7 ms·

Bitcoin exchange account of Coinpal shut down by Paypal

142 points by tshtf 15y ago

gexla 15y ago
Seems like a silly idea anyways. There is a good reason why Paypal doesn't allow it. There is also a good reason why most other exchangers don't allow credit cards. In both cases there are too many people running charge backs.
- mike_esspe 15y ago
  He writes, that his chargeback rate was 1.5%
  - gexla 15y ago
    I have worked a lot with exchanging e-currencies for certain niche reasons. Exchanging can be quite a pain. Generally you have to tap into the various exchange communities to figure out your options and lookup reputable exchangers. In these communities you will find that a widely accepted rule is that you don't exchange with currencies which allow charge backs (unless perhaps you personally know that person.) That includes Paypal and credit cards. Yes, there are people who will exchange for Paypal and credit cards. Yes, there are some services which can start out with low charge back rates. The problem is the scammers will find you as the service grows. This is a business with low margins, eventually you will lose out. Again, Paypal isn't perfect, but the service has plenty of experience with this issue. Too many people are getting screwed over. Unfortunately this is a lesson that people have to learn over and over again. Do NOT use Paypal for exchange. I don't understand why I'm getting down voted for this.
  - jasonlotito 15y ago
    1.5% is high. Not to mention the money laundering potential from an exchange like this.
originalgeek 15y ago
> After about two weeks, I received no response to either email. I decided to start operating the site, thinking they wanted to see something working before spending time on a response. I don't follow the logic here... no response != assume whatever the hell you feel like.
- rumpelstiltskin 15y ago
  What "the hell" should he have done? There's only 2 possibilities here - 1. They didn't see the emails or 2. They saw them, but chose to ignore them. Either way, his choice boils down to killing his idea or launching it and seeing what happens. It would be utterly moronic of him to kill his idea simply because they didn't respond. Might as well leave that decision to them by launching it and seeing how they respond. If they don't shut him down, then his service isn't breaking their rules. If they do, he's no worse off than not launching in the first place. He did the right thing. EDIT: HN is not letting me respond to wmf below, so I'm responding here - Where does he say he knew paypal would freeze the account sooner or later? In fact, the whole point of his emails to them was to specifically ask if his service was compliant with their TOS. Let's stick to facts and not get into subjective arguments. Your idea of 'ordinary' can be completely different from his or anyone else's idea of 'ordinary'. This is why TOSs, FAQs etc exist in the first place. But since he couldn't find an exact answer anywhere, he emailed them.
  - wmf 15y ago
    Never used PayPal to begin with, knowing that they'd freeze the account sooner or later.
  - Locke1689 15y ago
    Hacker News has a timeout for responding to nested comment threads. The idea is to prevent long and drawn-out reply bickering between two people. If you can't reply to one of your comment's children, calm down, take a breath, and wait 5-20 minutes.
    - rumpelstiltskin 15y ago
personalcompute 15y ago
I'm really interested to see if bitcoin will survive the law. I'm not a lawyer, but my understanding is that creating an alternate currency is strictly illegal. Maybe this is the first indication of the end of bitcoin? (Edit: This is incorrect. See comments.)
- viraptor 15y ago
  What are the options of stopping bitcoin? It could be banned from paypal and card transactions. But you can't really ban it otherwise. If I want to give you something for bitcoins, we can do the exchange. There's no real trail, so it simply can't be stopped for personal use.
  - patrickod 15y ago
    Wasn't this the whole purpose of the distributed system? It was created with such situations in mind where a governments and others try to stop the flow of money through certain areas or to individuals.
  - ansy 15y ago
    What value are bitcoins if nobody can legally accept or use them? The IRS is not known for being understanding toward things that look like tax evasion.
    - viraptor 15y ago
      Multiple identities make this almost impossible to track. You can have a separate wallet for every transaction and then pass the bitcoins through http://doubletrouble.bitcoinbet.com/ http://doubletrouble.bitcoinbet.com/ if you want to be paranoid. If you verify your bitcoin history, you should be pretty safe from IRS-like companies.
      - deleted 15y ago
        [deleted]
      - ansy 15y ago
supervotetime 15y ago
call in the /b/?
sfgfdhgfdshdhhd 15y ago
It may still be possible to exchange bitcoins through mtgox and then through liberty reserve and bank money orders. Each stage along this route eats up 1-5%. Otherwise, informal transfers through the OTC ( http://bitcoin-otc.com/ http://bitcoin-otc.com/ ) do work. Tying too much cash in paypal is a mistake. There is no guarantee that you won't snag on some tripwire in their rules engine. That and all BTC-cash exchanges have so far been shut down by PayPal. But more fundamentally, Bitcoin is incompatible with the credit card system. CC security is very lax, so CC transactions have to be reversible (the onus is on the merchant rather than the buyer). Banks (and Paypal is a bank) are ill equipped to parse the math and the crypto that go with a proof that a transaction has occured. Not technically, but institutionally they are a different thing.
- gexla 15y ago
  This is exactly correct. I got seriously down voted for making the same point in less words. Bitcoin and exchanging e-currencies is nothing new. People have been getting screwed over exchanging Paypal and credit cards for other currencies for a long time. That's why Paypal doesn't allow it. But yet, these services keep popping up. Poor business idea, it's been tried many times and it doesn't work.
blankslate 15y ago
I'd be surprised if PayPal didn't see Bitcoin as some form of competition - so, this is fairly unsurprising. Most companies prefer not to facilitate their competitors.
romland 15y ago
I can't honestly think that anyone is surprised? PayPal plays it safe and this has been proven again and again. At the end of the day, this Bitcoin hype is getting slightly tiresome. I do apologize for being negative here, but the only thing I take away from this whole spectacle is that investing in energy is a wise move. The amazing thing is, that was news a long, long time ago.
- sgornick 15y ago
  Investing in energy? huh?
  - ascott 15y ago
    I think he's alluding to mining bitcoins with electricity (cpu / gpu farms). The energy companies certainly haven't come out behind.
  - jarin 15y ago
    Essentially, Bitcoin generation is tied to energy usage, which means not only do the power companies profit from Bitcoin generation, they can essentially regulate the price of it (until BTC is mined out, anyway).
    - javert 15y ago
      Power companies can't regulate the price of Bitcoin because they don't control the price of electricity, which is determined by the government and/or the market. Nobody ever regulates or controls the price of anything, except if they're the only supplier or the government.
      - eru 15y ago
        You forgot the "only buyer" case.
        javert 15y ago
        Well, if there's only one buyer, then it's a negotiation between the seller and the buyer. The seller has to answer the question, "Where is the cut-off point where it's no longer in the buyer's economic interest to buy from me," and charge right below that. Of course, in such a situation, new sellers will typically emerge.
spenvo 15y ago
I chose to focus on his last point: "CoinCard will be easier to bring back, minus PayPal payments. ... A possible PayPal freeze was one reason I focused on "gift cards" rather than PayPal exclusively. This whole situation has reminded me once again why distributed, resilient systems like Bitcoin and OTC are so important." Paypal frustration led Michael to Bitcoin, and his service ended up dependent on it. That was probably not his original intention. This makes MtGox's integration of (ACH) Dwolla even more important to BTC's liquidity. MtGox is receiving record traffic right now, nearly on the order of a DOS attack.
- eof 15y ago
  The guy running mtgox says it's an actual ddos.
sgornick 15y ago
So long CoinPal, and thanks for all the bitcoins! http://www.bitcoinmoney.com/post/5086167006/paypal-freezes-out-coinpal http://www.bitcoinmoney.com/post/5086167006/paypal-freezes-o...
jostmey 15y ago
First wikileaks and now Bitcoin. I'm boycotting paypal.
- mdaniel 15y ago
  This attitude comes up again and again when PayPal is in the news for doing something (ignorant/unpopular), but those who utter such statements fail to understand the power of the network effect. If you wish to buy something and the seller only accepts PayPal, then good luck with your boycott. In my experience, the larger the retailer, the more infinitesimal the chance that they will "listen to reason" and consider accepting an alternate form of payment. Oh, and did I mention eBay has this affinity for PayPal?
  - jpk 15y ago
    The larger the retailer, the more likely they will offer payment methods other than/in addition to PayPal. As the retailer, it's in your best interest to give the customer the greatest possible number of ways to give you their money.
pbreit 15y ago
There's a major disconnect here: PayPal is not digital cash, it's credit card processing. There is a major difference.
- patio11 15y ago
  Paypal is both a credit card processor and an online wallet (stored value, digital cash, etc), both aspects of which complicated their anti-fraud and regulatory efforts. There exists money in my Paypal account which can be spent or transferred at my direction and which does not exist elsewhere at an account under my control.
  - jarin 15y ago
    At least there seem to be some good alternatives coming out (like Dwolla).
  - count 15y ago
    But the money in your paypal account is denominated in US Dollars (or Yen, or whatever real world currency), isn't it? Paypal's 'online wallet' is just another way of saying 'checking account'. I have a checking account which has a stored value that I access via debit card or paper check, and can transfer or spend the money at my direction. The money in that checking account does not exist elsewhere at an account under my control. I don't see the difference here?
    - lutorm 15y ago
      I thought Paypal had argued strenuously that it is not a bank, so it's, according to them, not just another way of saying checking account.
iuguy 15y ago
Paypal's arbitrary policies and ability to freeze on whim or even pull money out of your account with no comeback are the reason my latest startup[1] doesn't take Paypal at all. It's just not worth the hassle of dealing with customer (or $deity forbid, your own) paypal problems. [1] - http://www.44con.com/ http://www.44con.com/
URSpider94 15y ago
This seems like a pretty clear-cut case. The Coinpal creator didn't do his homework, and PayPal acted well within its stated policies to protect its business. The Coinpal creator chose to email Paypal to ask a question that is clearly answered in the company's acceptable use policy. Under Prohibited Activities, Section 3(f): "You may not use the PayPal services for activities that (...) are associated with the following Money Service Business activities: (...) currency exchanges. Second, the operator expresses in his post that he had kept his agreement to keep chargebacks low, at 0.9%. Consider for a moment that PayPal and the credit card company are splitting somewhere around 3% of the transaction amount to cover all of their expenses and make a profit. Let's assume that, out of 100 transactions for $100, one gets charged back. If it costs the companies $50 to investigate the customer complaint and process the chargeback, then the combined companies are losing 16% of their revenue to cover chargebacks.

142 points by tshtf 15y ago

gexla 15y ago

Seems like a silly idea anyways. There is a good reason why Paypal doesn't allow it. There is also a good reason why most other exchangers don't allow credit cards. In both cases there are too many people running charge backs.

mike_esspe 15y ago
He writes, that his chargeback rate was 1.5%
- gexla 15y ago
  I have worked a lot with exchanging e-currencies for certain niche reasons. Exchanging can be quite a pain. Generally you have to tap into the various exchange communities to figure out your options and lookup reputable exchangers. In these communities you will find that a widely accepted rule is that you don't exchange with currencies which allow charge backs (unless perhaps you personally know that person.) That includes Paypal and credit cards. Yes, there are people who will exchange for Paypal and credit cards. Yes, there are some services which can start out with low charge back rates. The problem is the scammers will find you as the service grows. This is a business with low margins, eventually you will lose out. Again, Paypal isn't perfect, but the service has plenty of experience with this issue. Too many people are getting screwed over. Unfortunately this is a lesson that people have to learn over and over again. Do NOT use Paypal for exchange. I don't understand why I'm getting down voted for this.
- jasonlotito 15y ago
  1.5% is high. Not to mention the money laundering potential from an exchange like this.

originalgeek 15y ago

> After about two weeks, I received no response to either email. I decided to start operating the site, thinking they wanted to see something working before spending time on a response. I don't follow the logic here... no response != assume whatever the hell you feel like.

rumpelstiltskin 15y ago
What "the hell" should he have done? There's only 2 possibilities here - 1. They didn't see the emails or 2. They saw them, but chose to ignore them. Either way, his choice boils down to killing his idea or launching it and seeing what happens. It would be utterly moronic of him to kill his idea simply because they didn't respond. Might as well leave that decision to them by launching it and seeing how they respond. If they don't shut him down, then his service isn't breaking their rules. If they do, he's no worse off than not launching in the first place. He did the right thing. EDIT: HN is not letting me respond to wmf below, so I'm responding here - Where does he say he knew paypal would freeze the account sooner or later? In fact, the whole point of his emails to them was to specifically ask if his service was compliant with their TOS. Let's stick to facts and not get into subjective arguments. Your idea of 'ordinary' can be completely different from his or anyone else's idea of 'ordinary'. This is why TOSs, FAQs etc exist in the first place. But since he couldn't find an exact answer anywhere, he emailed them.
- wmf 15y ago
  Never used PayPal to begin with, knowing that they'd freeze the account sooner or later.
- Locke1689 15y ago
  Hacker News has a timeout for responding to nested comment threads. The idea is to prevent long and drawn-out reply bickering between two people. If you can't reply to one of your comment's children, calm down, take a breath, and wait 5-20 minutes.
  - rumpelstiltskin 15y ago

personalcompute 15y ago

I'm really interested to see if bitcoin will survive the law. I'm not a lawyer, but my understanding is that creating an alternate currency is strictly illegal. Maybe this is the first indication of the end of bitcoin? (Edit: This is incorrect. See comments.)

viraptor 15y ago
What are the options of stopping bitcoin? It could be banned from paypal and card transactions. But you can't really ban it otherwise. If I want to give you something for bitcoins, we can do the exchange. There's no real trail, so it simply can't be stopped for personal use.
- patrickod 15y ago
  Wasn't this the whole purpose of the distributed system? It was created with such situations in mind where a governments and others try to stop the flow of money through certain areas or to individuals.
- ansy 15y ago
  What value are bitcoins if nobody can legally accept or use them? The IRS is not known for being understanding toward things that look like tax evasion.
  - viraptor 15y ago
    Multiple identities make this almost impossible to track. You can have a separate wallet for every transaction and then pass the bitcoins through http://doubletrouble.bitcoinbet.com/ http://doubletrouble.bitcoinbet.com/ if you want to be paranoid. If you verify your bitcoin history, you should be pretty safe from IRS-like companies.
    - deleted 15y ago
      [deleted]
    - ansy 15y ago

supervotetime 15y ago

call in the /b/?

sfgfdhgfdshdhhd 15y ago

It may still be possible to exchange bitcoins through mtgox and then through liberty reserve and bank money orders. Each stage along this route eats up 1-5%. Otherwise, informal transfers through the OTC ( http://bitcoin-otc.com/ http://bitcoin-otc.com/ ) do work. Tying too much cash in paypal is a mistake. There is no guarantee that you won't snag on some tripwire in their rules engine. That and all BTC-cash exchanges have so far been shut down by PayPal. But more fundamentally, Bitcoin is incompatible with the credit card system. CC security is very lax, so CC transactions have to be reversible (the onus is on the merchant rather than the buyer). Banks (and Paypal is a bank) are ill equipped to parse the math and the crypto that go with a proof that a transaction has occured. Not technically, but institutionally they are a different thing.

gexla 15y ago
This is exactly correct. I got seriously down voted for making the same point in less words. Bitcoin and exchanging e-currencies is nothing new. People have been getting screwed over exchanging Paypal and credit cards for other currencies for a long time. That's why Paypal doesn't allow it. But yet, these services keep popping up. Poor business idea, it's been tried many times and it doesn't work.

blankslate 15y ago

I'd be surprised if PayPal didn't see Bitcoin as some form of competition - so, this is fairly unsurprising. Most companies prefer not to facilitate their competitors.

romland 15y ago

I can't honestly think that anyone is surprised? PayPal plays it safe and this has been proven again and again. At the end of the day, this Bitcoin hype is getting slightly tiresome. I do apologize for being negative here, but the only thing I take away from this whole spectacle is that investing in energy is a wise move. The amazing thing is, that was news a long, long time ago.

sgornick 15y ago
Investing in energy? huh?
- ascott 15y ago
  I think he's alluding to mining bitcoins with electricity (cpu / gpu farms). The energy companies certainly haven't come out behind.
- jarin 15y ago
  Essentially, Bitcoin generation is tied to energy usage, which means not only do the power companies profit from Bitcoin generation, they can essentially regulate the price of it (until BTC is mined out, anyway).
  - javert 15y ago
    Power companies can't regulate the price of Bitcoin because they don't control the price of electricity, which is determined by the government and/or the market. Nobody ever regulates or controls the price of anything, except if they're the only supplier or the government.
    - eru 15y ago
      You forgot the "only buyer" case.
      - javert 15y ago
        Well, if there's only one buyer, then it's a negotiation between the seller and the buyer. The seller has to answer the question, "Where is the cut-off point where it's no longer in the buyer's economic interest to buy from me," and charge right below that. Of course, in such a situation, new sellers will typically emerge.

spenvo 15y ago

I chose to focus on his last point: "CoinCard will be easier to bring back, minus PayPal payments. ... A possible PayPal freeze was one reason I focused on "gift cards" rather than PayPal exclusively. This whole situation has reminded me once again why distributed, resilient systems like Bitcoin and OTC are so important." Paypal frustration led Michael to Bitcoin, and his service ended up dependent on it. That was probably not his original intention. This makes MtGox's integration of (ACH) Dwolla even more important to BTC's liquidity. MtGox is receiving record traffic right now, nearly on the order of a DOS attack.

eof 15y ago
The guy running mtgox says it's an actual ddos.

sgornick 15y ago

So long CoinPal, and thanks for all the bitcoins! http://www.bitcoinmoney.com/post/5086167006/paypal-freezes-out-coinpal http://www.bitcoinmoney.com/post/5086167006/paypal-freezes-o...

jostmey 15y ago

First wikileaks and now Bitcoin. I'm boycotting paypal.

mdaniel 15y ago
This attitude comes up again and again when PayPal is in the news for doing something (ignorant/unpopular), but those who utter such statements fail to understand the power of the network effect. If you wish to buy something and the seller only accepts PayPal, then good luck with your boycott. In my experience, the larger the retailer, the more infinitesimal the chance that they will "listen to reason" and consider accepting an alternate form of payment. Oh, and did I mention eBay has this affinity for PayPal?
- jpk 15y ago
  The larger the retailer, the more likely they will offer payment methods other than/in addition to PayPal. As the retailer, it's in your best interest to give the customer the greatest possible number of ways to give you their money.

pbreit 15y ago

There's a major disconnect here: PayPal is not digital cash, it's credit card processing. There is a major difference.

patio11 15y ago
Paypal is both a credit card processor and an online wallet (stored value, digital cash, etc), both aspects of which complicated their anti-fraud and regulatory efforts. There exists money in my Paypal account which can be spent or transferred at my direction and which does not exist elsewhere at an account under my control.
- jarin 15y ago
  At least there seem to be some good alternatives coming out (like Dwolla).
- count 15y ago
  But the money in your paypal account is denominated in US Dollars (or Yen, or whatever real world currency), isn't it? Paypal's 'online wallet' is just another way of saying 'checking account'. I have a checking account which has a stored value that I access via debit card or paper check, and can transfer or spend the money at my direction. The money in that checking account does not exist elsewhere at an account under my control. I don't see the difference here?
  - lutorm 15y ago
    I thought Paypal had argued strenuously that it is not a bank, so it's, according to them, not just another way of saying checking account.

iuguy 15y ago

Paypal's arbitrary policies and ability to freeze on whim or even pull money out of your account with no comeback are the reason my latest startup[1] doesn't take Paypal at all. It's just not worth the hassle of dealing with customer (or $deity forbid, your own) paypal problems. [1] - http://www.44con.com/ http://www.44con.com/

URSpider94 15y ago

This seems like a pretty clear-cut case. The Coinpal creator didn't do his homework, and PayPal acted well within its stated policies to protect its business. The Coinpal creator chose to email Paypal to ask a question that is clearly answered in the company's acceptable use policy. Under Prohibited Activities, Section 3(f): "You may not use the PayPal services for activities that (...) are associated with the following Money Service Business activities: (...) currency exchanges. Second, the operator expresses in his post that he had kept his agreement to keep chargebacks low, at 0.9%. Consider for a moment that PayPal and the credit card company are splitting somewhere around 3% of the transaction amount to cover all of their expenses and make a profit. Let's assume that, out of 100 transactions for $100, one gets charged back. If it costs the companies $50 to investigate the customer complaint and process the chargeback, then the combined companies are losing 16% of their revenue to cover chargebacks.