‘About 100’ Failed Chess.com Payments Via BitPay, Thich KYC/AML at Fault

The CEO of Chess.com has claimed, on Reddit, that he was unable to accept over 100 Bitcoin (BTC) payments, because the payments’ values were greater than $10 at current prices. The culprit is BitPay, the website’s payment processor, who have robust Know-Your-Customer and Anti-Money-Laundering (KYC/AML) requirements.

The CEO, Erik Allebest, lamented in a post:

I did NOT know that we can’t receive more than $10 at a time on this account!? It didn’t say that anywhere I saw. Anyway, in order to accept our membership payments I have to send in my personal utility bills or mortgage documents, photos of my drivers license or passport, and a bunch of company documents. That’s super frustrating…

Erik Allebest

Allebest said that he previously used Coinbase for crypto payments to the site, but gave up because Coinbase’s payments links became “deprecated” - presumably meaning that the links had to be replaced periodically. Regarding crypto in general, however, he remarked that "anyway, I personally remain a hopeful believer.”

A Watchful Eye

BitPay claim that they “[make] use of new technologies such as machine learning and integrating innovative third-party compliance tools” to support their KYC/AML regime.

The tight KYC/AML at BitPay is absolutely no surprise, however, when we consider that they are the only service charged with processing taxes in the US state of Ohio - the only state that has legalized paying taxes with cryptocurrency.

Surprisingly, and in spite of the fact that Bitcoin payments - according to Chainalysis - were down broadly in 2018, BitPay have had a bumper year due to their thriving trade in cross-border business-to-business transactions - taking part of the market away from antiquated international wire transfer systems.

But if blockchain analysis is a necessary part of crypto-businesses’ compliance, it took a potentially dark turn some days ago, as Coinbase acquired blockchain analytics firm Neutrino, whose CEO Giancarlo Russo has a murky past.

His previous company Hacking Team - ironically itself hacked - was found to have built spy- and malware for known human rights-abusing governments.

Defending themselves, Coinbase claimed to be aware of Neutrino’s lineage, but responded that “it was important for Coinbase to bring this function in-house to fully control and protect our customers’ data and Neutrino’s technology was the best we encountered in the space to achieve this goal.”

Weekly Newsletter

Trans-Fee Mining Crypto Exchange 'FCoin' Insolvent After Mistakenly Being Too Generous

One of the first cryptocurrency exchanges to adopt the controversial trans-fee mining (TFM) model, which has been called a “disguised ICO” has paused trading and withdrawals over a shortage of crypto worth up to $130 million.

According to a statement published by FCoin’s founder Zhang Jian, a former Huobi CTO, the exchange is now unable to process withdrawals as its reserves are down by between 7,000 to 13,000 bitcoin, worth over $130 million at press time, over an issue that’s “a little too complicated to be explained in a single sentence.”

Zhang’s statement details the cryptocurrency exchange wasn’t hacked, nor is it pulling an exit scam on its users. He detailed that an internal system error gave users more mining rewards than they should have received, noting the error wasn’t detected for a long period of time.

The transaction-fee mining model, which saw FCoin’s trading volume surpass $5 billion per 24 hours numerous times, sees the cryptocurrency exchange incentivize trading via its own token, FT. FCoin reimbursed users for transaction fees paid in BTC or ETH with FTs until 51% of the coin’s supply was distributed, and redistributed 80% of the BTC and ETH it collected to those holding FT tokens.

The controversial model drew criticism and saw Zhang defend it, claiming it was a misunderstood invention. At the time, he said:

If you look back at history, all new things were not recognized at the beginning. Many were believed to be fraud. Jack Ma was recognized as a fraud when he first promoted the internet in China.

Various cryptocurrency exchanges started adopting the TFM model shortly after, with research showing these platforms had unusually thin order books and low traffic taking into account the trading volumes they had.

According to Zhang, the errors in FCoin’s system gave away too many tokens in mining rewards from mid-2018 to mid-2019, when a complete back-end auditing system was implemented. As throughout 2019 the price of FT kept on dropping, Zhang and his team reportedly used their own funds to buy back tokens and drive up demand, a decision he claims was an error.

This, as it gave users a chance to sell their FT tokens and withdraw as much as possible from their accounts, while FCoin bought up tokens that kept on losing value. Zhang’s announcement came shortly after FCoin suspended its platform over a risk-control issue.

Zhang is now reportedly manually processing users’ withdrawal requests sent via email. The founder of the exchange claimed he will “switch tracks” to start again, and noted he hopes he can use the profits made from new ventures to “compensate everyone for their losses.”

Featured image via Unsplash.