Bitcoin Forum

There are many people frustrated with figuring out how to get into bitcoins. It has been shown that people who use PayPal would be willing to spend more per BTC than those going through the exchanges.

The main reason people will not exchange bitcoins via credit cards is because of chargebacks, you could give someone your bitcoins after they pay with a credit card only to have them disappear with your BTC and get their money back onto their card leaving you with nothing.

Most credit card companies have different time scales for different charge backs, the longest being 120 days (from a quick check on Visa).

So, what if we had an exchange that allowed you to pay with a credit card and when you do the purchase the exchange buys bitcoins on your behalf but holds them for you for 120 days. What you receive instead is a bitcoin equivalent credit or colored or slightly transparent coin (however the site wants to do it).

But what you can do with these coins once you get them is trade them on that exchange. Based upon the amount of time that has passed from the time you bought them to the time they actually get switched out for real bitcoins they will vary in value based upon what people are willing to pay.

Say bitcoin is $100/BTC. You go to pay with your credit card and pay $100 (plus credit card fees). You buy 1 BTC for $100. The site buys 1 BTC at $100 and pegs it to your purchase and gives you a red 4 month coin.

You notice on the site that someone is willing to trade .8 bitcoins for a red 4 month coin. You need the bitcoins for something else so you do the trade.

Now the guy with the red 4 month coin holds the coin for a month so it is now an orange 3 month coin. He notices that someone is willing to trade .8 light green 2 week coin for an orange 3 month coin. He has a bitcoin hosting service payment coming up in 2 weeks so he makes the trade.

He waits 2 weeks and the light green coin turns dark green until the final day of the 120 days it turns into a solid bitcoin which the site then transfers to the holder of the coin. He can now take the coin out and use it in his wallet for whatever he wants.

The original person could have waited the 120 days to get the one bitcoin as well.

But people would be motivated to trade based upon the risk of someone doing a charge back. You could even have credit ratings for each person based upon amount of trades and if they have ever done a charge back.

It would allow for easier entry into using bitcoins on the trading side allowing people to pay extra to use their credit card to buy bitcoins (users could be willing to trade their full bitcoin for 1.2 red 4 month bitcoins from an AAA rated seller for example).

Thoughts?

Funny, I've been toying around this same idea for a few months. I have access to cards. The biggest drawback was just that people couldn't get access to their coins for 120 days. I don't think that is a big obstacle.

The biggest nightmare on this is actually getting a processor willing to deal with you. We've been looking at several for crypto.pm and it's an absolute fucking nightmare.

Interesting. The product being sold is a red token. I wonder how video game sites like Second Life do it.

I had a payment processor but do not recall them asking what I would be selling (maybe they did, I do not recall).

The key part of that is that they could get bitcoins if they are willing to pay more. Buy 1.2 BTC for $120 then trade your red coin for a full bitcoin worth $100.

1 bitcoin on ebay is going for over $110 (at the current exchange rate of $60).

After speaking with too many processors to list, mentioning the word Bitcoin appeared to give them a heart attack. We have an enquiry open with Visa at the minute to hear their thoughts on it, and see who they would recommend.

They may not ask you what you are selling, but would you want to risk your account suddenly being shut down due to a ToS violation?

If there was a way to use the nTimLock feature, you could escrow the bitcoins for the 120 day period. I wouldn't use a service that just held my coins in a wallet due to the fact that they may fly-by-night like so often has before.

Anything I have done as far as looking into the bitcoin time lock capabilities is that it is mainly client side and you are basically freezing your own funds from your client which then has to unfreeze the funds when the time comes.

Good point.

Though I guess in theory that would just be part of the risk that people would have to compensate for.

The earliest trades would likely be very costly since, as been pointed out, without being established and not knowing the payment processor's stance on it the risk factor is huge.

You're giving incentives for the wrong kind of behavior, which is to wait 119 days and then issue a chargeback. As long as chargeback risk is there, the value of a bitcoin should be considered 0.

The fact remains that most people have credit cards and do not understand the whole thing about jumping through so many hoops just to get a bitcoin.

Paying for risk is part of how the market works. People are willing to take risks in exchange for money.

A rating per person would make it easier like on BTCJam where people are willing to loan out bitcoins to people who could disappear.

I think instead of finding people who are willing to hold the risk of a default, you should come up with a mechanism to make credit card payments irreversible.

Good luck with that.

Exactly.

I too have been interested in buying some BTC. I looked at buying some back in 2011 and MTGox was the big turn off for me. I recently tried using a bank account that funded Dwolla to fund an exchange to fund my wallet. What a shit setup. Talk about transaction fees, shit 1/3 of your money ends up in everyone else's pocket. The exchange wanted a pic of my "Gov't issued ID" (Ummm fuck that) Stockbrokers (E*Trade) don't even require ID. What happened to a validated electronic signature? It seems to me the exchanges really need to boost their end of software capabilities and processing powers. I know bitcoin is relatively still in its infancy but how about an exchange that can be funded right from a bank account or credit/debit card verified with an electronic signature. For a digital currency the exchanges are still in the dark ages IMHO. Since I haven't actually acquired bitcoin yet, I don't know if any exchanges offer a level 2 "trading" platform/quotes if not, it would be a wise decision. I would be willing to help, if others are interested in creating something similar.

You mean like this?

https://www.bitfinex.com/pages/ll_order_book

(off topic) yep. but it doesn't seem like you can carry out live "trades" with their platform (I could be wrong)

Why can't users validate their account to their email address and log in with a random pin generator or something similar. Some kind of ip recognition program and send out their ip's to other exchanges if they some how violate terms of service and follow through with a charge back, technically you could even send a fraud notice to their ISP. (It probably won't do much) I am just tossing out random ideas, obviously we could make this a much more simple & secure process then it is now.

The credit card companies are duty-bound by the law to enable chargebacks, so even if THEY wanted to offer a no-chargeback payment system they couldn't.

Something I have seen around the Web are these so-called "chargeback waiver" clauses in merchant TOS but I'm not sure how legally binding they are, if there were they'd probably be commonplace by now.

So barring any fundamental paradigm shifts in consumer protection laws the better course of action would be figuring out a way to make (international) bank transfers as cheap and painless and possible, something I could do from my computer in a matter of seconds.

Is there a way to prove this has been done? If you can offer the customer a hash that proves the funds are locked away and not spendable, they would only have to trust that you would send the funds after the waiting period.

All an CC exchange could offer is to lock a transaction for 121(?) days to the customer. If there's no chargeback, it goes through, if there is one, tough luck -the lock can be still revoked by the exchange until then.
The risk for chargebacks is the same after 100 days and after 10 days, so I'm not sure what the trading should accomplish other than users scamming each other and not the exchange.

If somebody wants Bitcoin for "the long run" something like this might even be enough - yes, 4 months is quite long but better than no way at all to buy with CC!

There are different reasons allowed for chargebacks depending upon the time that goes by. There are some that are allowed within 7 days, some within 75 days.

Where your plan fails is ...

use credit card.  If price goes up collect risk free profit.  If price goes down report the transaction as fraudulent.

As long as the price keeps rising the exchange likely would do fine.  However imagine this exchange existed right now.  When the price plummeted from $266 to $50 over the last 120 days the weighted average price of coins might be $130.  The exchange will lose if those customers charge off.  Not a 100% loss but a loss regardless.

Um nope.  Under federal law all credit cards must provide AT LEAST 90 days from the date of the STATEMENT (which is effectively 120 days from purchase because store has no idea when customer's statement is) to dispute a transaction.   A credit card issuer which doesn't is criminally non-compliant with federal law.  There are some (rarer) situations where disputes can be made even LONGER after the transaction but none where the customers has less than 90 days from the date of their statement.

Not sure where you get 7 days and 75 days from.

I think you guys are talking about different things.  Debit card chargebacks are governed by a different set of rules than Credit card chargebacks even though both may be visa or mastercard.  Heck I'm in Ecuador right now and I see banks offering American Express.

Elwar, I was about to post a similar idea when this thread popped up on my radar. 
I had this exact same idea a day or two ago and I'm working on it actively. 
Would you be interested in working together on it?

Accepting credit cards is always a risk, and the problem with the credit card processors is that when you do a money for money transaction you are actually doing a cash advance.  You need a processor that specializes in cash advances, or you need to start your own processor.  It can be done and it's only about $50k to start your own credit card processor.  Just make sure to make it a separate entity from the exchange and captive to it.

Furthermore, instead of being a small no name startup business selling a virtual currency. 
You just need to sell yourself correctly (and get setup correctly) as a forex broker dealer. 
That's how the big boys do it.  In many/most countries you will need a broker/dealer license for this or piggy back on someone who is.

During the process of researching OpenPay (and the ensuing contract job I took that stopped me from talking about it or working on it for awhile), I learned a lot of things and made the contacts to do this legitimately and negate the risk of chargebacks.

If anyone is interested in chipping in, I can help us to establish a forex operation, a credit card processor and a bank (yes you need to be in control of all 3 of these for visa & mastercard to eliminate your chargeback risk).  It won't be overnight and it won't be cheap.  But it does solve all of the problems discussed with accepting bitcoins (and gives us a platform for OpenPay to get it's own IIN if you guys are still interested in that).  BTW my non-compete expires on May 10th expect an OpenPay related announcement then.

Just to clarify, I used to be known as Isis, but then someone launched an electronic payment system with the same name and  I was politely asked by their lawyers to stop using that name in any context or forum that involves electronic commerce.

Maybe something can be learned from http://www.playerauctions.com (http://www.playerauctions.com)?

They are mostly known for allowing people to buy money in online games, but they also opened a bitcoin exchange. Bitcoins are able to be bought with a credit card, and Playerauctions guarantee the payment of sellers.


Trading video game items and currency is about as nonreversible as bitcoins are, and those markets seem to be doing fine.

This is exactly what i was wondering. Why people are so scared about reversing transactions when credit cards are used around the globe and no one is going to bankrupt because of that. Why only bitcoin sales would have to suffer?

It has more to do with the attractiveness as a target.  Sure I can use my credit card to buy WoW gold.  But WoW gold is only exchangable in game for in game items.  Therefore only WoW players are interested in WoW gold.  Thus less hackers and card scammers are attracted to it.

On the other hand, bitcoins are directly redeemable for cash in the real world.  Thus if you sell bitcoins via a reversable mechanism such as a credit card, you are selling cash the same as if you were selling Casino chips in Vegas.  This is why credit card processors want you to declare it as a cash advance transaction and charge you the much higher associated processing rates.

The reason for this is, it's not generally your users who will reverse the transaction on you.  It's folks who stole the card and are using it get cash advances from you.

+1 to this.

Holding for 120 days may work, but a lower value exchange rate will NOT work.
I buy coins after 10 days I sell them to you at .8 a coin value so I can get other coins to use outside of the site, and than I run a chargeback, I've now exchanged my coins for someone elses at a 20% loss but in turn got usable cins and got a refund on the persons coins.

No safe way to cover this.

You essentially needa merchant to come online with Visa, and setup a site they approve where a person registers a CC# and wallet and they understand how the transfer proofs work. So you can prove XX money of person a's credit card was converted on XX date for YY coins and deposited into YYZ wallet. Which they approved as being theirs.

In theory the whole backing of our system and it's design make's charge backs hard as there's solid online proof. But in reality no one knows the system well enough to trust it outside the community and it still lends a major issue to stolen credit cards.

Everyone and their grand mother would use BT to offload stolen credit card's if you could buy with them.

There is in fact a solution to using credit cards to purchase bitcoins.

First you need to verify the card holders details by pre-authorizing $100.  This is easy to do, every card system allows you to verify their address.
If it's a match, then once you have their address you mail them a paper contract specifying what they are buying and the terms and conditions etc. 
Use the same forms that a stock broker or forex broker would use.  It's the same type of transaction.

Before they can use the card they need to send back a notarized copy of the front and back of the card as well as a notarized copy of their passport or drivers license (you need to have this information for AML purposes anyways).

Once they've done this, limit the account for 180 days.  30 days limit $100, 60 days limit $200, 90 days limit $300, 120 days $400 and at 180 days they reach the max cap of $500.

No matter what do not exceed the $500 cap until they have been with you for a year.


If they can do this then your chance of chargebacks is greatly reduced.

So basically have someone go through an even longer process than any of the exchanges for the convenience of being able to buy bitcoins with a credit card?

It is a one time thing.  You do need certain docs for AML purposes.  Having them sign and return a written contract protects you from them saying later "But I didn't know bitcoins were risky and I just wanted my money back." when they attempt a charge back.  $500 is the largest cash advance you can do in most circumstances.

Just sayin.

I too am trying to come up with a solution.

My thought was to start a Debit Card solution for Bitcoins as im doing so anyway, but so it faster, and refuse chargebacks when it comes to purchasing bitcoins, unless it was a well known scamming site etc.

Only problem with this is, i dont know how we get the money onto the cards in the first place! Do i try find local bitcoin traders that do this for me? As im not going allow credit card topups unless they are an elite member, or something along those line etc etc


Still many hurdles that i need to overcome, but dont know if feasible

I'm doing such project, but I'm still not far away, maybe we can discuss about.

Yeah im happy to talk with you, im actually abit of the way through it,

i've had confirmation from Visa that they can provide me with Co-branded debit cards as soon as i've got the funds to do it, i should be making that first order next week.

I've also got a front end and back end system that supports the payment system, my problem is trying to get the bitcoin API into my system without messing everything up lol

The credit card issuer is also primarily reliant on the company being around to fulfill obligations ie if the company goes bust then the CC company is on the hook for the last 120 days or so of transactions.

Clearly given Bitcoins history for frauds, scam and dreamers and the fact that even the biggest companies in this space cannot keep their businesses open 24/7 it's hardly surprising they run a mile when they hear BTC.

I cannot access this site from work but I just saw this:

http://bitboin.com

Supposedly they accept credit cards to buy bitcoins?

From a google screen shot it appears like some rudimentary wordpress page that is very simplistic.

Though, what is there to worry about getting scammed since you can always do a charge back if you receive no coins.