Why Centralized Bitcoin Services Will end up Like Paypal
There are multiple ways in which Bitcoin has proven to be a far more reliable and secure form of payment, especially when comparing it to some of the market leaders in the current ecosystem. Paypal, a company, experimenting with Bitcoin payments through its Braintree subsidiary, is one of the most commonly used forms of online […]
There are multiple ways in which Bitcoin has proven to be a far more reliable and secure form of payment, especially when comparing it to some of the market leaders in the current ecosystem. Paypal, a company, experimenting with Bitcoin payments through its Braintree subsidiary, is one of the most commonly used forms of online payment today. But here are so many flaws and issues with the service, leading to frustration and dismay among its customer base.
Paypal Randomly Freezes Accounts and Transactions
Everyone who has ever made or received a transaction through Paypal will have experienced a bit of scrutiny from the payment processor itself. Any transaction made either comes from someone’s bank account, credit or debit card, or account balance. The origins of those funds areunknown, and could very well be fraudulent.
Granted, most countries require the card and bank account holders to verify their payment methods, as Paypal makes two small charges that need to be confirmed by the owner. Looking at things that way, Paypal should be one of the most secure payment methods in the world. But this is where a lot of people are wrong, as Paypal is far from secure.
Any user can sign up to Paypal with a stolen or hacked credit card, assuming there is no account linked with that payment method. If successful, the card can then be used to complete at least one transaction before the Paypal verification procedure comes into play. Or, in the case of American Express cards, there is an initial spending limit of US$10,000 before anything needs to be verified.
It goes without saying that these lackadaisical security measures are part of the reason why so many Paypal accounts are flagged or frozen for potentially illegitimate payments. Most sellers can testify that nearly one in three purchases made with PayPal is subject to “routine checks” sooner or later, temporarily blocking the funds from leaving the Paypal ecosystem.
Traditional payment systems, such as credit cards and bank accounts, were never designed to be used as a way for merchants to accept payments online. However, for some reason, they are the biggest innovation in the world of finance over the past 50 years. To make matters even worse, mobile payment systems such as Apple Pay still rely on these same payment methods, rather than bringing something new to the table.
But even if your Paypal payment takes place through verified and secure payment methods, there are still ways to get transactions and accounts flagged by Paypal. According to one user on Reddit, any transaction note mentioning “Cuba” will get flagged as well, which is quite worrying. Regardless of whether this message has anything to do with the country of Cuba or not, the transaction will need a manual review.
Reddit user Free_Ice_Cream explained it as follows:
“I just want to share another absurd story about Paypal which highlights just how needed, and necessary Bitcoin is. I paid my roommate back for some goods and services. One of the services was a volleyball lesson from coach Cuba. Wrote in the description “Paying you back for Groceries and lessons from Coach Cuba”. “Cuba” is a no-no word for Paypal. Account restricted, money frozen…. countless phone-calls and emails, two months later, no resolution.”
Centralized Bitcoin Services to Suffer the Same Fate
Even though the person in question is sending money to someone nicknamed “coach Cuba,” Paypal seems to have quite some issues with these types of messages. The reason for that is simple: Paypal is closely looking into the refugee status of its users to see whether or not these types of transactions fall under the embargo. Even though the US eased up on the embargo a while ago, it is still a painstaking process when these types of events occur.
Playing devil’s advocate for a minute, Paypal is a money transmitter that has to adhere to certain laws and regulations. KYC and AML procedures are put in place to prevent money from reaching the “wrong” people, and this transaction is right in the mix of these regulations. Centralized services are doomed to fail sooner or later, which is why Bitcoin presents such a great opportunity and alternative.
That being said, using Bitcoin directly from person A to person B is a great alternative. Whenever an intermediary service, such as an exchange or online wallet provider, is involved, things could get hairy in a heartbeat. Bitcoin exchanges and wallet providers are — similar to Paypal — required to adhere to the same KYC and AML guidelines as any other money transmitter.
It is up to the individual Bitcoin user to decide whether or not they want to rely on centralized services, or take matters into their own hands. Bitcoin offers an unprecedented level of financial freedom, and every individual is given the choice to embrace or reject the offer. But once the choice is made to get involved in Bitcoin, all the responsibility falls to the user,as no one will bail them out if things go awry.
Will Bitcoin replace Paypal as the top online payment method? Let us know in the comments below!
Images courtesy of Paypal, Shutterstock
The opinions expressed in this article are not necessarily those of Bitcoin.com.