Conclusions

There seem to be no technical impediments to darknet-based peer-to-peer file sharing technologies growing in convenience, aggregate bandwidth and efficiency.  The legal future of darknet-technologies is less certain, but we believe that, at least for some classes of user, and possibly for the population at large, efficient darknets will exist. The rest of this section will analyze the implications of the darknet from the point of view of individual technologies and of commerce in digital goods.

Technological Implications

DRM systems are limited to protecting the content they contain. Beyond our first assumption about the darknet, the darknet is not impacted by DRM systems. In light of our first assumption about the darknet, DRM design details, such as properties of the tamper-resistant software may be strictly less relevant than the question whether the current darknet has a global database. In the presence of an infinitely efficient darknet – which allows instantaneous transmission of objects to all interested users – even sophisticated DRM systems are inherently ineffective. On the other hand, if the darknet is made up of isolated small worlds, even BOBE-weak DRM systems are highly effective. The interesting cases arise between these two extremes – in the presence of a darknet, which is connected, but in which factors, such as latency, limited bandwidth or the absence of a global database limit the speed with which objects propagate through the darknet. It appears that quantitative studies of the effective “diffusion constant” of different kinds of darknets would be highly useful in elucidating the dynamics of DRM and the darknet.

Proposals for systems involving mandatory watermark detection in rendering devices try to impact the effectiveness of the darknet directly by trying to detect and eliminate objects that originated in the darknet. In addition to severe commercial and social problems, these schemes suffer from several technical deficiencies, which, in the presence of an effective darknet, lead to their complete collapse. We conclude that such schemes are doomed to failure.

Business in the Face of the Darknet

There is evidence that the darknet will continue to exist and provide low cost, high-quality service to a large group of consumers. This means that in many markets, the darknet will be a competitor to legal commerce.  From the point of view of economic theory, this has profound implications for business strategy: for example, increased security (e.g. stronger DRM systems) may act as a disincentive to legal commerce.  Consider an MP3 file sold on a web site: this costs money, but the purchased object is as useful as a version acquired from the darknet.  However, a securely DRM-wrapped song is strictly less attractive: although the industry is striving for flexible licensing rules, customers will be restricted in their actions if the system is to provide meaningful security.  This means that a vendor will probably make more money by selling unprotected objects than protected objects.  In short, if you are competing with the darknet, you must compete on the darknet’s own terms: that is convenience and low cost rather than additional security.

Certain industries have faced this (to a greater or lesser extent) in the past.  Dongle-protected computer programs lost sales to unprotected programs, or hacked versions of the program.  Users have also refused to upgrade to newer software versions that are copy protected. 

There are many factors that influence the threat of the darknet to an industry.  We see the darknet having most direct bearing on mass-market consumer IP-goods.  Goods sold to corporations are less threatened because corporations mostly try to stay legal, and will police their own intranets for illicit activities.  Additionally, the cost-per-bit, and the total size of the objects have a huge bearing on the competitiveness of today’s darknets compared with legal trade.  For example, today’s peer-to-peer technologies provide excellent service quality for audio files, but users must be very determined or price-sensitive to download movies from a darknet, when the legal competition is a rental for a few dollars.