I have never traded stocks. I have never taken an economics course. I have never aspired to be someone who trades money for money.
But ever since I first heard about the Bitcoin phenomenon, I was hooked. As a student of Computer Science, Bitcoin intrigued me at a cryptographic level. As an advocate of privacy, Bitcoin intrigued me at a fundamental level. Trying to make money was (hopefully) merely a side effect.
After taking the Khan Academy course on Bitcoin, reading Satoshi Nakamoto's original paper, and starting Applied Cryptography, I set out to map the major Bitcoin marketplaces. As it stands right now, Bitcoin can be securely traded for USD on a limited number of websites. And, it's not easy. There are issues when trading "tangible" money for "digital goods" such as BTC. The marketplaces take security very seriously, and transferring in USD to a marketplace isn't as easy as linking your PayPal account.
Each marketplace has different security parameters and different types of buying/selling schemes. Not only that, but the prices varied. Quite considerably. Sometimes you could buy 1 BTC on Coinbase for $93, and at the exact same time they were selling on MtGox for $102. Naturally, I saw what looked like a hole, and by a hole I mean a way to make money. I started mapping the major marketplaces out based on a few different specifications.
Ease of transfer in, which is how easy it was to get USD into the marketplace to buy some Bitcoin. Ease of purchasing, meaning how much time it takes for a BTC to arrive after you purchase it. Ease of selling, meaning how much time it takes to receive money when selling BTC. Ease of transfer out, which is how much time it takes to get money out of the marketplace and in a place (like a bank account) where you can actually spend it.
|Marketplace||Ease of Transfer In||Ease of Purchasing||Ease of Selling||Ease of Transfer Out|
|BitStamp||Hard. SEPA if you live in Europe. If not, bank transfer, $15 minimum fee, 2-5 days.**||Easy, instant.||Easy, instant.||Hard. SEPA - 2/3 days. Other - 5 days.|
|Coinbase||Easy, but you have to login to your bank account online.||Hard. takes a week for BTC to arrive (Until you verify account)||Moderate, takes a few days for USD to show up in bank account.||Easy. Coinbase is linked to bank account.|
|BTC-e||Moderate. "The presently supported payment methods are : US Bank Wire, EU Bank Wire (SEPA), Visa, Mastercard, Liqpay.com, unikarta.com, PerfectMoney.com, WebCreds.com, Ukash.com, Webmoney.ru."||Easy, usually instant, can take 1-2 days.||Easy, usually instant, can take 1-2 days.||Moderate, ???|
|MtGox||Hard. Long bank transfers, etc.||Easy, instant.||Easy, instant.||Hard. Long bank transfers. At least 1-2 days.|
|campBX||Easy with Dwolla.||Easy, instant.||Easy, instant.||Easy with Dwolla.|
** = accepts Ripple/AstroPay
I thought maybe I could buy the Bitcoins on some site (like Coinbase) and sell it on some site (like MtGox). But with some much waiting time involved in transferring funds in and out, it didn't seem worth it. 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.
Until I visited eBay. I searched Bitcoin, and was amazed. People were consistently selling Bitcoin for 150% 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.
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.
So, I decided on Coinbase. I liked the easy of payment, and also there are no transfer fees when sending BTC from your Coinbase wallet elsewhere. I had to wait a week to see my BTC, but that was fine. A week later, after buying a $94 BTC, I put .5 BTC up. I started the bid at $0.99, for three days.
Three days later, the auction ended at $80. I was amazed. The buyer was from China. I did not send the BTC until I received payment. Once I did, I sent the .5 BTC. I sent the buyer the blockchain.info (keeps track of every single BTC transfer on the network, so there is proof I sent it). He recieved it, left me positive feedback, all was good. Hmm...
It was around this time I told my friend about this crazy money-making scheme. He's loose with his money. He bought 2. He's bold. He put 1 BTC up for $0.99, with a Buy It Now of $300.
Within 15 minutes, someone bought it now. He paid, and my friend sent the BTC. Feedback was exchanged. WHAT?
Why would ANYBODY pay $300 for something I bought for $90? We tried to hypothesize. They were out of the US, so they couldn't use Coinbase? They wanted it instantly, whereas we had to wait a week? We didn't worry about it for too long... we were too busy buying more.
I bought 2 more, and sold them each for $300. Buy It Nows. Both within 20 minutes of posting the auction.
My friend bought 8. After my 2 sold, I bought 5 more. If the trend continued, we were going to make thousands of dollars. We had to wait a week for our BTC, but that was fine, in 20 days our Coinbase accounts would be verified and we could turnover BTC on eBay INSTANTLY.
No such thing as a free lunch, dammit
I was at the gym when I received the email. Chargeback. My friend from China was initiating a chargeback via PayPal. I was so struck I left the gym as soon as I got there. I went home, examined the case. He was indeed saying I never sent the item. Not too surprising, I guess. 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. PayPal would understand. At least I sold those other two for $300. Boy, was I naive. Within 2 weeks, 2 more chargebacks. Actually one of them was an unauthorized claim, saying someone hacked into his account, bought BTC, and ran off. Which, really, is plausible.
However, PayPal states that if the seller can prove that he sent the item, he will not lose his money. Again, I sent all correspondence, blockchain, and even EXPLAINED what Bitcoin was, just in case they didn't know.
My friend? Same thing happened with his buyers. By the way, I checked the addresses I sent the BTC to. All of my "customers" had spent the BTC I had sent them...
PayPal has ruled on one of my cases. I failed to prove that I sent the item.. (?) and lost my money. $90 down the drain. I have no doubt I will lose the rest of the money. Was I scammed? Were their accounts really hacked? Who knows. I'll stick to programming.
Oh and by the way- I still have 5.5 BTC, if anyone would like to buy some...