Tuesday, May 3, 2011

PayPal Freezes Accounts of Two Bitcoin Exchangers

By Jon Matonis

Over the weekend PayPal froze the accounts of both Morpheus and CoinPal, two online exchangers that sold bitcoin. In taking this step, PayPal is making it clear that they intend to view bitcoin as a full-fledged e-currency and not just a reusable proof-of-work "math puzzle". Ultimately, the enforcement relies upon PayPal's Acceptable Use Policy, which prohibits transactions that are associated with money service business activities, including currency exchanges. So, the real surprise here is that, at least according to PayPal, bitcoin is now a currency. Undoubtedly, this decision will have implications in future legal cases against bitcoin.

PayPal has continually strayed further and further from their original mission of providing an global extra-governmental system of digital currency based around privacy, strong encryption, and e-mail addresses. Most recently, it was decided by PayPal that Wikileaks was not worthy enough to receive donations that utilized its payments platform. Apparently, these unfortunate incidents are part of a long history of PayPal deciding who should and who should not get paid. In 2004, the Daily Pundit blog and the civil liberties TalkLeft blog received letters from PayPal informing them that their accounts would be frozen unless the blogs removed controversial and "offensive material". From Reason's book review by Rodney Balko:
"Both letters came a month after PayPal announced an abrupt shift in its terms of use. The company would no longer permit customers to use the service for purchases associated with "mature audiences," gambling, hate paraphernalia, or prescription drugs, along with a long list of other prohibitions. It would also fine its customers up to $500 for attempting such transactions. Those terms apparently applied to donations to blogs with content PayPal found objectionable.
That's a far cry from the libertarian vision founders Peter Thiel and Max Levchin originally had for PayPal, an online payment service that enables account holders to send money to anyone in the world with an e-mail address. Thiel and Levchin had hoped PayPal would grow to become an extra-governmental system of currency, something reminiscent of the world described in Neal Stephenson's novel Cryptonomicon, in which programmers use encryption to create an offshore data haven free from government control."
PayPal has become the antithesis of a free market monetary system and now they operate as an extension of the establishment. What I find most difficult to believe is how so many people continue to support a system that has repeatedly demonstrated that it knows better than you do when it comes to how to spend your own money. It is certainly PayPal's choice to restrict any transactions that it chooses, but it also proves why a decentralized P2P digital currency like bitcoin is desperately needed in this world.

The Morpheus closure announcement can be found here and the CoinPal closure announcement can be found here.


  1. Got popular, sold out.

    Question. We know that to avoid e-gold's and e-bullion's fate GoldMoney has followed KYC to the letter. If/when GoldMoney starts actually being used as a payment platform rather than just as a custodian/depository business, do you think they too will follow PayPal in conforming to Government ideas of what is an acceptable payer & payee?

  2. Thanks for this, I was hoping someone would write it up.
    Can I publish in CC Mag?

  3. Matthew, I am fine with you reprinting in CC Mag. Thanks for the interest.

  4. Bron,

    Actually, I don't think GoldMoney will be used as digital currency in a big way because it is not even anonymous. Please see my previous post, http://themonetaryfuture.blogspot.com/2009/08/goldgrams-product-is-not-anonymous.html

  5. FYI, we have re-published this article as well @:


    All our articles are also Creative Commons licensed.

  6. Thank you, Cosmic Fantasia. Glad you enjoyed the post.

  7. I like the idea of bitcoin. Nice little article. Unfortunately paypal is the default system because it got traction early and remains the default system because of collusion between two companies which should not legally be tied together (paypal and ebay). Ideally there would be a non-profit established anonymous trading system run over something like tor or similar and be integrated into firefox and chrome. The reason for this is end-users hate change and it has to be idiot proof simple. Each transaction should be insured based on reputation(s). For instance a person with a trading account who has sold thousands of dollars worth of items to other users with significant histories would pay less in insurance. If a buyer claimed to have been hurt they would pay a higher rate the more they claims they made as would a newer member who has no history. This would ensure it wasn't cost effective to cheat any significant number of customers nor cost effective to cheap businesses. At the same time you will never be out in the event of dealing with a scrupulous individual (although it is in your interest to only do business with people with good ratings or otherwise your chance of needing to file a claim rise).


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