Localbitcoins.com Transaction Risk Alert

Journalist:
April 5, 2014

During the past four years various Bitcoin-based service companies had occupied comfortable niches during an infancy and adoption phase of the cryptocurrency. Some had naive business models and others immature management to deal with the acceleration that followed Bitcoin’s peak above $1000, the overwhelming sensation and embrace by mainsteet, the Wall Street listings and an official central bank decree from the world’s next superpower.

The present toddler phase of Bitcoin’s development will no doubt see service companies bump their heads a few more times. Many newcomers (and some stalwarts) will be socialized by their Wall Street and Silicon Valley peers into a new “acceptable” behavior. What exactly is “acceptable” and what is not, depends on your perspective and your opinion of Wall Street and Silicon Valley’s technocracy.

Takeaway: Localbitcoins.com speak of contracts and escrow in relation to the social connections they broker, but you should inform yourself of how these terms apply to advertisers and buyers/sellers. The firsthand experience related below shows that there are no guarantees from localbitcoins.com as to how an advertiser should treat your buy/sell transaction. Localbitcoins.com will aid either party in a dispute but only if certain procedures are followed by the buyer/seller. The term “escrow” is limited to timeframes and localbitcoins.com will only enforce its role as “escrow agent” when you have clicked the right buttons within specific time windows. In the end localbitcoins.com favors the party who will end up holding the funds from which localbitcoins.com carves its bit of commission.

The Boss of Bitcoin

Down here on ground level, acceptability must be dictated by the Bitcoin community. What does the community want from a Bitcoin service company? Do we want an emulation and repeat of the faceless bureaucracy of modern banking? Or do we want a service industry that is fair, transparent and equitable? It’s safe to say that most Bitcoin adopters expect the currency to engender a more humane value token system with service companies to match. Yet, why do so many Bitcoin companies think that, for them to be perceived as professional, they have to shroud themselves from their users and emulate the impersonal disconnect of the old financial system and its mongrel breed such as Facebook, Google and GlamorTech?

The Deal Goes Down

Localbitcoins.com is a well-known middleman site that connects national, regional and local buyers and sellers of Bitcoin. Interested parties can settle via bank transfer or arrange to meet in person and exchange bitcoins for cash. The latter option is ideal since the buyer and seller can agree a price and settle without multiple fees and commissions – and significantly – with the ability to convert assets out of view of the Bank, the Taxman and Big Brother.

However, parties can also agree to settle via bank transfer, in which case Localbitcoins.com will act as escrow agent until such time as the initiating party (advertiser) has confirmed that payment has been received. The funds (cash or bitcoins) held in escrow are then released, and both parties walk away satisfied. For their role as “connector” and escrow agent, Localbitcoins.com charges the initiating party (the advertiser) a small fee. Simple and effective model, you’d think, right? So did I…

I’ll Have Some Of That

Today, the writer decided to use Localbitcoin.com – for the first time – to buy bitcoins at the current price lows. The writer had forecast a reversal near $416 (BTC-e price chart) a few weeks ago and with a “turn-on-a-dime” reversal at $416 and then a structural low at $410 the next day, the writer was in the market to purchase!

Although my 3G connection slows down as humidity in Southern Thailand increases, today it held steady, and the initial Localbitcoins account registration was quick and hassle-free. Within a few minutes I found a suitable advert, posted by a seller up in Bangkok who was willing to sell 0.5 BTC at 14,100 Baht (about $425) – a good price – and payable via local bank deposit.

Localbitcoins’s time window for a bank deposit-type transaction is 90 minutes, so I knew I’d have to make favorable switch-overs from longtail boat to bus to tuk-tuk in order to get to the bank on time. I informed the seller of the fact that I might only deposit at the last minute. This was done via a convenient messaging window on the Localbitcoins transaction page that allows parties to stay in touch as the transaction progresses. I ran through the shower and began the hour long trip to town.

Thai public transport is relaxed and typically slows down in proportion to the ambient temperature, so on this steaming tropical summer’s day it just felt too slow for a man-in-a-hurry! Miraculously, I walked into the air-conditioned bliss of the Kasikorn Bank only 45mins later. Buddha be praised! I thought.

Smartphone connected, bank staff offering me cold water and a song in my heart I sat down in a bright green sofa and informed my counterparty, “pierry” that I was now in the bank. The Localbitcoins transaction  (well, “contract”) window showed “pierry” was online and I waited eagerly for him to provide his bank details. Localbitcoins.com requires that the advertiser provide their bank details only after initiation of a transaction – presumably to prevent brute-force deposits and endless disputes. I couldn’t help but smile with glee as I saw my 0.5 BTC being held in “Escrow” – locked-in at $425 and all mine – whilst the BTC-e chart showed price heading steadily toward $450!

Time passed.

Soon the airconditioned interior of the bank was no longer cool, but cold, and the hard, bright green sofa seemed just too green under the fluorescent light… Where is “pierry”? I thought, tapping my foot. OK, maybe he got cold feet… I’ll coerce him… I sent another message asking nicely. Waiting. Nothing. And then slowly it dawned on me: he’s probably sleeping off a hangover in a downtown Bangkok dive somewhere – the airconditioner rattling too loud for him to hear his phone beeping out my message deliveries… His handset probably connected to wifi, but he’s fast asleep and oblivious. Oh, no! My precious bitcoins! …I realized that I was wringing my hands.

I grabbed my impossibly cold phone and tried to stare a message from “pierry” into existence… and, to my surprise, down in the left hand corner, the modern wonder of javascript manifested a small yellow info box. No bank account details – but, instead,  a message that sent a final large ice block down my throat: “This user is on vacation or has run out of bitcoins.” But… but.. vacation?! He’s on vacation in Thailand, we know that much… run out of bitcoins? My Precious!

Pressure Cooker

Back outside, the day had become hotter, and the sun’s rays cut like knives wherever they found bare skin. “pierry” is obviously online, I thought, he even changed his blasted status in the last few minutes of the transaction window! And what about the “escrow”, Localbitcoins? My blood felt like it was boiling as I walked down the cooking main street until a tuk-tuk offered me a ride. I saw red for the rest of the journey – actually one of the most scenic routes I’ve ever seen – but today just a knot of thwarted intention, frustrated will and Al Swearengen’s choicest language…

A cold shower, 2 liters of water and a large palmleaf rolled tobacco later, I conceived a cunning plan. Body cooled, temper calmed and nicotine levels normal, I could see that my best course of action would be to appeal to Localbitcoins.com for help. They are, after all, the escrow agent in this transaction and may yet determine a positive outcome in my favor. BTCUSD was now comfortably over $450 and I felt more motivated than ever to “get my price”. I anticipated this market low. I positioned for it. I pulled the trigger. It is not going to be a blank, I told myself. I opened a support ticket with Localbitcoins.com and explained my dilemma, demanded a dispute be opened and threatened to write this article.

At 17h00 local time, I got a message from “pierry”. He said (in his french way):

Sorry… so sorry…

Now, 17h00 is not just any random time. That’s the moment business closes for the day. At one-minute-past-five the manager will see you wide-eyed at the door and most likely let you in, but at 17h05, you get that slow, smiling shake of the head. I could impossibly get in the bank now. Besides, on a Friday, like today, 17h00 is already 30mins into the weekend. “pierry” must have thought he played it good, but I held a wildcard: “I know you were online throughout” I wrote to him, “because you changed your status 80mins into the contract”. Silence. “Mange ma bite!” he must have thought as he cracked open a can of Singha and swilled his annoyance away with thoughts of which Bangkok nightclubs to hit tonight.

Brain Wave

While still writing one of the paragraphs further up above, I received an email from Giovanni of Localbitcoins.com Support. He suggests that, in order to avoid my present dilemma, I click on ‘Cancel’ next time and choose a different seller. My mouth opened a little as my jaw dropped a bit. By a self-imposed rule, I don’t use strong language when communicating with support staff. That is about as sensible as ridiculing a waiter for making a mistake – you will smell ammonia with your next course. However, when dealing with Mt.Gox and, today, with Localbitcoins I abandoned my principles in favor of more forthright expression.

Farang-Farang-Farang

Buddhist monks for Bitcoin

It is not unusual, at least not in Thailand, for someone to take offense at even slight disrespect and to enact revenge. A foreigner in Thailand is at a disadvantage in the sense that their Western manner – the individualistic socialization that Western society encourages – is by it’s very nature offensive to Asians, who prize respect, honor and conformity to the greater civil good. Should a Thai be subjected to the same set of experiences I had today, they may call up people who know people and arrange a Bitcoins for cash meeting. “pierry” didn’t think about that while he ignored my messages or later added injury to insult by offering me a much less favorable trade. He probably wouldn’t because Localbitcoins.com issues clear advice and guidance on how to conduct in-person transactions but will ultimately not be responsible for a mugging or a box on the nose!

I had admittedly been naive and too trusting when I ran off to town in the tropical heat. My annoyance turned to embarrassment after I did some research for this article and discovered that the advertiser and buyer have no clear jurisdictional rights and responsibilities when interacting via Localbitcoins.com. It’s about playing your risk:reward tolerance as with all things Bitcoin.

Tech for Technocratic

I sometimes marvel at the seeming regularity that persons involved with Bitcoin resemble petulant adolescent with a chip on their shoulder. Is this coin the harbinger of the one-person self-assertion revolution? Each one defying the rest, and more revolting than the next? Sometimes the whole Bitcoin-scene resembles a Fountainhead pyramid of super-individualists evidently trying to assert themselves – each individual with The Coin as their symbol of power?

It’s reassuring to think (and hope) that Satoshi peered deeper into the palantyr than the current field of players care to realize.

When you use terms like “account verification”, Transaction Maleability, “Contract” and escrow, you have to honor the objective meaning of those terms. What Mt.Gox called “account verification” was, we know now, not verification at all but simply a daunting bank-like term to bamboozle the sheep-center in people’s brains. Mt.Gox said “account verification” to shut people up and enforce delay.

Keep Your Eye On The Money

Biometric and Bitcoin

Whoever ends up holding the funds from which Localbitcoins.com can cut a slice – that is the party that their custom contract law and “escrow” hammer will favor.

Last modified (UTC): February 20, 2017 14:39

Venzen Khaosan @venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.