Cryptocurrency forums are littered with stories of scams and bad customer service.
Now, a cryptocurrency ratings agency is hoping to quantify the community’s view of various bitcoin businesses. Cryptoagency.org will use a reputation system to reflect a company’s quality.
But, the question remains, do we need a ratings system for cryptocurrency businesses?
Roger Ver, bitcoin entrepreneur and CEO of Memory Dealers, who has had to deal with malicious parties himself in the bitcoin world, said that he doesn't believe the bitcoin industry has been disproportionately affected by scams.
“In my business career before bitcoin, I saw entire ‘businesses’ set up with the sole purpose of scamming others."
Ver has seen firms attempt to use stolen credit cards, fake purchase orders and fraudulent cashiers checks sent via FedEX.
“These same dishonest people just see bitcoin as another tool in their arsenal to cheat others,” he said.
Bitcoin’s quasi-anonymity doubtless makes it easier for these bad actors, but in many cases, what seems to be a scam often turns out to be ineptitude.
Inspired by poor customer service
It was just such an experience that caused Larry Fenton to start Cryptoagency.org in March, after an encounter with an exchange went sour.
“There was no one really to turn to to try and figure out how to deal with this company that I was having problems with. That’s where the idea came from,” he says.
Fenton bought $800 in bitcoin from an exchange, but found that when he submitted the online transaction, he received no confirmation message. Assuming a system glitch, he did it again. The second transaction was confirmed.
“Everything was fine, until on my bank statement a couple of days later I noticed two withdrawals for $800,” he says. “I checked with my bitcoin exchange account again and there was only one credit for $800.”
The first $800 was trapped in limbo.
“I called up the company, sent them an email, described the problem and they said they’d look into it. Three or four days later, nothing had happened,” Fenton recalls.
Eventually, he had to begin his own investigation. He called the support desk and talked the front line staff into giving him the name of the company’s owner. He surfed online and lucked out: a WHOIS account yielded the owner’s name and address.
After calling the owner, he got a promise to have his money returned. The cash eventually made its way back to him, but with no explanation.
“The company never did give me an adequate reason for why their system didn’t acknowledge my transaction,” he said. “So it was a very unprofessionally run situation, and after I got my money back, I cancelled my account. I no longer wanted to do business with that company.”
How rating works
Cryptoagency.org will charge companies that accept, deal, mine, pay or otherwise use cryptocurrency, in return for accreditation. Accreditation comes in three tiers – bronze, silver and gold – ranging from $400 per year to $1,600 per year in bitcoin. Charges are decided based on a company’s size and longevity, but most people will start with bronze, Fenton says.
But accreditation isn’t something that you can automatically pay for, and there are rules governing it, Fenton explains. Companies must disclose any theft of cryptocurrency, resulting in the loss of accreditation for a year. They also lose accreditation if they fail to repay loans.
The value of the system lies in the community rating, Fenton says. Membership of the community is free for the general public, and they can rate and leave reviews of companies that they have dealt with.
Firms are rated on a ‘five-coin’ system. If a company falls below a three-coin rating for a month, it loses its accreditation until it can regain the three-coin rating, sustaining it for at least a month.
If this sounds similar to the Better Business Bureau, you’d be right. Fenton originally wanted to use the BBB in the company’s name, but decided against it to avoid trademark disputes. But whatever Fenton calls it, Ver likes the concept.
Gaming the system
There is a potential for people to game the system. Fake accounts could easily be used to post bad reviews and depress a company’s rating. That’s the sort of thing that will take manual work from the company's three-person team to prevent.
“We check the web site daily and we read all the reviews and the comments. Someone would be anonymous to the rest of the world but we know their real name, email address and number. We can personally contact them to verify their information.”
Ideally, as the industry matures, we may see the risk landscape change. “I think we will see more and more businesses with great reputations starting to accept bitcoin,” says Ver.
In the meantime, people may still use credit cards or cryptocurrency escrow services when dealing with companies that don’t have a track record, he concludes. And while we’re in this phase, reputation will be even more important.
Ratings image via Shutterstock.