I buy a lot of sketchy stuff on the internet. Penis pills. Farmville Credits. WoW gold. Not those exact items, but you get the idea.
Online purveyors of sketchy stuff use second-rate payment processors, because reputable processors won’t take them.
These merchants see a lot of fraud and chargebacks. See, it’s easy to get a fake credit card past a high-risk merchant. Inferior payment processors validate card details, but neglect to authorize with the issuing bank. Not until a couple days later is payment denied. By then, I’ve run off with my Farmville credits and the merchant is screwed.
A perfect solution is Bitcoin, where transactions are irreversible once confirmed.
But customers don’t like Bitcoin. I prefer my Visa, with consumer fraud protection.
So merchants provide discounts to make the Bitcoin option more attractive.
When I see something like this, I know that I am purchasing from a site that deals with a lot of fraud.
The bitcoin discount is only attractive to an honest buyer who would have paid with a real credit card anyway. A fraudulent customer doesn’t care about discounts. It’s not even his credit card.
So people who would have otherwise used real cards take steep Bitcoin discounts, and fraudy customers continue to defraud. The merchant loses.
Stolen Credit Cards
I’ve had my credit card info stolen. A lot. Probably because I buy sketchy stuff on the internet.
The first thing people do with a stolen card is buy gift cards. Amazon, Starbucks, gas stations. Gift cards are easy to churn and offload.
Bitcoin helps here as well. It used to be difficult to sell a gift card without leaving a paper trail. Now there are sites to sell stolen gift cards for Bitcoin.
But wait, you might say. I thought Bitcoin transactions could all be traced! Wrong. Bitcoin mixing services tumble coins together until it’s impossible to tell what came from where.
Even though online payments is not Bitcoin’s killer use case, internet fraud still is.
You might think that rampant theft makes me not want to use my credit card on the internet. Naw, the buyer protection is great. All I have to do is call up my card issuer and say, Hey! I did not buy $750 worth of Blockbuster gift cards! And the charge is reversed.
Great for me, sucks for the merchant. Which is why it’s easy to convince them to add a Bitcoin payment option that does them no good.
Disclosure: I work for a Bitcoin company that builds payment solutions for merchants to accept Bitcoin.
*Disclosure #2: The founders of these gift card services are friends of mine. I suspect they honestly believe that their users are innocent recipients of thousands of dollars in gift cards, every week. Maybe their target users have generous, card-skimming grandmothers.
One last thing: Many card issuers allow you to generate single-use numbers for an account. You can even set a maximum amount and expiry date. I highly recommend this if you buy sketchy stuff on the internet.