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Author Topic: TradeHill - Dwolla is being scammed and reversing transactions  (Read 18481 times)
JoelKatz
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July 27, 2011, 06:10:40 AM
 #81

I don't think Dwolla has an answer yet. I suspect that they're rethinking their whole business model right now.

There's a market for $0.25 transactions. But Dwolla is going to have to figure out how they're going to handle fraud in a way that doesn't drop their profits to zero (which is going to mean making everyone else eat the fraud costs) and they're going to have to communicate that clearly to all parties.

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billyjoeallen
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July 27, 2011, 06:21:46 AM
 #82

You could ask them more directly. :
What is Dwolla's Phone Number?
Last Updated: Jun 29, 2011 08:24AM CDT
From 9AM to 6PM Monday - Friday Dwolla's customer service is available at 515.280.1000.

(from their website)

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July 27, 2011, 06:48:32 AM
 #83

Hypothesis alert!  (These kinds of ideas hit me when I am in the shower somehow and I just got out.)

Two things seem particularly mysterious about this issue:

1) Dwolla's silence and unwillingness to communicate with Tradehill for no understandable reason.

2) The seemingly disproportionate effect on TH vs. all other exchanges.

The idea which hit me is that for the last decade or so 'national security letters' have been being used like confetti (in the US.)  An interesting feature of these is that complete silence on the part of the involved parties is demanded and usually obtained.  So, for example, the NSA can not only walk into a library and demand their checkout list, but also compel the Librarians to not utter a word about it.  (A few years ago Librarians 'struck' and destroyed all of their records in disgust as I recall.)

So, I wonder if Tradehill is the target of a national security investigation?  It was not to long ago that certain congressmen were making noise along these lines about Bitcoin generally, and Tradehill seems to me like it could be a high-value target.

Part II of my hypothesis is that TH may have been being specifically set up and hence the disproportionate malfeasance that they seem to have encountered.

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July 27, 2011, 07:21:26 AM
 #84

I don't think Dwolla has an answer yet. I suspect that they're rethinking their whole business model right now.

There's a market for $0.25 transactions. But Dwolla is going to have to figure out how they're going to handle fraud in a way that doesn't drop their profits to zero (which is going to mean making everyone else eat the fraud costs) and they're going to have to communicate that clearly to all parties.


[emphasis mine]

yup.

but... they're basically competing against the cheapest wire available:  10 bucks/3 days.  right?

that sure leaves them plenty of room to compete.  would anybody mind - especially now, with reality as it is - a $1 USD charge?  probably not.  still pretty damn cheap, comparatively.

but maybe from somebody else.  i must say that i'm not terribly impressed with dwolla at the moment.  it'd take one helluva campaign on their part to convince me otherwise.

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July 27, 2011, 07:47:39 AM
 #85

This is sad.

I've always been a little skeptic about escrowed exchanges. I realize their importance to most people, particularly large business who just can't afford to evaluate the trustworthiness of every individual they exchange currency with. But the thing is that they need to have a public link to the current banking system, and that makes them vulnerable to all sorts of issues, including what we're seeing here.

I think the best way out for them now, besides using irreversible means of payment like Liberty Reserve (actually, does it remain irreversible?), is to try to hire insurances. That would make everything more expensive, but that's the cost of the banking system, if you want to use an escrowed exchange you'll have to pay for it.
I wonder though if it they would manage to find any company offering insurances to something as peculiar as bitcoin exchanges at an affordable price.

Where's that CoinPal guy now? He had a robust fraud prevention system. Couldn't the same techniques be applied to credit card or bank transfers?
Jered Kenna (TradeHill)
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July 27, 2011, 07:50:16 AM
 #86

Today on IRC and via email, two other exchanges confirmed they had transactions that 'vanished' and that were 'reversed'. We are waiting for them to make this public.

Any exchange using Dwolla CSVs over the past two months almost certainly has loses to the order of 3 to 9% of their volume.

Adam


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July 27, 2011, 08:06:02 AM
 #87

That's big. It could possibly mean that Dwolla simply doesn't have the resources to take these frauds on their balance sheet. That's probably why they are silent: they know they should refund you, but they just can't.

Maybe you'll have no other option but suing them.
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July 27, 2011, 10:03:23 AM
 #88

If dwolla can reverse across the board why would anyone continue to use them? They've been pushing the 'as good as cash' for quite awhile, they even still have FAQs about how easy it is without the worry of chargebacks. They want brick and mortar merchants to use this, but why would I want to sell even a cup of coffee via dwolla if it may end up being a fraud transaction later on.

I was about to start accepting dwolla for a non-Bitcoin online service to hopefully avoid some of the 3% fees paypal and CC processors take, along with the hassle of those payment system chargebacks. But why try to get people to use another service if Dwolla will be just as bad as what's out there already.

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July 27, 2011, 11:54:04 AM
 #89

http://agoristradio.com/?p=438

listen to this very interesting Agorist Radio podcast History of the Cypherpunks.

its been a coupla months since i listened to it but a central point from the panel discussion was that banks LIKE chargebacks b/c it gives them an excuse to charge higher fees.

in Dwolla's case, in order for them to survive IMO the only choice is for them to charge more.  i've never understood how they could make money at $0.25 per tx.
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July 27, 2011, 12:03:42 PM
 #90

Joe Smith: "Mr bank, please initiate EFT to account XYZ."
Bank: K.
Dwolla: Funds received to Mr. Bogus T. Fradulent's account.
Joe Smith aka Bogus T Fradulent: "Mr Dwolla, please send em to Trade Hill, account ABC "
Dwolla: K.
Trade Hill: "Funds received to Bogus T Fradulent's account."
Joe Smith aka Bogus T Fradulent: "BUY BUY BUY SEND SEND SEND"
Joe Smith: "Mr bank, I made an error.  I sent to account XYZ, I meant PDQ."
Bank: K.  EFT reversed, reason of Joe Smith's funds deposited to wrong account.  Dwolla, never mind that deposit to account XYZ.
Which brings up the question -- What is Dwolla's business model? How can they do no chargebacks at only 25 cents per transaction? One fraudulent payment reversal in every 5,000 transactions would bankrupt them.

They've clarified it today. They do chargebacks. Unfortunately they had told us that they don't.
It's 4:15, I'm going to get some sleep, I'll be available tomorrow.


Jered

And it took two weeks for them to just man up and admit this?!

Yeah, that's BS. Appreciate you guys forcing them to reveal this. Too bad it had to get to that point.


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July 27, 2011, 12:57:46 PM
 #91

Today on IRC and via email, two other exchanges confirmed they had transactions that 'vanished' and that were 'reversed'. We are waiting for them to make this public.

Any exchange using Dwolla CSVs over the past two months almost certainly has loses to the order of 3 to 9% of their volume.

Adam

This could mean that some exchanges no longer have the funds to cover all their liabilities, and are now operating on a "fractional reserve" model where they just hope everybody won't withdraw their money all at once. Kinda scary.

This is why I try not to leave any more money than I have to on the exchanges. There is nobody looking over their shoulder to make sure they aren't making big loans to themselves, writing off big losses, etc, all while naively intending to pay the money back "someday, with our future profits"

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July 27, 2011, 01:29:57 PM
 #92

Today on IRC and via email, two other exchanges confirmed they had transactions that 'vanished' and that were 'reversed'. We are waiting for them to make this public.

Any exchange using Dwolla CSVs over the past two months almost certainly has loses to the order of 3 to 9% of their volume.

Adam

This could mean that some exchanges no longer have the funds to cover all their liabilities, and are now operating on a "fractional reserve" model where they just hope everybody won't withdraw their money all at once. Kinda scary.

This is why I try not to leave any more money than I have to on the exchanges. There is nobody looking over their shoulder to make sure they aren't making big loans to themselves, writing off big losses, etc, all while naively intending to pay the money back "someday, with our future profits"

Yes, you have "counter-party" risk. That is the reason for holding bitcoin in your personal wallet. Local, in-person exchanges are best. Develop local, trusted, trading networks. Only leave in the exchanges and online wallets what you can afford to lose.
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July 27, 2011, 01:53:02 PM
 #93

Just hold all dwolla deposit for 60 days before the fund is allowed to be used for trading from now on

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July 27, 2011, 01:57:04 PM
 #94

Just hold all dwolla deposit for 60 days before the fund is allowed to be used for trading from now on

If thats the best option, simply dont allow dwolla. No business can operate by forcing clients to wait 60days, no clients would tolerate this either.

I think best approach if you want to use dwolla from now on then clients must verify themself with the normal legal bullshit ie. photo id, proof of residence, bank account statement etc etc. so would be scammers wouldnt even think twice wasting their time to try and defraud a company.

All this of course only in case someone wants to make use of dwolla, other methods can still be as anonymous as it is atm and unchanged.

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July 27, 2011, 01:58:30 PM
 #95

but it's my money, and i want it NOW.

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July 27, 2011, 02:07:10 PM
 #96



This could mean that some exchanges no longer have the funds to cover all their liabilities, and are now operating on a "fractional reserve" model where they just hope everybody won't withdraw their money all at once. Kinda scary.

this is an overstatement by a long shot.  remember this is an exchange, not a bank.  ppl move money in and move money out rather quickly for the exchange only.  no one is paid any interest like a bank therefore no one has an incentive to leave money there on a long term basis.  this is why exchanges don't make loans and are thus not "fractionally reserved" in the traditional sense.

i suppose if mtgox got defrauded lets say $35K (they did say less than TH), then yes, on an absolute basis they might be a bit short but considering they have hundreds of thousands in USD and BTC it won't be a problem.
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July 27, 2011, 02:43:19 PM
 #97

What other option is there for funding with a $0.25 fee? I'd take the 60 days rather than no funding options at all.

Just hold all dwolla deposit for 60 days before the fund is allowed to be used for trading from now on

If thats the best option, simply dont allow dwolla. No business can operate by forcing clients to wait 60days, no clients would tolerate this either.

I think best approach if you want to use dwolla from now on then clients must verify themself with the normal legal bullshit ie. photo id, proof of residence, bank account statement etc etc. so would be scammers wouldnt even think twice wasting their time to try and defraud a company.

All this of course only in case someone wants to make use of dwolla, other methods can still be as anonymous as it is atm and unchanged.

If my post has been helpful, send me some love -> BTC: 1kokojUapmWqCqPw3Ch2rjcVh57tJEzka | PPC: PDyXAgA8eH47gokVW6zVZPSuu15aao5nZF | Bitshares: kokojie
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July 27, 2011, 02:46:30 PM
 #98

What other option is there for funding with a $0.25 fee? I'd take the 60 days rather than no funding options at all.

Just hold all dwolla deposit for 60 days before the fund is allowed to be used for trading from now on

If thats the best option, simply dont allow dwolla. No business can operate by forcing clients to wait 60days, no clients would tolerate this either.

I think best approach if you want to use dwolla from now on then clients must verify themself with the normal legal bullshit ie. photo id, proof of residence, bank account statement etc etc. so would be scammers wouldnt even think twice wasting their time to try and defraud a company.

All this of course only in case someone wants to make use of dwolla, other methods can still be as anonymous as it is atm and unchanged.

You really think its practical if you want to trade to wait 60days ? Id rather pay $5 or $10 to be able to trade in less time than that but maybe its fine with you to wait 2 months to get in a good trade o_0

There is other funding options, tradehill just have to add it. Dwolla isnt the only alternative, just wait for tradehill to add other methods if this doesnt get resolved.

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July 27, 2011, 04:11:09 PM
 #99

For emergency trade, sure I can wire the money and pay the fee. But like my stock brokerage account, I usually keep money in there for years and don't deposit and withdrawal constantly, 60 days isn't a big deal to me, it's just an option to fund cheaply.

What other option is there for funding with a $0.25 fee? I'd take the 60 days rather than no funding options at all.

Just hold all dwolla deposit for 60 days before the fund is allowed to be used for trading from now on

If thats the best option, simply dont allow dwolla. No business can operate by forcing clients to wait 60days, no clients would tolerate this either.

I think best approach if you want to use dwolla from now on then clients must verify themself with the normal legal bullshit ie. photo id, proof of residence, bank account statement etc etc. so would be scammers wouldnt even think twice wasting their time to try and defraud a company.

All this of course only in case someone wants to make use of dwolla, other methods can still be as anonymous as it is atm and unchanged.

You really think its practical if you want to trade to wait 60days ? Id rather pay $5 or $10 to be able to trade in less time than that but maybe its fine with you to wait 2 months to get in a good trade o_0

There is other funding options, tradehill just have to add it. Dwolla isnt the only alternative, just wait for tradehill to add other methods if this doesnt get resolved.

If my post has been helpful, send me some love -> BTC: 1kokojUapmWqCqPw3Ch2rjcVh57tJEzka | PPC: PDyXAgA8eH47gokVW6zVZPSuu15aao5nZF | Bitshares: kokojie
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July 27, 2011, 05:13:49 PM
 #100

[POLL] Will you reverse your Dwolla transactions?
http://forum.bitcoin.org/index.php?topic=32354.0

If the results of this poll are accurate, there are more reversals coming. If I were running an exchange, I would disconnect my bank account from Dwolla ASAP, changing banks if necessary. Let Dwolla sleep in the bed they made.

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