How Diaspora Found Its Tiger Stripe in the Midst of a Paypal Fiasco

http://blog.diasporafoundation.org/2011/10/19/how-diaspora-found-its-tiger-stripe-in-the-midst-of-a-paypal-fiasco.html

by postfuturist • 15 years ago

72 49 15 years ago

blog.diasporafoundation.org

dangrossman6• 15 years ago

"When PayPal mysteriously and arbitrarily decided to freeze everyone’s donations..."

"...We had raised $45,000 in just a few days, and then PayPal froze our account."

Not so mysterious. Believe it or not, no payment service is going to allow you to collect tens of thousands of dollars in a few days with just a name and an e-mail to identify you. The criminal abuse would be rampant. If that doesn't raise the red flags at the risk department of any processor they'd be out of business in no time.

Just another rehash of the same story we've seen on HN a dozen times this year, as recently as ~2 weeks ago with the game developer taking preorders for an undeveloped game -- who eventually satisfied PayPal and later wrote a post about how Google Checkout was worse and PayPal was not so unreasonable after all.

"Yes, you heard that right. PayPal gets to earn interest on all of our donations for 6 months"

If PayPal's agreements with its underwriting banks are anything like the rest of the merchant processing world, then reserve accounts are always non-interest-bearing to prevent any incentive to create them without proper justification.

pc2• 15 years ago

"Believe it or not, no payment service is going to allow you to collect tens of thousands of dollars in a few days with just a name and an e-mail to identify you."

Using the email address and name is hardly the best way to evaluate the trustworthiness of Diaspora.

There are lots of reasonable questions about how to scale underwriting systems, and how this might work generally, but we shouldn't neglect the fact that in this particular situation 1) Diaspora not being able to receive donations is a bad outcome, and 2) there isn't exactly a paucity of public information about them.

dangrossman6• 15 years ago

For all PayPal knows at the point they freeze the account, it's some teen in Romania that has no connection to the project and is using its name to collect donations for personal use. First they have to stop the potential fraud from growing even more damaging to them by freezing the account, then they need to figure out who they're really working with, then they need to evaluate the risk of accepting those payments.

fungi2• 15 years ago

> with just a name and an e-mail to identify you.

try harder.

from TFA:

Even though we’ve complied with every PayPal request, including providing them with our certificate of incorporation, they still won’t give us an explanation for any of their moves.

dangrossman6• 15 years ago

That's a bit of a rude way to start a response.

First, PayPal had zero verified information about the identity of the account holder at the point the account got frozen. The information Diaspora sent happened after PayPal requested it when their huge increase in incoming funds triggered the account review. That was posted just yesterday, PayPal probably hasn't even had a chance to look at whatever they sent yet.

Second, this same comment was already made and responded to an hour ago.

VonLipwig• 15 years ago

Hmm, all sounds a bit strange.

While I don't approve of PayPal freezing payment's I can kind of get it with a conference which may or may not take place. They need to protect themselves from having to hand out potentially thousands of dollars in compensation.

What I don't get is why they would freeze an account getting donations. It is a donation. You are not paying for a service which may or may not arrive. Seem's very very strange.

dangrossman6• 15 years ago

Money laundering. Selling illegal products or services in the guise of donations. Posing as an organization you're not even affiliated with to ask for those donations. Just because someone, who PayPal only knows as a name and an e-mail address, claims to be taking donations does not mean that's actually what's going on. When those donations go from $0 to $45,000 in a few days, it behooves them to identify that customer and check out exactly where all that money is coming from and what risk is associated with it.

Even if they are bonafide donations, if there are expectations attached to those funds (that the company is going to build a product or perform a specific service, or put it towards a certain cause) and there's a risk those expectations won't be met, then there's a risk for PayPal that some of those donors are going to be upset and do something about it -- like cry fraud and charge back the payments. PayPal has to carefully manage its chargeback rate like every other merchant.

kseudo• 15 years ago

How do flattr get around this problem? They use paypal and it looks like they could be used for money laundering

pork• 15 years ago

Oh come on people, it's not a fiasco. Has nobody watched Breaking Bad? Money laundering!

Estragon3• 15 years ago

Obviously, the solution is bitcoin.

Raphael• 15 years ago

Just shows the naïveté of the Diaspora team. No surprises here.

Joeboy6• 15 years ago

Is expecting Paypal to give you your money really that naïve?

bigiain2• 15 years ago

Yep.

If you're not shipping physical products within a day or two of accepting the money, and shipping them via a service which allows you/your customer/paypal to track the deliveries, then you're in the category who should expect Paypal to decide to hang on to any money put into your account.

Surely anybody who's got access to Google can find that out before getting caught out by it?

citricsquid• 15 years ago

The most mysterious thing is that people actually donated to diaspora? If we've seen what they can achieve with $200k I somehow doubt $40k is going to get us more than... nothing.

> Obviously, PayPal’s behavior is unacceptable, which is why we have asked our lawyer to get involved.

oh wait, that's where any money is going to go.

Joeboy6• 15 years ago

I agree that they weren't the ideal recipients of $200k, but they have produced a fairly functional and usable product. I don't understand the hate they get on HN.

k-mcgrady• 15 years ago

The problem is that most people haven't seen the product. I asked for an invite the day they opened them and still haven't gotten one. It has taken them that long that I won't be using it now. Facebook's timeline is great and Google+ is also a good network.

jackgavigan2• 15 years ago

Aside from over-promising and massively under-delivering, I think that one of the key issues is that free open source, decentralised social networking software already existed long before the Diaspora team popped up out of nowhere, caught the hype and raised their $200k.

Also, the creators of benchmark-setting open source projects like Linux, Apache, etc. didn't ask to be paid to write open source software - they just went and did it.

None of this is doing the Diaspora team's reputations any good whatsoever, by the way.

ohboy• 15 years ago

As a business owner who once had their Paypal account frozen (mistakenly, but frozen nonetheless) 10 years ago and now does $10,000+ every month through Paypal I can say they're doing something wrong. Paypal doesn't need to steal money, they make billions a year, they don't need your $45,000.

Something smells rotten and it's Diaspora. $200,000 and over one year later and they have nothing to show for it and they're still begging for money. They promised a finished product for $10,000, they received $200,000 and they're still not done. Why are people still giving them money? If a contractor said $10,000 to replace my roof and I gave him $200,000 and he came back saying he needed more I'd call the police and sue, not give him another $45,000

So what happens when they get another 20k or 60k or 200k and they say "oops that's not enough", everyone gets a refund? Or does Diaspora walk away? Or do they hold another donation round in a year?

Sooo disappointed in Diaspora, so many startups could have been created with $200k but they burned the money and now they're back asking for more, like watching a homeless guy buy alcohol with the 20 you just gave him and he comes back asking for more money.

Zuckerberg was just an average programmer and he made Facebook with almost no funding while attending college, these four get $200,000 and make nothing.

I'd love to know what these donators are thinking, can anyone give me a good reason why it's a good idea to keep giving Diaspora money when they already show no progress from the first $200,000 they were given? If you're a donator how will you feel when they receive another 20 or 200k and Diaspora is still a flop?

ecspike• 15 years ago

Most of the money went to salaries for themselves and rent. Only about $8-16K (can't remember exact figure) went to infrastructure costs.

jamii• 15 years ago

Imagine if all those donations had gone to Appleseed instead. They had a working product before Diaspora even started and they're only asking for $10k to get to version 1.0

Estragon3• 15 years ago

  ...over one year later and they have nothing to show for it
  and they're still begging for money.

I have no dog in this fight, but your comment confuses me, because there seems to be quite a lot going on. If I look at the "contribute" page[1] and the list of sites publically running diaspora at this stage[2], I see a great deal of progress and useful code. Not a finished product yet, by any means, but they definitely have something pretty concrete to show for their efforts so far.

[1] http://diasporafoundation.org/get_involved

[2] https://github.com/diaspora/diaspora/wiki/Community-supporte...

jemka• 15 years ago

I believe his comment was relative and not to be taken literally. Yes, code has been written, but that is hardly a counter argument to the facts presented.

toyg• 15 years ago

I pay you money to perform a service, you take the money then you tell me you won't do that service for 6 months. If it had happened to me, I'd be quite angry. This is what Paypal is doing.

I understand their overall procedure to avoid abuse, absolutely; but Diaspora is a somewhat famous project, an absolutely legit operation. You can say what you want on their deliverables, but it doesn't matter: PayPal got a nice cut out of donations to a public and very well-documented project, then turned around and said they'll keep it all for an extra 6 months.

That's not cool.

Joeboy6• 15 years ago

> can anyone give me a good reason why it's a good idea to keep giving Diaspora money

I haven't, but from what I can see, if you want a distributed Facebook alternative Diaspora is, for all its faults, really the only game in town. In the real, non-HN world it has buzz way beyond Appleseed, Friendika et al. An impressive number of my non-tech friends are excited about Diaspora, and don't have a clue about its competitors.

tonybaldwin2• 15 years ago

Diaspora, which I am using and do like, is definitely not the only game in town for decentralized, federated social networking. Friendika is, in my opinion, more mature and has more features, better federation with other networks, and is also widely used, mostly in Europe and Brazil, but there are also "pods" based in the US and Canada. It's great stuff, and is even federated with Diaspora (the two networks see each other's sites as pods on their own network). Diaspora does seem to have gotten more press. I haven't quite figured that out, but it's likely due to their funding?

jsavimbi• 15 years ago

The Diaspora crew suffers from Münchausen syndrome.

shareme• 15 years ago

I have a paypal question..What happens when you plan ahead and supply paypal with additional information such as incorporation papers, etc when setting up a new account?

diaspanon• 15 years ago

Diaspora is up and running and is it is a great project. They are non-commercial, do not sell your info, and survive on donations and grants. Everyone should open a free account and donate if they like what they see. https://diasp.org/ No invites needed. Please boycott someone else.

iridesce• 15 years ago

Wow, lots of talk here about a service that none seem to have used.

You all are probably way more involved in creating software and doing private finance than I will ever be, so I can't speak to those areas.

I've been using Diaspora for about a month now - maybe a little while longer and while there are growing pains, I've been really impressed with the way the service works.

While there are lots of people who use Diaspora and Facebook, I ( hopefully ) deleted my Facebook account as I got tired of being the product and use Diaspora exclusively.

And like I said, I'm no tech guru. Any operational questions that I posted were answered promptly and courteously. The folks there are still claiming its alpha, and it works pretty well for me.

Oh, and to the registration question - I Scroogled ' diaspora pod ' and the first listing was for https://github.com/diaspora/diaspora/wiki/Community-supporte.... The fourth listing is the pod that I belong to diasp.org - I had no problem signing up the first day I tried.

Try it for yourself and then let us know what you thought

How Diaspora Found Its Tiger Stripe in the Midst of a Paypal Fiasco

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