Online fraud is a growing phenomenon that is not only getting more sophisticated and advanced, but also much more costly as well. In 2012 alone fraud cost merchants more than $3.5 billion dollars, with a 0.9% average cost of total online revenue. For individuals $525 million dollars was reported as being lost from fraud. With each successive year, these numbers are growing, and there are no signs of slowing down. In a world where we need to be ever more vigilant with our information online, one solution to fight back is Bitcoin.
How bitcoin can protect one from personal identity fraud
Bitcoin, being the cash of the internet, can offer the same protection that cash can offer us when we use it in person. One of those features is that you do not need to disclose your identity. With more than 12 million people being effected by identity fraud in 2012, with an average cost of $2,000, and for a total loss of $21 billion dollars, it is clear that new technology needs to be implemented in helping people protect their identities online. Bitcoin offers a unique and easy way to make a payment without needing to disclose your personal information and make yourself susceptible to identity theft.
Bitcoin works as a ‘push’ currency, meaning that the only way that you can spend bitcoins is to ‘push’ them out of your wallet and to whomever you are sending money to. So if Bob sends Alice 1 BTC, once the transaction has been sent and confirmed by the network, the 1 BTC Bob sent is gone. He cannot get it back, and it now is fully in control and owned by Alice–just like handing over cash. What is fantastic about this is that each transaction is its own autonomous spending unit that is not tied to other units. So although both Alice and Bob can see that Bob sent Alice 1 BTC, there is no information that revels their identities to one another or anyone else–again, just like handing over a $20 bill. Through offering the same amount of pseudo-anonymity as cash, but on the internet, bitcoin can help eliminate the personal risk of identity theft.
How Bitcoin can help merchants with fraud
LexisNexis offers a comprehensive annual report on the true cost of fraud for merchants, and the numbers are quite astounding. Merchants incur a $2.70 dollar lost for each dollar of fraud that occurs, and a total of about $3.4 billion in 2011 alone. For merchants that work in an international areas, the same area that bitcoin has some of the strongest advantages, the risks are even higher, with a 25% increase in fraud losses over domestic merchants, with 4 times as many fraudulent transactions completed (p. 39). It is clear that as we move into a more technologically advanced and increasingly mobile age, that there needs to be a better solution to fraud that is not having merchants part with nearly 1% of their total revenue.
Bitcoin offers a solution to these issues of fraud on a number of fronts. First and foremost, because there is no need for identity verification, there is no risk of compromising customer data. Furthermore, because bitcoin works internationally, there is no need for international merchants to accept all forms of currency, and thus expose themselves to a greater degree of fraud. Bitcoin offers an international solution for merchants that does not require the verification of customer identities, nor does it involve being responsible for customer information. Through reducing each transaction down to its own autonomous unit that is unrelated, and securely separated from other transactions, bitcoin offers an ideal solution to merchant fraud, and specifically merchant fraud for international merchants.
Bitcoin can prevent Chargebacks
Chargebacks, where consumers go through their bank or credit card provider to force a refund, can be very costly to businesses and can ultimately lead to the failure of one’s business. in 2011 alone, the cost of chargebacks to businesses was $11.8 billion dollars. If your chargeback rate drifts above 1% of transactions, you can be fined up to $5,000 for a ‘monitoring program’ to be put in place, and up to $10,000 if you do not comply. Perhaps the most shocking out of all statistics is that as a result of this entire dispute process 50% of online business fail due to chargeback requests. That is simply an impossible number to deal with, and any business person who wants to protect themselves, their business, and their livelihood cannot tolerate having so much of the success of their business completely out of their control.
Thank God for Bitcoin.
With bitcoin there is no risk of chargebacks. Because each transaction is pushed, there is no way for someone to ‘pull’ funds away from you. Unlike with a bank or credit card company, the money that is in your possession is yours, no one can forcibly take that money from you. Furthermore, if your business has their funds wrongfully seized like this Michigan grocery store owner, there is very little that you can do, even if you are innocent. Considering the overarching and generally illegal nature of such seizures, it is a breath of fresh air to know that if you are accepting bitcoins, it can be very difficult to forcibly take those funds from you.
In a world where identity theft, fraud, and all of the related cost that come with that are on the rise, and with scams becoming more sophisticated, bitcoin offers us a real and tangible solution to these issues. For consumers, one does not need to compromise their own identity and expose themselves to identity fraud. Furthermore, because of bitcoin’s push feature, you only are exposing the exact amount of funds that you are paying with–no more, no less. For merchants and the extraordinary cost that come from fraud, it is clear that payment processing is something that can make or break your business. Through using bitcoin, you can ensure that you have a 0% chargeback rate, and all of the associated cost as well. Bitcoin clearly offers a solution to many of the issues of online fraud and the associated cost. If you are a business owner, don’t you owe it to yourself to see what bitcoin can do for you business?