A darknet market, also referred to as a "DNM" is, in its most basic meaning, a marketplace on the dark web. However, most darknet marketplaces exist because of the types of goods that are trafficked, including illicit drugs, pornography, guns, and/or stolen goods.
All darknet markets operate via Tor and most of them transact exclusively in cryptocurrencies such as Bitcoin, using an escrow system. Tor offers the ability to hide physical locations of vendors, users, and the markets themselves while Bitcoin is much more difficult for authorities to trace and also to prove where and how it is used. In fact, it has been argued that the Silk Road darknet market was the first real use case for Bitcoin, and contributed greatly to its rise in popularity and value.
Perhaps the most famous Darknet Market to date has been the Silk Road, which ran for several years, reportedly with a man named Ross Ulbricht in command. Ulbricht, a libertarian, ran the marketplace in the belief that people should be free to do drugs. The Silk Road had strict policies, paid staff to watch out for scams and alert customers of law enforcement. Ulbricht was eventually caught in San Francisco and is currently serving life in prison.
Both vendors and buyers on the Silk Road were caught numerous times before the exchange itself was ever busted. One of the key moments in the case was when a high level employee was busted in a cocaine sting and became a co-operating informant for the DEA. It should also be noted that two federal agents, Carl Mark Force IV and Shaun Bridges, were charged with various instances of corruption in the case of the Silk Road.
For more about the Silk Road, see CCN's coverage of the trial.
Beyond operating without a business license, the nature of darknet markets is not necessarily illegal. The fact that they are the only online venue for people to sell the items that tend to be sold there makes them mostly illegal, and highly targeted by authorities. For this reason, the markets often go offline without notice, in order to avoid being uncloaked by authorities and also occasionally in order to scam users.
Underground markets operate mostly on trust, and when packages go undelivered it is often a result of legitimate reasons, such as being lost in the mail or being intercepted by law enforcement. Since, in most cases, vendors do not receive payment until their product has been delivered, packages are often sent again when not received.
Going into the world of underground markets unprepared is a good way to get arrested. It is best to do some studying and asking around before making any purchases. Below is a list of good places to start.