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How Not to Sell Bitcoin on eBay for 300% Profit (jameslarisch.com)
126 points by dysruption on Aug 25, 2013 | hide | past | favorite | 100 comments



Venue (space) arbitrage in illiquid, disconnected markets necessitates holding collateral at each venue. In this case, it means holding USD and BTC at both Coinbase and MtGox (presuming you don't know, in advance, which way the arbitrage will open up). If one can fund accounts instantly USD and BTC can be held in outside accounts, waiting. When opportunity arises one simultaneously sells in one location and buys in the other. Aggregate USD held to BTC held doesn't change, but quantities held slowly appreciate.

A challenge with a volatile pair like BTC-USD is keeping the portfolio delta hedged, i.e. neutral with regards to movements in BTC-USD. Without the ability to even borrow BTC effectively this becomes difficult to do cost-effectively. That said, a volatile pair in a fragmented market allows for market making sans leverage.

Taking a space arbitrage, as the author presented, and executing it as a space-time trade, as the author presented (buying in one place, waiting, selling in another), is not arbitrage.


Technically, sure. But 'arbitrage' today is interpreted broadly--more along the lines of buying basically the same thing and making the difference at some point in the future. Like stat arbitrage. Merger arbitrage. Capital structure arbitrage. There is an amount of non-simulataneaity in all of these. Buy two of what ought to be the same price, but are not for some reason, and wait. Sameness and waiting. I mean, shoot, in stat arb the entire thing is based on such a murky idea of sameness that two products/instruments/securities might not actually even be the same thing and may never converge. So point being, in the vernacular, yes, 100% what the author is talking about is in fact 'arbitrage.'


The words you're using make it sound very much like you know what you're talking about. And it sounds interesting. But I can only make sense of bits of it. Do you have a good suggestion where I can read a bit more about this?

I.E. Why is the space vs. space-time distinction important? Why is borrowing BTC important? You give an "i.e." but I still don't understand delta hedged.


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.


I'd guess that's PayPal that lacks protection, since they are the ones making the decision. Probably because their arbitrators are ignorant in what Bitcoin is and how it works. I don't even blame them - they can't know everything, but one must know there's a risk PayPal would rule against you if you sell something that you can't prove is delivered to their satisfaction.


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.


OK, then it looks like whoever sells BTC on eBay and uses paypal is pretty much setting himself up for trouble. So the OP has nobody to blame but himself...


Haha, you're assuming that if they knew what bitcoin was and believed that the seller and the sale was legit, that they would have sided with the seller.

Paypal doesn't work that way, mate.


The only feedback the seller mentioned was in the buyers leaving it for him.

If the seller required a good account history, and stuck to the US, he may have not had these problems. Arguably those buyers could have screwed him on anything (remember the story about the rare violin destroyed at Paypal's request.)

There are things worth a lot more than $90 bought and sold on eBay every day. I would argue that buyer to seller reputation and thus integrity is more important than the reputation of the marketplace or medium of exchange.


eBay at one time was dealing with a lot of seller fraud with sellers that didn't ship, shipped you a rock instead of a laptop, etc. over the years they started adding more and more buyer protection to keep shoppers from being scared away. Unfortunately they tipped the scales so greatly that now, as a seller, you can very easily be scammed. The scammers have simply moved to the other side now and commit their scams as buyers.

It must work out better for eBay that way. But it sucks to sell anything of high value.


Yeah, this is the problem with fighting fraud at a venue like eBay. You invariably tip the balance to one side or the other, and the fraudsters just move to that side. The tough part about tipping to the buyers' side is that buyers always have the power of the chargeback anyway.

But, eBay probably made the decision by simply asking who it is better to frustrate: sellers who have very little choice of viable venues at which to sell, or buyers who have a plethora of choices from which to buy.


This is the most classic bitcoin scam - buy with paypal, then claim you didn't receive the item. The seller has no way of proving that you did, and Paypal will rule on the buyer's side every single time.

This is why trading channels like #bitcoinotc discourage any use of paypal - but for times where you have to use it, there's the trust system.


Gee, if it's really so foolproof then all of these comments (and OP's lamentation) seem to be missing the point.

Clearly there is a free lunch, and it's buying Bitcoin on Ebay.

http://www.ebay.com/sch/i.html?_nkw=bitcoin

Look at all that free money.

I mean, for the small price of feeling like a twat, a small transaction fee, and locking up a couple hundred bucks for a month... you get a Bitcoin. So why aren't these listings being sponged up by a few people that don't mind the twat factor?


I don't think it's just the "twat" factor. You can only do so many "I haven't received the goods, refund my money" before you accumulate such a horrendous feedback that nobody will do business with you again. In addition there is a chance your paypal/ebay accounts can get shut down.


You exchange positive feedback before you send the refund request. And sellers can't leave negative feedback any more.

With that said, your ebay account might get shut down after this happens more than a handful of times. Better pick up some spare accounts from a botnet operator.


More info on the #bitcoin-otc advice on paypal: http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otc#Notes_on_...


It's a good thing to be scammed for a small amount at some point IMO. It's like a vaccine; makes you more careful in the future. I lost $10 to Bitscalper in 2012; amount was insignificant but it certainly did teach me the stupidity of trusting anonymous people with money in the hopes of getting a few percent profit.


It's pretty sad, considering that if the buyer sent the bitcoin address to send to through paypal you can prove to paypal cryptographically beyond any and all doubt that you really sent the coins.

Even when someone isn't claiming their account was hacked (which would be a problem no amount of cryptographic proof would solve) paypal simply doesn't care. I guess that really sums up paypal: Paypal doesn't care.


I guess it's a bit more specific: PayPal doesn't care about sellers.

I sell a JavaScript Game Engine[1] and have made the exact same experience over and over again. Someone buys it, I send out the license email and the download link and 2 days later I see a chargeback. I can show PayPal screengrabs of the license email and database records, showing that my software really has been downloaded from the account in question. They don't care. It's not "proof of shipment" if the shipment doesn't go through physical mail that supports tracking.

I have since come to terms with the fact. I see it as simple piracy - it still annoys me, but I have to live with it.

Funny thing is: if someone sends me an email, saying he's not happy with my software, I always give them a full refund - which somehow isn't nearly as taxing on my mind as PayPal chargebacks.

[1] http://impactjs.com/


Why not send a small postcard with the license key that requires them to sign to get the postcard? Give them an instant key good for 14 days and then make them use the one on the postcard for long term use. Then you'll have your proof (and be pretty close to PayPal's chargeback limit)


You don't need to send him a different key in the post. Give him the key digitally and send the same key via post.


The reason you don't want to do that is because they can just reject the postcard. That's why you have to give them needed info on the card. The point of the temp key is so they can get immediate satisfaction.


You could offer other services that having access to a valid key gives you, such as support, updates, community, so on.


That's a pretty good idea, customers might even appreciate the "thank you" note. You do need to get their address though.


Which is an extra layer of fraud protection. :)


If I bought software and they were going to send me a postcard with a license key, I would be pretty annoyed.


Why? You'd get one via email right away, you'd just have to enter the one from the postcard when it arrived.


> Why not send a small postcard with the license key

Sending a postcard with a license key certainly gives someone the license key, but whether its the person to whom it is mailed or not is less certain.


The difference is probably that in your case you're showing self-produced evidence that you can easily and arbitrarily create, while in the case of physical shipment another party confirms the shipment.


I've never sold anything via PayPal, but how does "proof of shipment" prove anything? If I sold you, say, a violin for a thousand bucks, then shipped you a box with a couple bricks inside it, would PayPal side with me? Yes, I have a tracking number that says I shipped a 5 lb package to him...

If yes, then couldn't I inversely buy an expensive item, then take it out of the box, replace it with bricks, and send PayPal pictures of me getting "scammed"? Would I get my money refunded?

"Proof of shipment" shouldn't mean anything.


> PayPal doesn't care about sellers.

Credit card companies. And it's not that they don't care about sellers. It's that they care more about the card holders. Consider the protection they afford card holders for card-not-present purchases. 100% protection.

PayPal doesn't have some immunity to that protection. Open your own merchant account, and you'll have the same issues.

> I see it as simple piracy

When it's the card holder claiming a chargeback for an otherwise legitimate purchase, it's known as friendly fraud. Not so friendly. And generally, it's worse than piracy. Normally you are charged for a chargeback (not sure if PayPal charges you a chargeback fee). So in those cases, you actually lose real money, as opposed to piracy.


Credit card companies have that policy because it's the law. Before it was the law, they didn't have that policy.

Debit cards are not covered by the same law. Some banks insulate debit card holders from losses, some do not.


There's an easy solution. STOP USING PAYPAL! When will people learn that PayPal is shit?


I don't think you can use eBay without using paypal.


By placing a ban on virtual currency transactions in their own fine print, but allowing most of the transactions to go through unless and until there is a problem, PayPal is setting themselves up for issues. In this case, only the author of the article was victimized, but it would be almost as easy to victimize PayPal/eBay itself even if the supply of legitimate Bitcoin sellers on eBay dried up.

One person could easily act as buyer and seller. Seller receives payment and withdraws it to a virtual bank account attached to a random prepaid credit card that can be bought at any store with cash, then "buyer" (the same person operating a different account) contacts PayPal and claims they never received it from the evil seller. PayPal must reverse the transaction and eat the loss because it was against their policies for the transaction to ever have taken place. There is some work involved, but even just one $300 transaction per day is certainly plenty of money for alot of the kinds of people that would do this.


> PayPal must reverse the transaction and eat the loss because it was against their policies for the transaction to ever have taken place

It's far from clear that PayPal must reverse forbidden transactions. In fact, the behavior seems to be "PayPal can do whatever it chooses with forbidden transactions." In computer science terms, the result of submitting a forbidden transaction is undefined: it might go through, it might not go through or something entirely unexpected (party van?) may occur.

Given the number of people who try to scam PayPal every day (it's a huge and visible target, to the extent that a security company basically spun out of PayPal), I'd be very surprised if this hadn't been tried already.


PayPal is infamous for freezing accounts indefinitely and even putting accounts into the negatives even on people who did nothing wrong. That scheme is not going to work. They are so intent on nuking any fishy business they nuke a ton of innocents as well.


PayPal nukes fishy business when PayPal doesn't profit on the transactions.


No. That's not true. I once initiated a chargeback (and won the case) against a scammer seller. The amount was $80, but I inly got the $45 left in his account.


I run an online business and the level of fraud we have seen out of China is insane. We are constantly changing tactics and the fraudsters follow suit. They are dogged, determined, and will persist until they put you out of business if you let them.

Of course, we don't purposely do business with anyone from China, but they go to great lengths to cover their origin, even employing Mechanical Turk workers to do some of their dirty work. The guy who purposely sold BTC to someone out of China was literally begging for what he got.

And these guys are virtually untouchable. We are a small business and we see a ton of this stuff, so I can imagine what larger businesses must experience. eBay alone must be the conduit for tens or hundreds of millions in fraud from China.

Amidst all of the talk about stolen IP, military secrets, etc. emanating from China, the likely billions of dollars in fraud targeted at American consumers and businesses is the great untold story.


I am surprised that in his research, the author didn't come across any warnings not to sell Bitcoin on Ebay. This is pretty common knowledge these days.

I was also under the impression that PayPal does not allow selling Bitcoin or Bitcoin hardware. This transaction should have been stopped automatically, and it's a shame Ebay doesn't have automatic tools to stop blatant abuse of their own policies.


Honestly, all I saw was the quick buck. Total ignorance on my part. You're right, I should have researched it better.


If it looks too good to be true, it probably is :)


At $300 yes, but what about $130? BTC isn't the easiest thing to dive into as a NOOB.


If you are new to Bitcoin, you should probably review the ToS of any service that allows you to purchase legal currencies with it.


Ebay does have some filters that stop blatant abuse of their policies: https://ebay.custhelp.com/app/answers/detail/a_id/69

It does appear that they haven't yet implemented a filter to prevent/warn sellers from selling Bitcoin, though.


Ebay could easily put their own auctions up for bitcoins at 200% of current market value, then simply cancel the accounts of anyone who bid on it. They'd hit 100% fraudsters.


Yeah I'm about to test that latter rule. Dispute against me seeing bitcoin hardware that was "never received".


I think you have to be a little bit crazy to sell anything on eBay. But anyway, it struck me that there is a way to make money here (buy BTC then charge it back), the author just found himself on the wrong side of that process. As they say, if you don't know who the sucker is, then it's you.


Sure, just like running a bot net is way to make money.


I've learned in the past the only way to prevent and win 100% of Paypal disputes as a seller is to actually send something physical to the buyer's verified address. Besides, it's against eBay policy to sell digitally (delivering by email). You can print out a physical address for the BTC amount you're selling and send it by snail mail in addition to emailing. At least then, you'd have physical proof of shipment and confirmation of delivery. Obviously at this stage, I'm assuming those scammers wouldn't bother purchasing, but everyone should keep this in mind when selling digital/virtual items.


That's actually false. The buyer can still file a claim and just say the item was inaccurate. Paypal will side 100% with the buyer no matter what the case is. I had a case where I sold a tablet to someone and five days after she received the item, she complained to me that the device didn't turn on until she plugged in the charger. Then she stated that the power drained really quickly and she had to plug it in again to turn it on. I basically responded by telling her that the device probably ran out of batteries on the way there and she needed to charge it boot it up. There was nothing faulty with the device. My guess is she just drained the batteries too quickly or left a power hungry app on. Regardless, I gave her the option for a full refund. I didn't hear anything from her for two weeks. Paypal had already done a chargeback since day 1 when she filed a claim. I couldn't find any contact emails on eBay or Paypal's end... I escalated the claim to eBay. Guess what? They sided with the buyer and gave her two extra weeks to return the item to me for a full refund, shipping covered by ME. At the end, she never did send it back because I guess she realized it was a user error, but oh how I love eBay/Paypal.


I guess it wasn't totally clear but I was referring specifically to digital/virtual items since they're often sold as is, not applicable of defects or "item not as described".


I wonder if this would work if you sold the BTC in a bitcoin wallet, stored on a cheap USB key (or even a bitcoin paper wallet[1])?

It's slower, and there's the slight cost of postage, but as least you have proof of postage as it's technically a physical item.

eBay sellers who sold virtual goods got caught a few years ago when eBay changed their policy on virtual items, but I've noticed sellers often now delivery the item via email but also on a burned CD or whatever to skirt the rules.

[1] https://blockchain.info/wallet/paper-tutorial


I was told by Paypal Ireland (oversees EU) that they do not allow chargebacks for "virtual/digital" items and I was granted a win in a dispute on a number of occasions when buyer topped up his account on my service site and then wanted to reverse that transaction after service was consumed.


You could have printed a paper wallet from Coinbase and offered to mail it to them. You could then provide proof of delivery.


Never forget the May Scale of Monetary Hardness, from my old friend J.P. May:

http://stakeventures.com/articles/2012/03/07/the-may-scale-o...


Selling virtual items on ebay is a bad idea.

But you can also block non-US buyers I believe which will slightly reduce your risk.


Actually the US buyers are the risk, since in US and Australia anyone can issue a chargeback. In most countries you can't unless you have a premium card I think. I read in in Wikipedia some time ago.


I don't think that these sort of scams are generally run using the buyer's personal credit card, and if so this feature of foreign credit cards by no means provides protection against getting scammed by international buyers. Stolen US credit card numbers are a global commodity, so it is very possible for you to be ripped off by, for instance, a Malaysian buyer using a US credit card number.


Yep, the classic paypal chargeback scam.

People buying your bitcoins for 100-200% above market price.

After you send the bitcoins, they do a charge back on you.

Can't get your bitcoins back and Paypal is on the buyer's side. SOL.


Ironically if you had sent it through the post on a USB key you'd be in the clear.

Kinda takes the point out of bitcoin though doesn't it?


Shipping the USB key isn't 100% fraud-proof.

If you think the point of Bitcoin/Litecoin is being able to transact with it quickly and easily over eBay, you might want to look into the other things you can do with these new currencies.


That's my point. The useful features of Bitcoin are completely lost in this situation. I was noting the irony of it all.


> Ironically if you had sent it through the post on a USB key you'd be in the clear.

No, no he wouldn't. This is Paypal we're talking about.


I'm on the opposite end of the transaction - I'd like to buy some BTC but everyone is (rightly) so scared that the only mechanism available is via bank account. Great...except im not in the US. I'd have to string together multiple online currencies to arrive at something that is accepted. Or trust a tiny local exchange.

So much hassle to cover VPN costs...


Why not purchase them locally in cash? Localbitcoins.com probably has some sellers near you who would be happy to help.


This being South Africa, "local" is a bit more difficult and often not all that safe. I've got solid local contacts - the problem is nobody is selling here. Everyone is buying BTC & the only ones selling are scammers. So honestly I'd rather risk money dealing with an American/EU than a local tbh.


And keep in mind: Should the buyer still receive the bitcoin after all, he would have to destroy it as per paypal's terms...


Really? PayPal has always protected buyers more than sellers. This scam has been running since BitCoin started being traded.


True. This is neither new, nor limited to Bitcoin. I got burned last year on a small sale.

I did appreciate the author's "discovery" of a market mechanism... I'm going to go bid on some bitcoin now and do this arb the right way!


This doesn't surprise me at all. Even with physical goods sometimes the kind of proof they want us to send we don't have access to or sometimes doesn't exist.

It is not enough just to show them some online tracking which shows that the item arrived (even in some cases if it has a signature verification attached).


It took me a little more than 10 seconds with google search to find this ebay bitcoin scam.

http://bitcoinfan.blogspot.com/2011/12/why-selling-bitcoins-...

If something seems too good to be true; it probably is.


I sold e-gold for Paypal once. I knew at the time though that a chargeback was quite likely, and sure enough, it happened. Somehow, though, I managed to win that case and keep my money.


When it's too good to be true, it probably isn't. OP's main mistake was not checking where he was adding value - why they were paying more for his BTC.


Don't sell downloadables over Ebay and PayPal. You'll get about as much sympathy as if you were selling cocaine no matter how honest you are.


Paypal always always always ALWAYS sides with the buyer.


I used to think this too for the cases of Virtual Goods, but Paypal surprised me. Our company suddenly started getting Paypal chargebacks resolved in our favor one day. Not all of them, but more than the zero we previously had.

We have a fairly large number of transactions per day, so I can only assume that our account got flagged somehow.

That said, Paypal only sides with us if it was a transfer of Paypal balance. If the transaction was backed by a credit card, and the credit card was charged back rather than done via a Paypal dispute, we will lose every time.


TL;DR: Chargeback fraud exists. PayPal sucks.


So, can't you remove the money straight away, then close the account? Sounds like this should be doable.


PayPal will take the money right out of your bank account. If that doesn't work, they send you to collections and your credit score takes a dive.


All it would've took is a google search about why no Bitcoin exchanges allow PayPal.


Rule #1: DO NOT sell virtual item on eBay.


>I have never traded stocks. I have never taken an economics course. I have never aspired to be someone who trades money for money.

This is how someone becomes greedy.

>As an advocate of privacy, Bitcoin intrigued me at a fundamental level. Trying to make money was (hopefully) merely a side effect.

Just a side effect!

>I would be scraping maybe $5-10 every BTC, and I would have to wait weeks to see the money. I also had little capital. My interest faltered.

Wow, what an academic undertaking!

But wait, he goes full casino.

>No way. Too good to be true. I know what you're thinking, there's no such thing as a free lunch, PayPal is an insecure way of trading BTC, etc. I wasn't really thinking at the time.

As far as I'm concerned anyone who is into Bitcoin has no right to be angry at Wall Street, because they get sucked into the same damn game.


I don't see any reason to get holier than thou. He is pretty clear he hoped to make a quick buck and got burned. I thought it was admirable that he is willing to post so openly about it. Most people would be embarrassed and not want to talk about it.


I am not angry at anyone, in fact I understand why somebody can get sucked into the "game". You're right, my intentions ended up being not-so-pure. A good lesson!


To be clear, my criticism is meant to be directed at Bitcoin and Bitcoin's culture, not at your honest and well-crafted story-telling.

Cheers.


Don't dare compare him with Wall Street, he wasn't cheating on anyone. He was just making the Bitcoins flow more freely, and reach places they couldn't have reached otherwise. He was the free market at work.


He wasn't "getting sucked into the game" or being greedy.

Are you trying to say that anyone who tries to make money through arbitrage is greedy or has no right to be angry at Wall Street?


Yes.


My favorite part is his earnest naivety in somehow thinking he wasn't the mark and in believing that Paypal would ever side on his behalf.

This just further confirms my suspicions that you have to be retarded to get involved with bitcoin. No group of people is so easily and quickly persuaded into losing their money, and so readily eager to repeat said behavior over and over again, than bitcoiners.


How exactly am I gonna lose my money with Bitcoin? It has been there for many years, and it has grown x20. My dollars, on the other hand, have only devalued each year.

There's no scam, if there's no scammer. Think about it.


>How exactly am I gonna lose my money with Bitcoin?

Having this mindset is a start.


>My favorite part is his earnest naivety in somehow thinking he wasn't the mark


Yeah, who would believe that Paypal would side with a seller which has a proof of delivery in what is probably the most secure database in the world. Sheeesh.


Its no delivery, its a transaction.


Thanks for generalizing us. I never realized I was retarded.


Duh.


Sorry kid, nice post!


So interesting




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