Cap'n Arbyte's


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Why You Can't Buy e-gold with PayPal

I've recently gotten several e-mails from people wanting to know how they could buy e-gold with PayPal. A little investigation revealed that this is very difficult, and I'd like to explain why. (IOW, stop e-mailing me to ask about this.)

If you look around the websites of the exchange services, they usually don't even mention PayPal. But if they do support it, it's only an option for customers who are selling (not buying) e-gold. Both the general lack of support and the asymmetry can be explained.

First of all, it's unclear whether PayPal to e-gold transactions violate PayPal's acceptable use policy. Exchange services would be covered by the money service business section of that policy, which requires pre-approval from PayPal to use their system in this manner. Furthermore, there is a blanket prohibition on using PayPal "to operate a currency exchange," but the question of whether e-gold is considered currency in the first place is not legally settled yet. So it's either against PayPal's rules, or would require PayPal's consent. And they would understandably have little interest in helping a competing payment system.

Another major reason has to do with the "soft" nature of PayPal payments. Whereas e-gold payments are irreversible without a court order, PayPal payments can be reversed even months after the transaction was thought to be complete. This sort of phenomenon is one of the largest risks of exchange services — after they deliver the e-gold, they're stuck if anything goes wrong with the transaction. PayPal is legendarily bad about this. When I asked e-gold exchange services about PayPal, I got stories of chargebacks and frozen PayPal accounts and electronic withdrawals from bank accounts and unresponsive customer service … and losing money as a result.

This general problem with PayPal is magnified by the fact that e-gold payments are irreversible. This attracts crooks who are eager to get their ill-gotten funds out of PayPal and into something more solid … and of course, e-gold is as "hard" as they come. When PayPal eventually tries to unwind the transactions, the trail stops at the exchange services, who can't adequately protect themselves from PayPal. They'll have their accounts frozen and be charged for the disputed amount, etc. It's not a good business to be in if your hoped-for $50 proft on a $1000 transaction turns into a loss of the full amount of revenue. A very small percentage of fraud completely wipes out your business. Adding insult to injury, you won't be able to earn additional revenue while your PayPal account is frozen.

The bottom line is that even if PayPal permitted it, it's very risky for e-gold exchange services to accept PayPal. And that's why almost none of them do. (I've only found three, and I doubt the legitimacy of one of those.)

The asymmetry of PayPal availability should be obvious, now. More exchange services are willing to send PayPal in exchange for e-gold because the risks of having accounts frozen, etc., are much lower when you're sending known-good funds instead of receiving funds from some stranger on the internet.

PayPal is a hostile environment for exchange services. They generally do not and will not support it. If you want to buy e-gold, do it by another method. There are plenty! Money orders, personal checks, cashier's checks, bank wires, credit cards … and for the deeply paranoid, it's even possible to buy e-gold by mailing cash. Fees vary, of course, but at least these methods are available. PayPal generally isn't. Don't ask for it.

I'd like to express my gratitude to those on the "e-gold-list" mailing list who responded to my request for information about this subject. You were very helpful.

Tiny Island