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Author Topic: A problem with distributed exchanges  (Read 909 times)
johnyj
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October 29, 2013, 11:51:50 AM
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Recently someone who were selling bitcoins on LocalBitcoins.com had his bank account frozen and was summoned for interrogation by the police. The reason is that a fraudulent buyer used a stolen account bought large amount of coins from him

So the accusation that bitcoin were used to do money laundering is quite real. LocalBitcoins.com is a very close example of a distributed exchange where each person deal by themselves. However, this case proved that no matter what kind of exchange form you use, you will always have some legal and regulation concerns. (I think the main reason behind AML law is to prevent the terrorist attack funding)

In this specific case, the bitcoin seller is actually a money transmitter, so he should know his customer's identification and address. But it is unrealistic for everyone who want to sell bitcoin to get a money transmitter license, it seems the best way so far is to have regulated exchanges


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miohtama
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October 29, 2013, 01:32:24 PM
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LocalBitcoins have online selling guide where they state some basic risk mitigation methods when trading bitcoins online. Regardless of taxes and regulation and such, you are always subject to criminal law and holding stolen assets is a crime in most countries. So if you accept stolen money it can be always confiscated from you.

https://localbitcoins.com/guides/how-to-sell-bitcoins-online#risk-mitigation

LocalBitcoins is aware of the risk and this week they launched a real name requirement option the bitcoin seller may enable on their advertisement to mitigate the risk:

https://localbitcoins.com/forums/#!/trading#real-name-required-option-i

Please note that even before the real name process most of active traders on LocalBitcoins did real name check on unfriendly fraud payment methods (national bank transfer, SEPA). However the scammers usually go after novice bitcoin sellers who are not aware of issues with the legacy money transmitting system, like that bank transfers may be originated from stolen money and they are recallable. In many countries the sending bank is responsible for clearing the money (making sure it is clean), but unfortunately some banks do not protect their customers adequately with things like two-factor authentication. This leads to the situation when your computer is compromised with Windows malware it is very easy to empty the bank account of a victim by doing online bank transfers. 

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October 29, 2013, 03:03:25 PM
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The problem is dealing through banks - not decentralized exchanges. The original idea behind LocalBitcoins was to facilitate local, person-to-person exchanges and bypass the banks altogether. Bitcoin and banks go together like oil and water. Bitcoin was created as an alternative to the current banking system and why people keep trying to marry the two is beyond me. Bitcoin is a direct threat to the establishment. Ask yourself, why should banks enable and accelerate their demise?
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October 29, 2013, 03:16:09 PM
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Only accept cash deposits. Problem solved.

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alp
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October 29, 2013, 03:38:39 PM
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Only accept cash deposits. Problem solved.
Just need to make sure it's not counterfeit.
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October 29, 2013, 04:32:21 PM
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Few scammers have the balls to walk into a bank full of cameras and try to deposit fake cash with a teller.

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waxwing
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October 29, 2013, 04:40:29 PM
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Only accept cash deposits. Problem solved.

And if you live in an area where the nearest person willing to buy from you with cash is, say, 100 miles away? Problem not solved, I think.

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October 29, 2013, 04:52:15 PM
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No, cash deposits in your bank account with escrow. You don't need to meet at all.

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Keyser Soze
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October 29, 2013, 04:57:49 PM
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It sounds like the seller accepted a wire or other non-cash deposit/transfer from a buyer using a stolen account. Once the real owner of the stolen account noticed the funds missing, they filed a claim with their bank. That bank would then try to recover the funds the from the seller's bank. Since fraud is involved (fraud amount, seller's balance and relationship with the bank is also a factor) the account was frozen while an investigation could take place.

Only accept cash deposits. Problem solved.

And if you live in an area where the nearest person willing to buy from you with cash is, say, 100 miles away? Problem not solved, I think.
A cash deposit into the seller's bank would have prevented this particular issue. Of course the buyer has to be somewhat close to a branch of the seller's bank.
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October 29, 2013, 05:33:59 PM
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Old world clashing with the new.

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idev
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October 30, 2013, 08:15:17 PM
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The problem is dealing through banks - not decentralized exchanges. The original idea behind LocalBitcoins was to facilitate local, person-to-person exchanges and bypass the banks altogether. Bitcoin and banks go together like oil and water. Bitcoin was created as an alternative to the current banking system and why people keep trying to marry the two is beyond me. Bitcoin is a direct threat to the establishment. Ask yourself, why should banks enable and accelerate their demise?
This. Meetup in person and exchange for cash, problem solved.

Just pray that whoever is not out to rob you.
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November 01, 2013, 12:44:03 AM
 #12

This becomes especially important in some countries where receiving a stolen payment in and of itself can be a crime.

I've also heard of people getting questioned by police and such due to receiving stolen payments.

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