Bitcoin Market Suspends PayPal Trading
One of the last remaining exchanges where bitcoins could still be purchased using PayPal as the payment method has discontinued offering it as a payment option.
A post on the News section of the Bitcoin Market exchange’s website describes how “fraudulent behavior [by some users] has created a tremendous backlog of ‘Unconfirmed’ trades”.
Over the previous forty-eight hours the price of a Bitcoin (the BTC/USD market rate) from the exchange was for much of the time 33% higher or more than the BTC/USD rate seen on the leading Bitcoin exchange, Mt. Gox.
This price difference is visually apparent in the chart to the right where the blue line represents the price at Mt. Gox and the spastic waves represent the prices at which trades were conducted on Bitcoin Market.
When a trade involving PayPal is made the status of the trade becomes “UNCONFIRMED” and the buyer is expected to send the PayPal payment to the seller on a timely basis. Upon receipt the seller is expected to acknowledge payment, an action that will then change the status to CONFIRMED and shortly afterward the bitcoins will be released to the buyer.
Because the buyer’s PayPal funds are not escrowed there are holes which can be exploited. If the BTC/USD rate falls below the price when traded, a fraudulent buyer might back out by not ever sending payment. When the price rises above the selling price a fraudulent seller might back out by not confirming to the exchange that funds were ever received.
Another form of fraud that might occur is where the fraudulent buyer sends payment, the seller confirms payment and the bitcoins are released to the buyer who then, in turn, files a dispute with the credit card company or with PayPal directly. When that happens PayPal generally claws back the funds from the seller.
Using PayPal to trade on a currency exchange is a violation of PayPal’s Acceptable Use Policy so there is little the exchange can do to make the trading less susceptible to fraudulent actors. As a result, the exchange has simply opted out.
#bitcoin-otc marketplace - PayPal’s Last Bastion
Many sellers are comfortable trading their bitcoins for PayPal payment when the buyer has a trust rating on the #bitcoin-otc marketplace's Web of Trust (WoT). That exchange also does not act as intermediary so even if the counterparty has a respectable trust rating there are no guarantees of a safe transaction.
ClearCoin escrow might be used a a method to help protect the buyer from a fraudulent seller but there is little to protect the seller from a fraudulent buyer. As a result, sellers are generally listing offers where risky payment methods such as PayPal, Serve and Moneybookers are not permitted whatsoever. Instead the primary payment methods accepted remain the ones closer to hard money which are less risky. Those ranking high for hardness include Dwolla, Popmoney, MoneyPak, Transferwise, Liberty Reserve and, of course, cash sent through the mail.
Though options for buying bitcoins online with PayPal are dwindling, the amount of traction that Bitcoin is receiving means that the number of options for trading with someone locally are increasing. In addition to trading at meetups and other gatherings a number of other local options for trading are now available.
PayPal is referred to as being a P2P (person-to-person) payment network. It can also be considered to be a P2P2P (person-to-person-to-person) payment network as well. A buyer can take advantage of the social network to find a trusted connection who might, in turn, have a connection to a Bitcoin seller. Physical proximity is not required. PayPal funds can then be sent to that middle connection who, in-turn, would execute the trade with the Bitcoin seller.
Put simply, where there’s a will, there’s a way.