PayPal's "Buyer Protection Program" is a Crook's Best Friend, Here's Why...
PayPal is a simple way to send/receive money and/or make purchases online which has made the payments platform a household name. PayPal is also known for protecting consumers with it's "Buyer Protection Program," which allows a buyer to get a full refund if their item is not shipped or is not as described.
Though when making purchases on sites like eBay, the Buyer Protection Program makes perfect sense, there are certain transactions where the payment method should be avoided altogether (for untrusted parties) due to the imminent threat of chargeback fraud... One of those cases, is selling cryptocurrency.
Chargeback Fraud / Friendly Fraud
When a customer makes a purchase and upon receipt of their goods, requests a chargeback from their bank, credit card company, or in this case, PayPal.
Cryptocurrency / Blockchain Technology
Irreversible transactions due to it's decentralized nature, therefore making chargeback fraud (on a Blockchain) and any means of retribution post-transaction IMPOSSIBLE.
localethereum.com
According to this localetherum.com blog post, the escrow smart contract when buying/selling Ethereum on the platform works as follows:
Using localethereum.com, an ordinary trade works like this:Here is an example of a successful transaction on localethereum.com:
- The buyer and seller confirm and agree on the terms of the trade.
- The seller places the ether into the smart contract (with one click). This provides proof-of-funds and allows for a much safer trade.
- The buyer makes payment directly to the seller.
Either:
a. The seller successfully confirms the payment, and releases the escrow. Trade complete!
b. A party raises a dispute, and brings in a third-party arbitrator, giving them the keys to decrypt the messages and work with both parties to make a resolution.The smart contract allows users to safely exchange ether with one another, and to name a trusted third-party to mediate a trade if a dispute arises. Currently, the trusted mediator is always localethereum.com, but the contract will be adapted in the future to switch over to a reputation-based distributed arbitrator pool.
Most transactions occur without a hitch, but some users found that, due to PayPal's policies on cryptocurrency, that they can use the platform to defraud unsuspecting victims of their valuable coins. Unfortunately, PayPal chooses to side with criminals rather than to thoroughly investigate. In doing so, they are complicit in this fraud and countless individuals continue to be victimized, falling victim to "chargeback fraud" or "friendly fraud" with no means of recourse.
I first became aware of the severity of this problem after losing money on localethereum.com. I made a trade, received the money, and attempted unsuccessfully to buy more Ethereum with the money that had been deposited into my PayPal account. I then noticed that the incoming transaction was "pending" and started trying to figure out why...
Upon further investigation, I found that the pending balance was due to a disputed transaction. After talking with PayPal, I was told by a representative that they not support payments for cryptocurrency and that they were siding with the thief and refunding MY money...
I then posted about it in the localethereum.com telegram channel in order to find out if other people who've had similar experiences would be interested in being featured in a Steemit article about the phenomena.
Within minutes, I received replies to the post and a primate message from Michael Foster, the co-founder of LocalEthereum.com, who said that he'd be willing to contribute to the piece and help give a larger overview of the problem.
According to Michael, roughly $1,000,000 has been exchanged on localethereum.com via PayPal, but roughly 4% of orders have problems with disputes resulting in $22k lost due to chargeback fraud on the PayPal platform.
PayPal's seller protections are poor and chargeback fraud is sadly rampant on the platform in over-the-counter cryptocurrency trading and elsewhere. Unfortunately, PayPal takes the side of the buyer in almost all cases.
Though Michael sympathized with me, there was nothing that he or localetherum.com could do to remedy the situation after I released the coins from the escrow smart contract.
Unfortunately, once the ETH is released from the escrow by the seller there is nothing we can do to help. Ethereum transactions are irreversible; once the ETH leaves the smart contract there is no avenue to recover it.
Michael also gave this advice when selling on the platform via PayPal:
PayPal is a very high-risk payment method and we urge everyone to avoid it entirely unless they understand the risk. There are a few precautions to mitigate their risk of chargeback fraud:
Only trade with those who have a long-standing reputation which includes positive feedback and a high trading volume.
Ask to verify the identity of the buyer and match the name on their photo identification to their PayPal account.
Hold the ETH in escrow for an extended period after the PayPal transaction is sent. (Remember to discuss this with the buyer first.)
My advice would be to ONLY accept PayPal payments for cryptocurrency from people you know and trust. PayPal users have up to 120 days to dispute a transaction!! As time passes, if records aren't kept, it can be hard to prove that it was indeed an "authorized transaction."
In the next piece, I will go in deeper about PayPal policies (or lack thereof), share some other articles on the topic as well as my personal experience as a victim to chargeback fraud...
Please upVote, reSteem and Share in order to Raise Awareness about this issue
(and to help me get some of my money back!!)