Can you buy and sell digital currency on eBay? Sure you can. In fact, the popular auction site could eventually become a big player in the trading of dollars and yen and other fiat currencies for bitcoins, the world's most popular digital currency.
With PayPal under its wing, eBay is registered with state and federal governments as a bona fide money transmitter, and that gives the site a leg up on many of the early Bitcoin exchanges, which were built by independent computer geeks unfamiliar with the world's rather complicated financial regulations.
The trouble is that selling bitcoins on eBay is sometimes a dicey proposition. EBay doesn’t include tools for verifying digital transactions, so if you send some bitcoins to a buyer via the net and the buyer claims he never received them, eBay will claw back the payment you received. But bitcoins can't be clawed back. That means you lose both the payment and the bitcoins themselves. Just ask James Larsich, who lost about $2000 in bitcoins this way.
It's just one of the many examples of how web services and businesses and regulators are struggling to come to terms with the world of Bitcoin, which is only now reaching the mainstream. But in the meantime, a photographer in the U.K. appears to have found a clever hack that will let you trade bitcoins on eBay with more confidence: You can send them through FedEx.
Roger Hughes, who deals in Litecoin, a digital currency similar to Bitcoin, recently published a blog post describing this hack. During an online chat, he says, an eBay representative told him that anyone selling bitcoins on eBay would be safeguarded by the company if they move their bitcoins onto a physical computing device, such as a thumb drive, and then send that to the buyer. If you send through UPS or FedEx, you can get delivery confirmation.
Bitcoins are essentially addresses on the internet, but you can't spend them without an associated encryption key, and these keys can be moved onto thumb drives or offline computers or even onto things like pieces of paper or physical coins.
Asked to comment on the hack, eBay did not immediately provide an answer to our questions about this particular situation. But Hughes believes his little trick would apply to other physical manifestations of bitcoins, including real coins engraved with encryption keys. Hughes hasn't tried the hack yet, but he says there's good reason to. "My query with eBay came about as I was exploring the profitability and options for selling cryptocurrency without using an exchange," he tells us, saying that he thinks that people will pay more for bitcoin on the auction site. "The prices on eBay are often higher than the exchanges offer."
Hughes says that the eBay representative he spoke went so far as to propose an optimum title for the auction -- title that also seems to subvert what is essentially a digital transaction. "I think the best title will be Litecoin Wallet free with USB stick," the rep apparently said.
Of course, this loophole could merely shift the fraud risk from the seller to the buyer. Let's say someone ships a USB stick through eBay’s system, complete with tracking number and delivery confirmation, but then the buyer plugs it in and finds that it's empty. Now you’ve got a buyer with a difficult-to-verify claim. But ugues doesn’t seem too worried about this possibility, mostly because of eBay’s feedback system. "The buyer may look at my 500+ feedback rating and purchase with confidence," he says.
eBay and Bitcoin have an interesting relationship. eBay can serve as a default bitcoin exchange, in part because it owns PayPal, the digital payment service that meets government money transmitting requirements. But at the same time, if Bitcoin really takes off, it could become a serious threat to PayPal. Bitcoin isn't just a currency. It's a payment service, much like PayPal.
As it stands, eBay is still coming to terms with Bitcoin, but it is at least exploring the possibilities. In other words, eBay is a nice metaphor for the Bitcoin ecosystem as a whole. It's finding its feet.
