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Author Topic: [IDEA] Credit card based speculative Bitcoin exchange  (Read 2996 times)
Elwar
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April 18, 2013, 01:14:25 AM
 #21

The risk for chargebacks is the same after 100 days and after 10 days

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.

First seastead company actually selling seasteads: Ocean Builders https://ocean.builders  Of course we accept bitcoin.
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DeathAndTaxes
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April 18, 2013, 01:33:11 AM
 #22

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.
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April 18, 2013, 02:08:56 AM
 #23

The risk for chargebacks is the same after 100 days and after 10 days

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.

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.
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April 18, 2013, 03:29:04 AM
 #24

The risk for chargebacks is the same after 100 days and after 10 days

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.

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.

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April 18, 2013, 04:11:51 AM
 #25

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.

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April 18, 2013, 06:34:48 AM
 #26

Maybe something can be learned from 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.
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April 18, 2013, 03:53:46 PM
 #27

Maybe something can be learned from 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?

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April 19, 2013, 10:01:03 PM
 #28

Maybe something can be learned from 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.

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April 20, 2013, 10:24:43 AM
 #29

Maybe something can be learned from 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.
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April 20, 2013, 09:13:27 PM
 #30

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.
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April 21, 2013, 08:08:58 AM
 #31

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.

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Elwar
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April 21, 2013, 10:56:02 AM
 #32

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?

First seastead company actually selling seasteads: Ocean Builders https://ocean.builders  Of course we accept bitcoin.
Seastead talk at http://seasteadtalk.org
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April 21, 2013, 12:16:55 PM
 #33

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.

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April 21, 2013, 12:55:24 PM
 #34

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
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April 21, 2013, 03:46:04 PM
 #35

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.
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April 21, 2013, 10:55:55 PM
 #36

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
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April 22, 2013, 11:33:30 AM
 #37


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.
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April 24, 2013, 05:10:45 AM
 #38

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.

First seastead company actually selling seasteads: Ocean Builders https://ocean.builders  Of course we accept bitcoin.
Seastead talk at http://seasteadtalk.org
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