We’ve talked before about the problems in the early days of PayPal, later called X. Elon Musk, in his infinite wisdom, decided customer acquisition was most important, and as a result, PayPal had to deal with rampant fraud. . Don’t just take my word for it—here’s Peter Thiel, describing those days:
We’ve decided to give credit cards to anyone who wants one. You get a credit limit of up to $10,000. Elon has told the woman who launched the service that he wants one million people to use the new credit card by the end of the year. Luckily, it was about two levels below the front yard, so not many people would be able to find it. Some people do; they wrote us back and said, “This is amazing, I haven’t had a compliment in years. I can’t believe you’re offering me credit. I haven’t even had a checking account in 10 years.” These are the people who write so many bad checks that the banks won’t let them have a checking account. Turns out we ended up with a 50 percent return rate. The worst subprime companies are around 4 to 6 percent. Then, happily, we returned the product very quickly.
Now, to be clear, I’ve met a lot of members of the crypto community, and many of them are big fans of financial history. But it seems our friends sea gods Tyler and Cameron Winklevoss have no idea about the early history of PayPal, even though there are some good books on the topic. So, perhaps inevitably, when they launched their crypto rewards credit card on Gemini, what they got was a scam.
“Gemini approves a spike in new subscribers who have signed up under stolen identities.”
Unlike Musk’s credit card for PayPal, they advertise on billboards and social media platforms. And when the card launched, “Gemini approved a spike in new customers who had signed up under stolen identities,” Information wrote, citing two anonymous sources. They had to stop the card from rolling out — and the scam cost Gemini “millions of dollars,” according to three anonymous sources.
I don’t mean to vote for Gemini. Fraud is a widespread and very amusing problem in the banking industry. The ideal amount of financial fraud isn’t zero — a classic example is the husband whose porn payment partner found on their joint credit card statement and who called the bank to say, lying, that it was a fraudulent charge to avoid a bad marital spat. The customer is, technically, committing fraud — he knowingly agreed to pay! – but to keep them as customers, banks follow suit. These “friendly scams” can occur for many reasons, but a certain number of reasons are built into payment systems.
With something like cryptocurrencies, a lot of people use them for a reason: either they can’t access the normal banking industry or they don’t want to, for example, because they’re trying to get a ransom payment for a hack they’ve made on some business. I mean, the first widespread use of crypto was drugs, people. This is a group that’s probably a little more likely to do shady things than the general population, you know?
After all, this isn’t the only deception problem Gemini suffers from. You know how many financial services, say, PayPal, prefer you give them your bank account number instead of your credit card number? That’s because of the Automatic Clearing House, which is a system your job might use to deposit your paycheck directly. ACH is very old, but it’s cheaper than a credit card because it doesn’t charge as much.
Because it’s cheap, many fintechs, including crypto providers, prefer it. The only problem is if account information is stolen — or, most importantly, if the account owner disputes the transfer. Now, remember, for banks, this kind of friendly scam is part of the cost of doing business, so they’re only going to trust their customers. But Gemini, the funny thing is, let people withdraw their crypto before their ACH deposit gets cleared! This Information on how it worked:
For example, if a user initiates a $100 transfer to buy crypto and the value of that crypto rises to $150 before the transfer is completed, the user can take out $50 worth of crypto.
This scenario makes Gemini a target for scammers who initiate ACH transfers using stolen bank account information, say two people familiar with the matter, as they can quickly exploit this loophole to extract crypto. That leaves the exchange with less crypto to seize if the bank transfer ends up being disputed by the actual bank account owner and the exchange has to pay back the transfer, and therefore a bigger loss if the price of the crypto drops again.
There’s a part of me that wonders if Gemini would have avoided all of this if someone in a position of power had read, like, Ashlee Vance’s Elon Musk biography, or Max Chafkin’s biography. Opponent, or Jimmy Soni’s Founders. PayPal set out to revolutionize the financial industry recently. I assume someone is in the It’s Gemini who has an inkling of how this is going to play out, and they’re probably pulling out all their bountiful hairs. But Winklevii had to go to band practice, and here we all are.