NEW YORK (InsideBitcoins) — One of the first rules that new users of bitcoin are forced to learn is that there are no chargebacks in cryptocurrencies.Some users are able to learn this from a more experienced bitcoin enthusiast who decides to show them the ropes, while others are forced to learn this valuable lesson on their own through personal experience.In an interview with TWiT’s Leo Laporte from May 2013, Gavin Andresen talked about how he often receives emails asking if he can help someone gain access to lost bitcoins or reverse a fraudulent transaction.Anyone familiar with how bitcoin works as a payment protocol knows that there is nothing Gavin or any other bitcoin core developer can do to help these people.One of the most prevalent forms of fraud in the early days of bitcoin involved trading bitcoin for fiat currency via PayPal.The buyer of the bitcoin would send some U.S.dollars, euros, or another form of fiat currency to the seller, and then the seller would send the bitcoin to an address provided by the buyer.

A few days later, the buyer would perform a chargeback on the transaction.The PayPal payment would be reversed, and the seller would be left with nothing at the end of the trade.ethereum ether valuePayPal recently decided to update the PayPal User Agreement when it comes to digital goods.bitcoin how to backup walletThese changes will become active on November 18, 2014.elms bitcoin videoThe specific part of this policy update that pertains to bitcoin can be seen below: “Clause 7.3 (“Ineligible Items”) of the PayPal User Agreement will be amended as follows: 7.3 Ineligible Items.bitcoin cleveland ohioPayPal Buyer Protection only applies to PayPal payments for certain tangible, physical goods.litecoin anonymity

Payments for the following are not eligible for reimbursement under PayPal Buyer Protection: Due to the fact that the above changes to their user agreement did not specifically mention bitcoin, cryptocurrencies, or digital currencies of any kind, I reached out to PayPal for further clarification on this issue.litecoin anonymityA PayPal spokesperson responded, “The PayPal buyer protections only apply to physical goods and do not cover digital items, which would include crypto currencies like Bitcoin.” In other words, these updated terms do remove PayPal Buyer Protection from sales of bitcoin and other cryptocurrencies.Don’t start selling bitcoins via PayPal just yet Although the removal of buyer protection for bitcoin sales is definitely a move in the right direction, there are still massive risks involved with selling bitcoin via PayPal.PayPal Buyer Protection is a valuable tool for scam artists and fraudsters, but they still have plenty of other options at their disposal.

I asked PayPal for clarification on whether or not payments involved with bitcoin sales could still be reversed by claiming the purchase was an “unauthorized transaction.” PayPal was unwillingly to make a clarifying statement on this point, which means that claiming a transaction was not authorized could still be a point of attack for a scammer.It’s possible that PayPal may use the IP addresses in account login histories to decide whether or not someone’s account has actually been hacked, but there are also issues with that method of seller protection.Although PayPal has been known to restrict the use of VPNs in the past, it may still be possible for a user to basically fake a hack on their account for the purpose of defrauding a seller of bitcoin.If a PayPal user does not get the decision they want from the dispute resolution process, they can always turn to their credit card provider.It’s possible that the funding method used to purchase the bitcoin can still be used to process a chargeback, and PayPal has not been clear as to whether or not they would work with card providers to prevent this issue.

Selling bitcoin via PayPal is still a high-risk activity Although these updates to the PayPal User Agreement seem like a move in the right direction, selling bitcoin via PayPal should still be viewed as a high-risk activity.The existence of chargebacks is always going to be an issue with any service that offers various forms of escrow or buyer protection.The issues associated with chargebacks are one of the core reasons bitcoin was created in the first place.You can follow @kyletorpey on Twitter.An expensive lesson against selling bitcoin on eBay From The News Desk A common fear among bitcoin bears has been that the loosely regulated, somewhat anonymous digital currency would lead to an increase in fraud and other criminal activity.But amid regulators and law enforcement scrambling to prevent bad actors from engaging in money laundering, drug and weapons smuggling, and tax evasion, all under the helpful cover of a nation-less cryptocurrency, comes a report of the most basic of online crimes that has affected products as commonplace as the iPhone.

James Larisch, author of the whatilearnedtoday blog, shares a story in which he learned a several hundred dollar lesson about deals that seem too good to be true while selling bitcoin on eBay.In the process, he calls attention to the fact that bitcoin is still a wild west asset class around which regulations remain unclear.As a result, even the one of most seasoned internet payment companies is conflicted around how to proceed.As Larisch points out in his blog post, the prices of bitcoin fluctuate between countries and exchanges, meaning that there are small but real arbitrage opportunities available for anyone able to exploit these inconsistencies.The problem is that exchange arbitrage offers returns of only $5 to $10 per bitcoin sold, and can be subject to transaction delays.Ebay, however, appeared to offer a far better profit margin, with bitcoins regularly selling for more than double their market value on the platform.(Enter red flag number one.)Larisch writes: People were consistently selling Bitcoin for 150 percent of market price.

At the time, Coinbase was selling BTC for $93.I saw almost every auction end with a winning bid of at least $150.Not only that, but some auctions were ending at $300, $500, and I even saw one end at $700.Intrigued by the income potential, Larisch waded in slowly, selling 0.5 bitcions in his initial auction for $80, while the market value on coinbase was $93.The transaction closed successfully and he received his payment prior to transferring the digital currency.The payment was sent via PayPal (Enter red flag number two.)Both parties exchanged positive feedback.Emboldened by his success, Larisch and his “loose with his money” friend began aggressively buying bitcoins through Coinbase and selling it on eBay.The pair had rationalized several reasons for the willingness of buyers to overpay, venturing explanations ranging from immediate availability to the inaccessibility of Coinbase to non-US residents.“We didn't worry about it for too long... we were too busy buying more,” Larisch writes.

(Enter red flag number three.)Anyone familiar with eBay and PayPal scams can probably guess what happened next.“I was at the gym when I received the email,” Larisch recalls.My friend from China was initiating a chargeback via PayPal.” But it wasn’t just one buyer who had taken the eager digital currency trader for a ride.Several more chargebacks appeared over the next week on both Larisch and his friend’s accounts.Most buyers claimed that the bitcoins were never delivered, while one claimed that his account had been hacked and the coins purchased without his authority – a plausible but unlikely scenario given the broader trend.Crucially, all of Larisch’s customers had “spent” the bitcoins that he sent them.Unlike an iPhone or other physical good, however, which a buyer can claim arrived defective or never arrived at all, bitcoins are fully traceable.By all intents and purposes, PayPal should have been able to validate the transaction and override the chargeback.This is not what happened, however.

Larisch writes: I screenshot'd Coinbase verifications showing I sent the BTC.I sent PayPal the blockchain.info.I even screenshot'd the pleasant message exchange we had, including the positive feedback he left me.My money was frozen for at least 21 days.(As many PayPal merchants can attest, enter red flag number four.)At the time of his writing, PayPal had ruled against Larisch in one dispute, claiming incredulously that he had “failed to prove that [he] sent the item.” Rightfully, he has little faith that the other disputes will end up any differently.To date, Larisch has lost only $90.Another several hundred dollars lay in the balance between him and his friend.Larisch’s blog post titled “How to Sell Bitcoin on eBay for 300% Profit” generated a lively discussion on the HackerNews messageboard.To date the thread has received 102 points and generated 99 comments.It’s easy to argue, as did many HackerNews commenters, that the pair shouldn’t have been so naive to think that they could make 100 percent profit.

But any item is worth only as much as a buyer is willing to pay for it right.If bitcoins were regularly selling for two times market value on eBay, it’s not for a seller to argue with the pricing.Others argue that where Larisch and his friend really erred, was in trusting eBay and PayPal to understand these unorthodox transactions and to protect their interests effectively.As user called noonespecial writes, “Ebay absolutely lacks the seller protection to ever make this kind of transaction.If I purposely tried to design a market that supported this kind of fraud, (even encouraged it, in a nurturing "please do this" sort of way).I couldn't do better.” Similar comments have been made about PayPal.But, despite the propensity for “item not received”-fraud on eBay and PayPal, the real issue may be far simpler.It’s illegal to operate a currency exchange – online or offline – without proper registration as a money transmission business.This is the same statute under which the US bank accounts accounts of bitcoin exchange Mt.

Gox were seized in May of this year.As HackerNews commenter tadfischer writes: This is part of the form letter that PayPal sends when you are caught selling BTC after the fact: "We have reviewed your PayPal account and found that you are operating as an e-currency dealer/exchanger including the sale of electronic media of exchange (such as electronic money or digital currency).Per our current Acceptable Use Policy for Money Service Businesses, PayPal may not be used to operate a currency exchange, bureau de change or check cashing business including the sale of Bit coin."So PayPal knows what BTC is, they just straight up ban digital currency sales.There appears to be a conflict between tadfischer’s evidence and the explanation Larisch claims to have gotten from PayPal.What is far more clear is the fact that selling currency through a marketplace ill-suited for that purpose is a fool’s errand.It may even be illegal.As Larisch himself notes, “[there’s] no such thing as a free lunch, dammit.” [Original image via Wikimedia]