Bitcoin Money

Counterfeit Bills A Risk For Local Bitcoin Trading

The Christmas holiday season is sometimes referred to as silly season and for good reason — it is a time when there’s a lot of funny money floating around.

Law enforcement officials are warning residents and businesses to be on the lookout for counterfeit bills.  WSB-TV Channel 2 in Atlanta aired an investigative report on counterfeiting which is a multi-million dollar problem in that region.

The Secret Service in Atlanta says this is the time of year you want to most closely watch just what’s in your wallet.

There has been a rise in the number of counterfeiting incidents around the U.S., with counterfeit bills showing up at multiple Walmarts near South Bend and at about every store in Harlan, Kentucky.  Cashiers at businesses sometimes will notice that a bill is counterfeit, but not always.  The manager of the Wendy’s in Tarboro, NC discovered that a customer had passed a counterfeit only after the bank confiscated the bill that was part of a cash deposit.

Businesses, large and small, aren’t the only targets of the counterfeiters — police discovered counterfeit money being used when they interrupted a drug deal in Louisiana.  And consumers can even become victims, as was reported about a person in Des Moines who was given counterfeit paper money in his change.

And the counterfeiters aren’t always big city criminals, as evidenced from the arrests at an apartment in Rochester, MN where tens of thousands of dollars worth of counterfeit bills were being produced by a few twenty-somethings.

There is a growing number of individuals offering to trade bitcoins for cash in an exchange transaction that occurs face-to-face.  This has been made easier thanks to services like Local Bitcoins, which not only serves as a directory that connects buyers with sellers but also provides a method for the seller to release the bitcoins via SMS/text messaging.  This makes exchange possible where neither party needs to have Internet access when meeting in-person when the cash is exchanged.

Other methods to trade bitcoins via SMS/text messaging include Coinapult’s SMS Wallet (available in the U.S. and Canada) and WalletBit’s new Mobile wallet which supports transfer to unregistered mobiles via SMS.   SMS capability is desirable, as a backup method if nothing else, because relying on there being Wi-Fi connectivity can sometimes result in disappointment.

With these over-the-counter (OTC), person-to-person trades the party selling bitcoins needs to be vigilant that the cash being accepted is not counterfeit.  Since bitcoin transfers are non-reversible, there is little recourse if cash is accepted for payment but then later discovered to be fake.

When a financial institution discovers counterfeit currency, instructions by the U.S. Secret Service are that a counterfeit bill is to be confiscated — even if the holder demands its return.

Do not return counterfeit currency to the passer;
Surrender the note or coin only to a properly identified police officer or a U.S. Secret Service special agent.

The counterfeit bills are worthless and issuers such as the Federal Reserve or the Bank of England do not reimburse for counterfeits regardless of the circumstances.  The party holding the counterfeit is the party that loses once it is discovered that a note is fake.

IT Security professional Frank Braun emphasized the need for over-the-counter (OTC) trading during his presentation at the Bitcoin Conference 2012 (slides).

He wrote a follow-up blog post describing how to provide Secure and professional Bitcoin OTC exchange.  However, in describing OTC tradecraft he omitted the skill in being able to detect forgeries.  Not all counterfeit notes are this easy to detect.

Counterfeiting has been a problem not just with paper banknotes which were introduced centuries ago but with all forms of money existing prior and since.  As technology that helps the counterfeiters progresses, paper currency issuers introduce improvements that help to make it harder to produce a counterfeit (i.e., make it more expensive)  and at the same time to make counterfeits easier to detect.  Canada, for instance, recently switched to issuing plastic bills.

The U.S. has made some improvements but not enough to prevent even amateurs from being successful at producing counterfeits.  The most aggressive change introduced to-date, made to new $100 bills, has been delayed since its originally planned 2011 launch and has not yet been released — at least not officially.

The U.S. Secret Service provides a guide (issued in 2008) that provides information as to how to detect counterfeit U.S. Federal Reserve Notes (FRNs).  

With so many counterfeits circulating, an even worse scenario happens — where even authentic government issued paper money is rejected by a merchant.  You don’t even need to be like Steve Wozniak and try to push the boundaries by paying with $2 bills ripped from a pad of uncut currency.  Today, even in the surveillance state that is both ubiquitous yet invisible, many merchants simply refuse to accept bills larger than $20.

This is a problem where nearly 80% of the U.S. currency in circulation is denominated in $100 bills.  Cashiers are so fed-up with receiving counterfeits that they’ve taken matters into their own hands, including ripping up the $100 bills, which sometimes includes even legitimate ones (though since all fiat is counterfeit money anyway, such rejections might become more commonplace).

Even with the risk of ending up with a counterfeit, the use of cash is not going away anytime soon.  A figure published by Inside Retail is that ninety percent of the world’s transactions by volume are still conducted in cash.  During an interview for that article a cash technology expert, Thomas Fell, stated:

A lot of people overestimate how fast cash will be replaced.

Cash is not traceable and provides privacy, a right that you give up when using banks and bank instruments.  Forbes contributor Jon Matonis (@JonMatonis) writes:

The general attitude towards the privacy of cash (both physical and digital) has been eerily nonchalant and too readily conceded.

This is one of two primary reasons driving the growth of local face-to-face exchange, the other being convenience.  Most methods of acquiring bitcoins incur delays or other hurdles where an in-person purchase over-the-counter can be fast and convenient — for both the buyer and seller.

By knowing what to look for when accepting cash, local trading can continue being a safe and convenient method for buying and selling coins.

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