How to deal with DDOF attacks on bitcoin.

[Anonymous]

Distributed Denial Of Faith.

   Someone with the motivation to do so could create many paypal accounts and buy a lot of bitcoins through the exchange markets and then chargeback the entire amount of purchases.This could be devastating for cashflow and would lead to some exchanges going out of business if left unchecked.This has already occured with MtGox which means you have to wait a month before you can use your cash to purchase more stock.I suggest we put things in place now before someone loses a lot of bitcoins and/or cash.

   We also  need a page on the wiki that discusses payment methods in relation to bitcoin and the pros and cons of each.These different payment methods can then be evaluated and added to over time to reach a consensus on the best one for people to use.

   On a side note as a suggestion for the exchanges out there you could create trusted merchant accounts for those who are doing the right thing and this could be a paid service to help alleviate the chargeback issue.To be eligible for a merchant account it could be based on having your business on the trade page or a certain number of forum posts.I would pay 50 btc or more a month for this service.This could be managed through your account balance on the exchange. Any thoughts?

  

[GoldRush]

The exchange needs a bank account that accepts wire transfers.  The money arrives within hours and it's real money.  No chargebacks or other games.

For bitcoin to be widely accepted there needs to be a lot of work put into creating a service for exchanging dollars and bitcoins.

[TTBit]

* There should be a 5 day hold on funds before any trading can be done, rather than a 1 month wait to withdraw.

* Offer US Dollar bills on biddingpond.com for BTC. Or offer paypal funds for BTC (same problem, but not a systemic risk to bitcoin markets)

* If I buy a $50 visa card, can those be claimed to be on chargeback? Maybe if a site accepted credit cards instead of paypal.

[Anonymous]

* There should be a 5 day hold on funds before any trading can be done, rather than a 1 month wait to withdraw.

* Offer US Dollar bills on biddingpond.com for BTC. Or offer paypal funds for BTC (same problem, but not a systemic risk to bitcoin markets)

* If I buy a $50 visa card, can those be claimed to be on chargeback? Maybe if a site accepted credit cards instead of paypal.

You have to be careful of money exchange regulations before doing some of those things.

[Anonymous]

Another option could be security deposits for new customers. 

[GoldRush]

You have to be careful of money exchange regulations before doing some of those things.

I contend that giving someone bitcoins is providing them a service.  It's not money.  You're not even giving anything to them.  You're simply adding data to the chain of data that a bitcoin client uses.

[Anonymous]

You have to be careful of money exchange regulations before doing some of those things.

I contend that giving someone bitcoins is providing them a service.  It's not money.  You're not even giving anything to them.  You're simply adding data to the chain of data that a bitcoin client uses.

That's a novel way of seeing things. 

[FreeMoney]

Another option could be security deposits for new customers. 

Same issue? How do they pay it? How to avoid a chargeback?

Pecunix has no chargebacks, right? Someone could run a market that held a balance in BTC and GAU to avoid constant Pecunix fees from day traders. Maybe MtGox would even set that up eventually.

[Willsway]

Maybe if a site accepted credit cards instead of paypal.

Most credit cards allow the owner to initiate a charge-back for up to 60 days after the purchase. The bank doesn't ask any questions if the owner simply says it was illegitimate - it's up to the merchant to prove the transaction was a legitimate purchase, which in many cases is almost impossible. I once lost $10000 worth of artwork due to this policy even though I had a swiped card and signed slip. It took me a private detective to prove the delivery address was that of a relative to the card holder, and even then, I had to institute a civil procedure to get the art back. Once all that was done, I laid a criminal charge which was never taken further by the bank or the police. Now imagine dealing with "digital" goods and in which you don't have the advantages of a "swiped" transaction.
I place my little example here to illustrate how difficult it is going to be to create a "fool-proof" method of taking payment, especially with cards and mobile transactions (since mobile companies place the same burdens of proof on the merchant). I fear only mass transactions with transaction fees can buffer the effect of a planned 10% charge-back.  A free or low fee service simply will not show the profits to buffer it's clientèle against fraud and thus, ultimately, find it impossible to survive..

[Anonymous]

@willsway

http://www.badcustomer.com/  this site lets you report customers who are a chargeback risk.

[Willsway]

@willsway

http://www.badcustomer.com/  this site lets you report customers who are a chargeback risk.

A very useful link, thank you

[GoldRush]

@willsway

http://www.badcustomer.com/  this site lets you report customers who are a chargeback risk.

I tried to use this service in my own business with little success.  It's impossible to get someone to call you back.

[mizerydearia]

I contend that giving someone bitcoins is providing them a service.  It's not money.  You're not even giving anything to them.  You're simply adding data to the chain of data that a bitcoin client uses.

I started a quotes wiki page for insightful quotes, comments, etc that are worthy of spreading, retaining, documenting: http://www.bitcoin.org/wiki/doku.php?id=bitcoin_quotes

@willsway

http://www.badcustomer.com/  this site lets you report customers who are a chargeback risk.

How is this to be used if the customer is either anonymous or a kind of entity that isn't fully representative of their actual existence?  e.g. I could pursue several identities in context of spending bitcoins and if an identity establishes a bad reputation I can stop using it.

[Anonymous]

I contend that giving someone bitcoins is providing them a service.  It's not money.  You're not even giving anything to them.  You're simply adding data to the chain of data that a bitcoin client uses.

I started a quotes wiki page for insightful quotes, comments, etc that are worthy of spreading, retaining, documenting: http://www.bitcoin.org/wiki/doku.php?id=bitcoin_quotes

@willsway

http://www.badcustomer.com/  this site lets you report customers who are a chargeback risk.

How is this to be used if the customer is either anonymous or a kind of entity that isn't fully representative of their actual existence?  e.g. I could pursue several identities in context of spending bitcoins and if an identity establishes a bad reputation I can stop using it.

        Well then you are screwed no matter what you do.This is the same argument about a society with no state and how it would work. ie what do you do about psycopaths who don't respect your property and how would you police them or protect yourself.The answer is protection services,insurance agencies,bounty hunters and so forth who are incentivized to investigate these cases.
        If you had an insurance system that specifically targets the chargeback issue it would be motivated to come up with ways of not losing its money. The risk of losing profit is a powerful motivation to protect the customers of the insurance company. Im sure they would hunt down and prosecute fraudulent cases. A few scumbags successfully made an example of would help keep the risk of chargebacks to a bare minimum. You need to affect the risk/reward ratio. This is why people rob houses rather than rob banks as they are a softer target.
        I dont know what sort of premiums you would need to pay that would cover this risk. Im sure it could be done though. Remember also that anonymous bitcoins could theoretically be used as an assassination market where the fraudster would have a price on their head if they ripped off the wrong person. Bounty hunters ftw!

        You need to make people too scared to even contemplate bitcoin fraud imo you would still get the occasional psycopath but the whole system would not be in danger.  Its not that freedom is entirely without risk it is that it is far better at getting results than the system we have now.

[GoldRush]

It's not that freedom is entirely without risk it is that it is far better at getting results than the system we have now.

Well said!  Freedom comes with responsibility.  Freedom produces a lot, but you have to spend a little on your own well being.

[FreeMoney]

The fact the dollars can be yanked back so easily and that the resolution methods that you implicitly have to pay for to use, PayPal, CC, etc is a negative on them and not on bitcoin.

If I have a coin it is mine to give, finally and completely and quickly. If I have money on PayPal how do I convince someone that I am really giving it to them? Sure it shows up in their account, but I can pull it back for a week? 30 days? Longer? If I can't give it away finally it is worth less. Coins don't have this issue and that is part of their value.

Dollar on string, lol.

[RHorning]

The fact the dollars can be yanked back so easily and that the resolution methods that you implicitly have to pay for to use, PayPal, CC, etc is a negative on them and not on bitcoin.

If I have a coin it is mine to give, finally and completely and quickly. If I have money on PayPal how do I convince someone that I am really giving it to them? Sure it shows up in their account, but I can pull it back for a week? 30 days? Longer? If I can't give it away finally it is worth less. Coins don't have this issue and that is part of their value.

Dollar on string, lol.

On this issue, I happen to agree.  It sounds like there is a risk associated with PalPal and Credit Cards... a risk that should be accounted for in terms of fees that you charge to be able to have those options.  Most merchants usually eat a small (not really that small) cost for purchases using those payment methods and deliberately have their profit margins set to accommodate those payment methods.  Payments in Bitcoins have less risk (to the buyer), so there is less of a need for such fees.

The trick is to find a fee that is reasonable that won't drive too many people away but at the same time cover your behind if somebody pulls a stunt like that.  Be honest about it to your customers that it is a few rotten customers who are causing problems and ruining it for everybody else.  Unfortunately Credit Card companies don't like businesses telling their customers that they are using a flawed financial instrument.

[GoldRush]

The companies that will let you trade gold<->dollars at the lowest spreads do not accept credit cards.  It's either wait for a personal check to clear, or pay by wire transfer.  I do not believe that a bitcoin exchange is going to find the world any different.  The only way they can offer low spreads is to avoid credit cards and paypal altogether.

[Anonymous]

The companies that will let you trade gold<->dollars at the lowest spreads do not accept credit cards.  It's either wait for a personal check to clear, or pay by wire transfer.  I do not believe that a bitcoin exchange is going to find the world any different.  The only way they can offer low spreads is to avoid credit cards and paypal altogether.

I know of different payment methods available but it needs someone to build the site for it.Paypal and credit cards have too much chargeback risk when you are dealing with a system such as bitcoin.Its out of balance too far to one side.

[mizerydearia]

I just encountered http://propay.com.  It seems interesting

Update: http://aboutpaypal.org

Years ago, Real Merchant Accounts used to cost a lot upfront, making PayPal the next best thing. However, many merchant account companies are now offering free setup, free application, instant approvals and charge nothing upfront. Incredibly, the transaction rates are usually lower with a real merchant account. And unlike PayPal, with a real merchant account, you are in control of your own money.