centralized location. No single institution controls the network. One major problem every payment network has to solve is to prevent the so-called double spending: to prevent that one entity spends the same amount twice. Usually, this is done by a central server who keeps record about the balances. In a decentralized network, you don‘t have this server. So you need every single entity of the network to do this job. Every peer in the network needs to have a list with all transactions to check if future transactions are valid or an attempt to double spend. A cryptocurrency like Bitcoin consists of a network of peers. Every peer has a record of the complete history of all transactions and thus of the balance of every account.
- Who controls cryptocurrencies?
- The transaction is known almost immediately by the whole network. But only after a specific amount of time it gets confirmed. As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain. Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain. Miners get rewarded with a small token of the transaction of bitcoins.
- Why are people skeptical of cryptocurrencies?
- Cryptocurrencies are digital gold. Sound money that is secure from political influence. Money that promises to preserve and increase its value over time. Cryptocurrencies are also a fast and comfortable means of payment with a worldwide scope, and they are private and anonymous enough to serve as a means of payment for black markets and any other outlawed economic activity. But while cryptocurrencies are more used for payment, its use as a means of speculation and a store of value dwarfs the payment aspects. Cryptocurrencies gave birth to an incredibly dynamic, fast-growing market for investors and speculators. Exchanges like Okcoin, poloniex or shapeshift enables the trade of hundreds of cryptocurrencies. Their daily trade volume exceeds that of major European stock exchanges.
- What makes one cryptocurrency different to another?
- Each cryptocurrencies have different algorithms to protect data, and different softwares to do what it does.
- Why is Bitcoin so volatile? What determines its value?
- Because its daily trade volume exceeds major european stocks, it‘s common that a coin gains 10 percent a day – sometimes 100 percent – just to lose the same at the next day. If you are lucky, your coin‘s value grows up to 1000 percent in one or two weeks.
- What kinds of transactions would a cryptocurrency make possible (or easier) that a normal currency might not?
- This innovation allows for fast and global, secure, pseudonymous transactions; which cultivates black markets transactions to be made easier.
- Could goods be valued in cryptocurrencies?
- Possibly, but then for this to happen, more people in the world needs to understand and use cryptocurrencies for it to be just as common as paper bills, coins and gold.
- Do cryptocurrencies weaken governments?
- “Cryptocurrency will cripple governmental ability to collect taxes, and they won’t see it coming. When it’s already happened, expect major changes to take place in how society is organized on a large scale – but also expect governments to act in desperation to retain control. As bitcoin launched in 2009, most early adopters saw its disruptive potential. While bitcoin has stalled for some time approaching a valid use of the term “stagnation”, cryptocurrency in a larger context is still just as disruptive. In 2011, I stated that bitcoin (cryptocurrency) will do to banks what e-mail did to the postal services. This is not just true, but it will be even more brutal to governments, and by extension, governmental services.” (PrivateNewsOnline) The reason why cryptocurrency will cripple the government is heavily related to its job in the economy today. In the economy, there are 4 layers. The people doing actual work, corporations organizing them, banks gatekeeping transactions, and the government earning money off of banks. When cryptocurrencies become more major, there is no more need for banks, thus cutting off layer 3 and 4 entirely from the system. “The government can no longer reach into money flows and grab what it wants, but will be dependent on people actively sending it money. The government can’t point a gun at a computer and have it give up its money; you can only make a computer operator feel very sorry for not voluntarily producing the keys to that money. So the government is no longer able to collect taxes without the consent – even if coerced and forced consent – of the people being thus collected.” (PrivateNewsOnline)
- Key Terms to Explore (Examples)
- medium of exchange | store of value | unit of account
- Medium of exchange: Money, and currencies that allow people to buy resources such as land, labor, capital
- Store of value: Assets such as gold which can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved.
- Unit of account: Unit by which value of a thing is accounted and compared. It is one of the primary functions of money.
- blockchain ledger | decentralized | mining
- Blockchain ledger: A digitized, decentralized, public collection of financial accounts of all cryptocurrency transactions
- Decentralized: A market structure that consists of a network of various technical devices that enable investors to create a marketplace without a centralized location. No single institution controls the network.
- Mining: “Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain. Principally everybody can be a miner. Since a decentralized network has no authority to delegate this task, a cryptocurrency needs some kind of mechanism to prevent one ruling party from abusing it. Imagine someone creates thousands of peers and spreads forged transactions. The system would break immediately. So, Satoshi set the rule that the miners need to invest some work of their computers to qualify for this task. In fact, they have to find a hash – a product of a cryptographic function – that connects the new block with its predecessor. This is called the Proof-of-Work. In Bitcoin, it is based on the SHA 256 Hash algorithm.”(BlockGeeks)
- hard forks | soft forks | wallets | private keys | volatility
- Hard fork: “As it relates to blockchain technology, a hard fork (or sometimes hard fork) is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa), and as such requires all nodes or users to upgrade to the latest version of the protocol software.”(Investopedia)
- Soft forks: In terms of blockchain technology, a soft fork (or sometimes softfork) is a change to the software protocol where only previously valid blocks/transactions are made invalid. (Investopedia)
- Wallets: “A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency like Bitcoin. Most coins have an official wallet or a few officially recommended third-party wallets. In order to use any cryptocurrency, you will need to use a cryptocurrency wallet.”(Cryptocurrency facts)
- Private keys: “An unpredictable (typically large and random) number is used to begin generation of an acceptable pair of keys suitable for use by an asymmetric key algorithm. In an asymmetric key encryption scheme, anyone can encrypt messages using the public key, but only the holder of the paired private key can decrypt.”(Wikipedia)
- What is a cryptocurrency, and can a cryptocurrency be considered a form of money?
- Example Cryptocurrencies to Research
- Bitcoin | Bitcoin Cash | Ethereum | Ripple | Stellar | Dogecoin
- Bitcoin: The one and only, the first and most famous cryptocurrency. Bitcoin serves as a digital gold standard in the whole cryptocurrency-industry, is used as a global means of payment and is the de-facto currency of cyber-crime like darknet markets or ransomware. After seven years in existence, Bitcoin‘s price has increased from zero to more than 650 Dollar, and its transaction volume reached more than 200.000 daily transactions. (BlockGeeks)
- Bitcoin cash: Bitcoin, but more based on peer to peer transactions
- Ethereum: The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of accounts and balances but of so-called states. This means that Ethereum can not only process transactions but complex contracts and programs. This flexibility makes Ethereum the perfect instrument for blockchain -application. But it comes at a cost. After the Hack of the DAO – an Ethereum based smart contract – the developers decided to do a hard fork without consensus, which resulted in the emerge of Ethereum Classic. Besides this, there are several clones of Ethereum, and Ethereum itself is a host of several Tokens like DigixDAO and Augur. This makes Ethereum more a family of cryptocurrencies than a single currency. (BlockGeeks)
- Ripple: Maybe the less popular – or most hated – project in the cryptocurrency community is Ripple. While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and exchange value, but more as a token to protect the network against spam. (BlockGeeks)
- Litecoin/Dogecoin: Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm, Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It facilitated the emergence of several other cryptocurrencies which used its codebase but made it, even more, lighter“. Examples are Dogecoin or Feathercoin. (BlockGeeks)
- Stellar: Just another cryptocurrency
- Bitcoin | Bitcoin Cash | Ethereum | Ripple | Stellar | Dogecoin