Friday, September 06, 2013

Have Money, Will Buy Bitcoins! (Updated Again!)

My frustrating journey to buy bitcoins online! 

OK so by now you’ve probably heard of Bitcoins, the great electronic virtual currency (actually, it’s what’s referred to as a crypto-currency) that has promise to become the "future of money".  The entire banking system is afraid of bitcoin because it has the possibility to replace government issued currency; Law enforcement is afraid of bitcoin because it lets people conduct anonymous transactions thus raising the spectre of money laundering; paypal and credit card companies are afraid of it because it allows you to transfer value without paying any commission, and on and on.

I won’t get too much into what bitcoin is (you can go to or just search for bitcoin and you’ll find tons and tons of sites online explaining what it is), but let’s just say I’ve been intrigued by virtual currencies since 2007, when Linden Dollars (as part of Second Life) and QQ (from tencent) were the “next big thing”.

After hearing about bitcoin for months and months, and hearing that many Silicon VC’s are starting to fund  bitcoin related companies (not to mention that the Winkelvi, of Facebook fame, were big owners of a large amount of the available bitcoins), I finally decided it was time to get me some.

This was almost 10 days ago.   I decided I would buy some bitcoins online – after all this is an electronic currency, i'm a computer kind of guy, so why should I have to use snail mail or sneakernet to conduct an electronic transaction?  That would make no sense to me whatsoever.

Well, let me just say that in the last ten days, i have gotten lots of bitcoin wallets, but haven't been able to buy a single bitcoin online yet.  Yes, that’s right, I have zero bitcoins.  

And not for lack of trying and not for lack of purchasing power – I am ready to spend money to buy bitcoins.  My only criteria are:
-I won’t wire money to a foreign offshore bank account or anyplace that either looks shady
-I want to do the entire transaction online, so i'm not going to go to a bank to do a physical wire (and in fact, many banks now let you initiate wire transfers online, at least domestically)
-I don’t want to be identified up the wazoo – I’d like a semi-anonymous transaction - i'll give you my email but i'm not going to send you photos of my drivers license, etc.

Seems simple?  It wasn’t.  After scouring the internet for articles on how to buy bitcoins, I started on an my own bitcoin odyssey – wandering in the ocean of bitcoin paraphanalia and coming up mostly empty.

One of the oldest and most popular bitcoin exchanges is Mt. Gox.  And right on the home page it says I can “buy bitcoins”.  Great – that’s exactly what I’m looking for!

I was able to open an account with my email address but then I had to “verify” my account. To do this they wanted me to photocopy my drivers license for proof of residency and it felt like I was applying for a mortgage!   WTF?  This is supposed to be anonymous currency.  Then, they wanted me to wire money to some international bank account before they could fully “verify” me.

OK so I'm not going to start wiring money to some international desitination.   So, I decided to go to another popular bitcoin site.  Instantbits.  It was down.  Rumor has it that the US government has been regulating bitcoin exchanges and shutting them down.  Geez.

What about paypal? I did some research and found that paypal will shut you down if you buy or sell bitcoins. I’d rather not have my paypal account shut down, so that’s out.

So I looked around, and stumbled onto Blockchain, which promised that I could buy and sell bitoincs easily.  Once again, I was able to get an account and another bitcoin wallet ( a place to store bitcoins). The problem is, my wallet(s) are all still empty. How do I get any bitcoins into them?   Well it turns out according to blockchain the only way to get money into my wallet on their site was to go to another bitcoin site – BitStamp and deposit money there.

So I sign up for yet another account on yet another bitcoin site (BitStamp, and yes now I have another empty bitcoin wallet) and they tell me that I not only have to transfer money to the UK but I have to send it to a Slovenian bank!  WTF!  I live in the United States, the biggest economy in the world, and probably where most of the bitcions reside, and I’m not going to start transferring money to a random Slovenian bank! (Nothing against Slovenia, by the way, I actually am an investor in a company that has an office in Slovenia and the employees there are great!).

So finally, I stumble onto Coinbase.  Coinbase is one of the more “respectable” bitcoin sites and was actually funded by Union Square Ventures, a very well known VC firm recently. I had actually vaguely heard of them - they were located in New York City (I assume this means that Elliot Spritzer or Rudy Guilani or "whoever the latest opportunist lawyer/politician looking to make a name for himself in the New York Attorney’s general’s office is" will keep an eye on them).  Since they are backed by “reputable” people, I decide to sign up for YABA (“yet another bitcoin account”). 

Hell, I think, maybe they’ll even let me buy bitcoin with a credit card.  No such luck - that would be too easy!   The site tells me that I can’t buy bitcoin with a credit card, only by “verifying” my bank account.

Here we go again. But this time, it tells me that I can verify my account by them sending small amounts of money into my bank account!  OK this is starting to sound a little bit like the famous Nigerian oil money scam (we’ll transfer money to you – just give us your bank account information and social security number!).  Again, largely comforted by the knowledge that Coinbase is VC-backed, I decide to go ahead and enter my US bank information, thinking that they can “instantly verify my account” and get me buying bitcoins.

Now I’m told that it will take 3 business days to verify my information!  WTF!  So I’m still without any bitcoin and headed into the labor day weekend and i'm going on vacation for a few days.

I keep searching.  Maybe I could buy bitcoin with in-app transactions through google or apple?  I know they take a 30% commission, but the transactions are completely electronic and I think, OK someone must have done this. At this point, I don’t even mind paying the 30% commission to google or apple - i just want to get my hands on at least one bitcoin!

Nope.  Couldn’t find it.  In fact, there’s pretty reliable information out there that Apple will reject any apps that let you buy or sell bitcoins via in-app purchases (not a surprise, having been in the Apple ecosystem since 2009, the one thing I know is that Apple will reject anything at any time because they “feel like it”, but that’s another story altogether).  Google tends to be a little more lax – so it may be possible, but I couldn’t find an app that does it and in fact there's speculation that Google won't allow it either!

As I'm surfing the ocean of outdated bitcoin-related sites with outdated information, I see a random entry on some website that you can exchange linden dollars for bitcoin.  I used to have a second life account and some linden dollars left over (plus, as I recall, you can purchase those with credit cards) but when I follow the links they are no longer available.  Hmmm.

So after the Labor Day weekend, I get back and continue the hunt.  First I look at my bank account to to see if Coinbase has sent me any money to “verify” my bank account.  Nope.  Nothing yet.

I then stumble onto “localbitcoins”.  This sounds promising.  There is a list of people who are willing to sell me bitcions.  There are even some people locally, but still clinging to my fantasy that bitcoin is an electronic currency and that I should be able to buy some somewhere, online, I skip those for now.

Some of the sellers around the country use paypal but most of them use payment methods i've never heard of, for example, something called “Moneygram”.  I sign for YABA, and since I don’t want to get my paypal account banned, I try to buy bitcoin from a seller in Texas who says that I can send him a “moneygram”.

But then he tells me that he needs me to take a “picture” of my credit card so that he can verify it’s really me. Huh? Take a picture of my credit card and send it to some guy on the internet? You’ve got to be joking! This is getting ridiculous.

Still, I press on doggedly, and actually try to send the guy money through Moneygram.  Turns out they can’t find him either, and the only way he can get the money from Moneygram is to go to a physical shop and pick up the money.  Kind of like Western Union. The only problem is when I try to send to him, Moneygram rejects my transaction.  Not once but twice!

I look at other buyers on localbitcoins and there are some that want me to send Cash in the Mail.  Yes, Cash in the Mail. As in the Post Office. WTF is this, 1891 instead of 2-013?? It’s like I’m ordering bitcoins from the Sears Roebuck Catalog … 

At this point I’m starting to lose hope. I don’t think I’ll ever get any bitcoins online. 

Then, the next day, I see two very small deposits of a few cents in my bank account. Coinbase! Yes, the VC-backed company comes through!  I suppose with the millions they’ve raised ($5 million to be exact), they can afford to send out a few cents to everyone who gives them their bank account information.

Yay!  Although I did have to share my bank account info (which I don’t like to do), at least I didn’t have to photocopy my drivers license (or my credit cards) and send them to some guy called “bitcoindude” located in rural Texas.

So I go back to coinbase and “verify” my account.  Hurrah! I’m finally (about a week into it) approved to buy bitcoin!  The rest should be a snap, right?

After all, they, like every other bitcoin site out there, have a big visible button on their homepage  to “Buy” bitcoins.  So I click on it. The price is like $125 per bitcoin.  Damn that’s expensive, but OK, I tell them I want to buy several bitcoins.  Actually, I don’t even care what the price is at this point - i'm so excited that i'll finally be able to buy this mythical bitcoin thingy.

And then…. Nothing.  My order is listed as “pending” and it says it may take up to 5 days to get my few bitcoin.

Five Days??  WTF??

I thought this was the easiest currency in the world to transfer from one person to another.  I thought this was an electronic/digital currency that was going to set the world on fire.  That all you needed was a hard drive and some money to get and trade bitcoins.   I thought this was the future of money?

Well, it’s now been almost 10 days since I started trying to buy bitcoins and I have many bitcoin wallets, just no bitcoins!  I mean Zero. Zilch. Nada.

Hell, I could order a book from amazon and get it delivered to my house, faster than I’ve been able to get bitcoins.  And I’m not talking about an ebook – I mean a physical book.  Actually, Amazon’s createspace print on demand platform could print a new physical copy of a book and ship it to me in the time it’s taken me to get bitcoins.

Now, I’m sure one of these days, coinbase will say that my transaction is processed and finally someone will take my money and promise to “deliver me bitcoins in a few business days”.  But I’m not holding my breath!  Until then, i'm stuck floating in this ocean of bitcoin hype.

If they don’t arrive in a few days, I guess I’ll have to start wandering the seedy streets of San Francisco, holding up a sign “want bitcoin, will pay!” or stop random passers by wearing trenchcoats and say “pssst buddy! You got any bitcoin?”

UPDATE: After waiting patiently for 5 more days for coinbase to send me my bitcoins (after I had already given them my bank account information), today (September 10, 2013), the same day that TechCrunch had a panel on how promising bitcoin is, I got this email from coinbase.

From: Coinbase 
On Sep 4, 2013 you purchased 5.00 BTC via bank transfer for $631.40.
Unfortunately, we have decided to cancel this order because it appears to be high risk. We do not send out any bitcoins on high risk transactions, and your bank account will not be charged.
Please understand that we do this to keep the community safe and avoid fraudulent transactions. Apologies if you are one of the good users who gets caught up in this preventitive measure - we don't get it right 100% of the time, but we need to be cautious when it comes to preventing fraud.
You may have more luck trying again in a few weeks. Best of luck and thank you for trying Coinbase.
Kind regards,
The Coinbase Team

Huh? No explanation of why my account is high risk! Just "try again in a few weeks"!  Maybe coinbase doesn't have any bitcoins either ... and bitcoins *really* don't exist on the internet - it's like an insider joke to see how much publicity they can get for a currency that doesn't really exist.

I gotta tell you - I have never had so much trouble trying to give people money in my life!!
It is now 15 days since I first tried to buy bitcoins; still no luck - all of my many wallets still have zero balance.

I am going to change tactics and try to buy bitcoins from local sellers in person.  This kinda defeats the purpose of an electronic currency in my opinion.   I tried contacting a few sellers on, but no luck so far.

UPDATE 2:  After getting frustrated trying to buy bitcoins, I read these article by Robert McMillan at Wired about buying bitcoins:

I thought ebay might be cracking down on Bitcoin, like they did with other virtual currency/goods for MMORPG's a few years ago, but maybe not.  So I went on ebay, and sure enough there are quite a few people selling fractional bitcoin (.05, .1, .25, and 1 bitcoin denominations).  The catch? The sellers are trying to get the price bid up as much as possible so that you have to pay more than Bitcoin is trading for on the exchange.  I looked for "buy it now", and bought .05 bitcoin for like $15, but this translates into a price of like $300 per bitcoin! Way more than the market of $120-$130 that the exchanges were quoting.  Still, I was able to pay using an online payment vendor (most sellers won't take paypal!). My next purchase was .10 bitcoin for $16, a price of $160 per bitcoin and this was one of the few sellers who was willing to take paypal.

So, you can buy bitcoin on ebay, but few of the sellers are willing to take paypal, and you'll have to pay *alot* more thanon the exchanges.

UPDATE 3: Finally, i gave in and tried to find someone to  to agree with Robert's article that the only way to buy bitcoins is on the street. I advertised on localbitcoins lookinng to "buy" bitcions, and one of htem found me.  We met at a cafe, and I handed him the cash and he sold me 5 bitcions.  The catch? Well, this is a  pretty slow process and he was only willing to sell a few bitcoin.  And for some reason, localbitcions, which advertises a commission of only .0003 bitcoins, ended up taking .05 so I only got 4.95 bitcoin!

I asked the seller how he was able to acquire bitcoin in the first place.  He told me he was from Europe and so was able to transfer money to a polish bank account and get into mt. gox (one of the oldest bitcoin exchanges which has been having problems lately).  He seemed to share my assessment that it's very difficult to buy bitcion in the US online.

I was finally able to buy bitcion, but the process was painful and tedious.  It took almost two weeks from the time I started until I got some.   Buying locally seems to be the best way, but finding people locally who are willing to sell may not be practical for everyone (because I live in Silicon Valley, I was able to find at least one seller).  The exchanges are already over-regulated and so concerned with fraud that they are blocking legitimate transactions.

Once you have bitcoin, it is almost instantaneously transferred between wallets. Since I ended up with like 6 empty wallets and only one with money in it, I tried transferring bitcoin around and it is as easy as promised.  I gotta say i've become a bigger fan of bitcoin after seeing how easy this process is.

Since bitcoin is a peer to peer electronic virtual crypto-currency, my big question is: why do we need excahnges at all? If all bitcoin clients can read the blockchain and find all transactions, then why can't bitcoin clients use a peer to peer system to make requests to buy or sell?  Well, i'll write more about that now that I have some bitcoin and need to figure out what I can actually do with it!

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