#5 Linking Paypal and Steemit. The Principles and How it Works.

So, after some feedback it seems there is some concern that Paypal are omniscient over what happens in connection with their platform.

This is not true.  I'm going to use the practice of Money Laundering (ML) to explain to you why it isn't true. Then I'm going to suggest how we can use the principles behind ML to transfer funds legally from Paypal into Steem.

What is money laundering?

Most of you probably already know that ML is a process whereby dishonestly or illegally obtained funds are repeatedly moved until they appear to come from a legitimate source. In practice ML involves transferring money between (sometimes long) chains of accounts, often across borders until the chances of getting caught are low enough to be acceptable. The dirty money is now clean. At the heart of making this process work is the concept of :

TIME = MONEY.

Given enough time, almost all electronically transferred funds can be traced to their source. Time, however (in this case human effort) is expensive. It involves paying experts to open complex investigations. Governments do this to protect their revenue collection through taxation. The extent to which they devote TIME to this is largely dictated by the needs of maximising their profitability. 

Individually for practitioners of ML, the aim is to avoid getting caught by these investigations.

However when we look at the industry as a whole and remember that governments have almost unlimited POWER but limited TIME (human effort) we see a new dynamic. 

Stopping money laundering has to be cost effective. Therefore the aim of the ML  industry is to make tracing the source of dirty money cost ineffective for governments.

How can this help us?

ML is illegal. This is because governments lose revenue from ML and governments dictate what is legal. There are punishments and sanctions for disobeying to discourage most people from committing ML. As governments can arguably be seen as representing the will of the people we should probably obey these laws and refrain from ML.

Paypal however is not a government. It is a private monopoly. It's primary purpose is to maximise its profits. And in the same way that Government seeks to maintain its control of taxation, Paypal seeks to maintain its advantage. Paypal however has limited POWER and cannot afford to expend the TIME to enforce its embargo without decreasing its profits. In short, any TIME Paypal spends policing its monopoly quickly becomes cost ineffective. 

Let's apply the dynamic of Governments trying to catch practitioners of ML to Paypal trying to maintain its monopoly.

Unlike governments, Paypal has limited power to enforce its rules. Instead it uses a number of 'blocking techniques' to achieve a similar effect. These include refusing to deal directly with other crypto currencies and a draconian system called 'Chargeback' which allows it to undo almost any transaction for almost any reason.

To normalise making the exchange of Paypal credit for Steem we need to find ways to neutralise these 'blocking techniques.'

Neutralising 'Chargeback'

So far we have come up with a number of ways to do this. 

1. There is no Chargeback facility with donations. Any Paypal to Steem transfer system therefore must ostensibly work on 'donations' and reciprocal donations. 
2. Loss reduction techniques are crucial. These include limiting size transfers ($5 max initially), taking a percentage (3%?) to hold in a pool to cover losses and, eventually, building an exchange pool from which any Chargeback losses could be absorbed.
3. Transparency allows naming and shaming. Anyone abusing the Chargeback system will be banned and publicly exposed.

These will be refined and expanded over time. 

Building a Paypal to Steem Market: A Tentative Plan

So now we understand a little of the background, about how governments deal with ML, and about how Paypal tries to copy this model, we're left with a question:  How to use these basic ideas to create a plan to convert Paypal credit into Steem.

Transferring money out of Paypal costs a commission of around 10%. This is too high. There are numerous ways around this but to keep things simple let's start with a plan which keeps funds within Paypal.

The most simple method seems to be dedicated Steemit Paypal accounts. There could be one account or there could be thousands. Each account is held by a trustee whose Steem wallet funds will act as a guarantee for the money. Paypal trustees would be paid a percentage of the 3% fee I suggest for handling. Once the money hits these accounts, Steem is paid directly to the payer. The Steemit administration can then use these accounts to pay for various essential services directly from the Paypal account.

Please remember that Paypal has a degree of control over what happens on their platform but not in connection with it. This means that if the transfers remain within their system a degree of masking is necessary. If we take the more complicated route and move funds outside Paypal, less masking is necessary.

Please feel free to pick this first suggestion apart in the comments. Next time I can implement improvements or perhaps create a more complicated system taking assets outside Paypal.

Please feel free to Resteem and Follow if you would like to see this project move forwards.

Thanks for reading!

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