In news that underlines the vulnerabilities of credit cards compared to bitcoins, law enforcement officials have busted an alleged global credit card fraud ring that amassed $200 million (US) in charges.
The risks of credit-card fraud and theft are a big reason many Bitcoiners say they prefer digital currency. When it comes to trust, credit card companies have made the Hall of Shame, leading in poor user satisfaction ratings, besting banking, cable, phone and insurance companies.
Using a credit card for online purchases, Mozilla developer Kumar McMillan has noted, is “like giving someone the keys to your expensive car, letting them drive it around the block in a potentially dangerous neighborhood (the web) and saying please don’t get carjacked!” (Mozilla has of late has been contemplating accepting bitcoin donations.)
Micky Malka, founder and general partner at Ribbit Capital, which invests in innovations in consumer financial services, including Coinbase, echoed similar concerns about the security of credit cards.
“This critical vulnerability is like giving a lollipop to a five-year-old kid,” he said. “It’s so easy, so antiquated.”
To date, 11 people in the US, UK and Vietnam have been arrested in connection with this latest worldwide fraud ring. At the heart of the ring appears to be a man in Vietnam named Duy Hai Truong, who with his accomplices allegedly stole the information of more than one million credit cards, reselling them to criminal customers online, who subsequently racked up more than $200 million in fraudulent charges.
These new arrests come on the heels of other online payment-related busts last month. In early May, authorities arrested seven people in connection with the theft of $45 million using prepaid debit cards that were hacked to eliminate spending and withdrawal limits. And at the end of May, Costa Rica-based private currency exchange Liberty Reserve was raided and its founder arrested in connection with money laundering.
“I think anything electronic is vulnerable if you give people enough time to think about it or hack it,” said Ribbit’s Malka. And by using physical credit cards, he added, “you’re walking around with credit card numbers in your wallet for anyone to look at.”
Malka continued by comparing how retailers get paid with credit cards versus bitcoin transactions. With credit cards, he said, “you’re saying here’s my account number, my name, my bank … go pull from it.” In contrast, Bitcoin takes the opposite approach, using an online protocol to push — rather than pull — money, so “fraud is exponentially lower.”
Certainly, Bitcoin has seen its share of woes lately. Increased interest has led to a rise in scam sites, not to mention the seizures of bitcoin exchanges. But, to date, there have been no recorded instances of stolen money from attacks on blockchains or the protocol itself.