Bitcoin Forum

I'm sure this idea has been played about before here but to lazy to search around on here but what if there was some sort of Bitcoin Business Insurance?  In other words, the bitcoin business front's a certain amount of bitcoins to insure he/she is serious about doing bitcoin business in this community. In other words, some new bitcoin company comes along and doesn't know how to "gain any trust"  ( looks overwhelming) can at least rest assure anyone he does business with that he has enough coins to compensate them for whatever happens. So it would be transparent - a certain amount of coins for the public to see against their business - if they decide the run and there are people effected by this people can issue claims and have funds released. I don't know just trying to see how we can introduce more trustworthy business to our ecosystem!  ;D

obviously, by my handle here I'm interested in this stuff! haha

Who would you trust to hold the coins and verify claims?

What's wrong with the escrow system many of us are accustomed to?

The rule No. #1 is: Trust no one.
So why would i trust some pre-defined "authority" ? This is like taking a time machine and going back to pre-bitcoin era.

We are the Bitcoiners, we trust the code. Middleman are now obsolete.

I don't think it's a bad idea, surprised at the negativity.

LoveBitcoins is not insurance but it is a commitment. I suppose really all it does is make it unlikely that the site will be a small scam, it could certainly be worth 100BTC to set up something large.

The insurance company would have to solve the trust issue itself, but some people here do already have some trust and selling/renting it doesn't seem bad at all.

For example I could probably start a store and enough people would be willing to trust me for a small amount that I could get reviews etc. But I don't want to start a store, so instead I talk on the phone with some guy, hear his plans, take a deposit from him and tell people that if they get screwed it's on me. Now he gets a faster start, people have more peace of mind and I make a little money.

Regarding Bitcoin eliminating the need for trust, I completely disagree. Bitcoin lets us have money without third party risk, but there is still the need to find trusted trading partners.

I don't know yet ...still thinking that part out BUT I mean could even be you mod like yourself on here?

Escrow is a possibility good suggestion looking for something a little bit more robust and long-term.

Freemoney- thats exactly what I'm thinking. Basically, if I'm company ABC and I want to "gain some trust" I could put up 100 btc to make people feel comfortable and show I'm committed to it.  You bring up a good point - maybe, a group of trustworthy people who are on http://bitcoin-otc.com or here in the forum - a consortium of members ( spreads the trust out keeping the spirit of no central authority) could earn a little interest in exchange for their "trust" of holding the coins.  They trustee earns a little, the community gains a new business with some assurance and the business can operate under the assumption they are here for good.

edit: I would think this would reduce the # of scammy operation's we see that pop up from time to time.

edit 2: Btw: how does the bitcoin100 work - isn't there some "trust" in that ?

I'd say this is the answer.  At least for now, the people that most users on the forum would trust to perform this service probably do not want to be put into a position where they're acting as an insurance company/escrow service.

I think eventually (probably not for a few more years), we'll see the Bitcoin economy evolve into a system we're much more accustomed to.  There WILL be Bitcoin Banks.  A modern economy needs people that are able to act as creditors.  It also needs instantaneous transactions which banking provides.  If a few people established enough reputation to start a banking service, then those 'banks' would be able to move coins between accounts on their own systems instantly with no confirmation time required.  Additionally, if multiple individuals started banks in this manner and they were well trusted enough, eventually those banks would likely allow instant transfers between accounts at the different banks at a small fee.

It's a matter of people willing to step up and take this risk at some point.  Not just the security risk of securing a banking system, but the legal issues that arise from becoming an international banking operation for a currency with no borders.  Unfortunately, the legal side is the real problem currently blocking this evolution in bitcoin services.  It would take substantial investment to get it off the ground, at least in the US or EU.

You would need a respected lawyer(or accountant, bank?) who will be paid to hold the money + publicly state the amount held.

That's a sure-fire way to have it done. It costs money ofcourse, but it solves the trust issue.

I think it is an excellent idea too. Their could be a review site, where businesses post bonds with a well-trusted administrator. I don't think refunding users who get defrauded is practical. Too many false claims of fraud would occur. Instead, forfeited bonds could be donated to bitcoin development and development of the review site. Bonds could also be refunded if business decide to delist themselves before committing a fraud.

Should not things like this be possible thanks to the blockchain, if the business is open with what adresses it uses.
It does not have to reveal who of for what the adresses are used?

And making fake claims is not even possible, because you would have to prove that you did a certain transaction and proving
that is possible since a user can prove they own a sending adress by moving coins in and out of it.


Now with Bip 16 this business could create mirror adresses, owning only half of the acess to that adress.
The other half could be spread out to different persons.
 
The other key could be spread out to different persons.
Is there not also things like this that OT can solve?

Claims of fraud can be mitigated pretty easily like istar said above. But I do like "forfeited bonds" that are sent back to the community as a whole and yes refunded if the bitcoin business decides to delist. Good ideas!

Istar - yes, can mitigate fraudulent claims based of transaction history/block history  this is one benefit bitcoin is the transparent ledger it has and we should take advantage of it.

Bip 16 could help because address's could be "assigned" just for transactions dealing with this.  Good idea.

I'm going to come up with a crude system now and present it shortly. Very crude but get the ball rolling on it as I have nothing else to do ...and want to do so something in the community here. Further suggestions , ideas or help would be great.

This is a major problem in my opinion. It's a problem in with traditional businesses too. Some countries address it by requiring minimum capitalization to start a business. (China, Denmark)

Because the barrier of entry to start a bitcoin business is so low, it is really easy for scammers to open "businesses". But that's only part of the problem. The low barrier of entry allows businesses, even those with good intentions, to enter the market undercapitalized and underinsured. With minimal investment in a business, the owner really doesn't have much to loose if they want to fall off the face of the earth when the going gets tough unfortunately.

 Another problem is lack of insurance options. When I started my site, I looked into ways I could possibly insure my it. Unfortunately, the closest thing I could find was digital intrusion insurance, but the policies were only concerned with damage to systems and loss of privacy information, not loss of digital assets, like bitcoin.

Good points. One thing is though the "low" barrier of entry turns into a "commitment" when you fork over 100 btc.  It raises the stakes a tad higher weeding out anyone who is looking to scam people.  As for your second point, no reason why you couldn't be insured against lost of bitcoin also. The other way around.  Meaning you can file that you've lost money due to a hack and collect against a "pool" of money.

Good suggestions and thoughts btw: love btcbuckets!

I started my bitcoin business small, and if I had to put out 100 BTC to some agency that kept it (not just a deposit) I would not have probably started.  On top of that, 100 BTC is not a huge barrier to a true scammer if he was going to start taking deposits for underpriced 7990's for example.   

The biggest thing that separates the scammers from the real businesses is time and physical addresses. 

This is because you are legit :P   If you were a scammer 100 btc is something your to lazy to deal with - even if you goal is to scam like a ton of BTC from people imho.  Then again who knows because I'm not a scammer.  All I know is as a customer if I knew the person was backed by some entity I would feel MUCH better shopping/ using a bitcoin related service.

I should add you aren't forced to do this if you provide a legit business then yes go ahead "earn" reputation organically :)

Of course it is just a deposit. The money is on the line in the event of a scam, but is refunded whenever the business wants provided that no scam has occurred yet. This refund is announced, so that the fact that the business is no longer "bonded" becomes known to consumers.

Most of these businesses are probably investing substantially in bitcoin on the side anyways. It should not matter for them that much if a trusted third-party holds their bitcoin savings to ensure good behavior.

Yes, the key is "transparency" . Basically, there would be a list of "bonded/insured" bitcoin business's who have "deposited" this amount. Like you said this is just a "deposit" that can be returned upon the company folding and thus announced to the community at large they aren't a "bonded/insured" company.  I agree I thinking most legitimate business would have no problem fronting some bitcoin.

The biggest issue will be "fraud complaints" but this will have to come in the form of "class action lawsuits" sort of thing where a group of people will have to make the case not a single individual.

I think it would make sense to try to make it similar to a trade guild. Trade guilds can be self-regulating institutions. They have played an important role in regulating commerce, particularly in contexts lacking effective third-party enforcement mechanisms. Bitcoin is such a context.

Trade guilds often work as follows:

There is a single account belonging to a collective regulatory organization. Each participating businesses holds a key to this account. Authorization of any txn requires a yes vote from the majority of keys. There are three types of txns.

1) Authorization of a new member and the issue of a key to this member on receipt of his deposit
2) Confiscation of a member's deposit and cancellation of the associated key
3) Refund of a member's deposit and cancellation of the associated key

All of these txn types should be a matter of public record (e.g. in the block chain with signed messages).

For the system to work, one needs to have the majority of businesses remain honest. The incentive to remain honest is that association with the guild provides some sort of commercial benefit (e.g. enhanced reputation).

Update: I've come up with a way to incorporate an "escrow" around this where it takes 2-3 trust people to release any fraud claim funds against a bitcoin business.

Essentially, the idea is x amount of (btc) is put up as a "deposit" by abc company  - 2-3 bitcoin trusted members can apply to be "trusted key holders" against the business ( not associated w/ the business)  all this in a transparent website I'm coming up with where it shows how much BTC bond the business has put up and who are the "trusted key holders". Those members get a small dividend for being  "trusted key holder"   .

This is my initial idea I'm working on.

as someone said earlier in the thread "Trust No One" is the best policy

but when trust is something that must be extended - really the best metric we have for trust in the Bitcoin world right now (other than the otc system which is cumbersome for many users) is the way our forum has evolved into a reputation system.

to me if a bitcoin business has absolutely no real ties to a real person on this forum its a major red flag
(case in point - Bitscalper)

I hear you on that point BUT at some point you have to trust someone in this case 3 people - I'm assuming the chances that 2-3 OTC trusted people or Hero/donator forum members  doing sort of collusion would be remote I would believe.

For your scenario above the person regardless is fronting some sort of deposit to let everyone know he/she are serious. Good feedback! ;D

I have been thinking about this a lot too.  How to insure people's money when no one trusts each other.  Bitcoin is a system that allows people to exchange money that don't need to trust each other.

Maybe a better way is to set up an exchange that allows bets by the community on the likelihood of some type of business failure (ie, wallet theft, business incompetence, or outright scams).

For example, lets say I put some money into Bitscalper, but I am hesitant because I don't trust them.  I buy a bet on the website that says that Bitscalper will fail.  There needs to be clear contractual agreement of what constitutes a win when the business fails.

Anyway, say I have 100 bitcoins in Bitscalper and I insure 0 to 100% of those bitcoins.  A speculator bets that Bitscalper wills stay solvent so they take the bet.

The market needs to stay liquid enough so that if I close my Bitscalper account I can also sell back my bet to the market since I don't need it anymore.

People may not trust anyone else, but they sure like to speculate.

This is to be expected really. Scammers (usually) have short time preference and we're just getting started. People who are building good brand equity and reputation will make a buttload eventually.

I do like the idea as you are right people love to speculate. Probably could bring that over to that bitcoin betting site that lets you bet on everything forget the name of it. You could still speculate if you wanted to "add" to the bitcoin business's deposit amount because you have confidence they will remain. Maybe in return , if they are there 6 months later you get the excat amount you put in 1 to 1 - so you add 10 btc to the 100 btc the business put up.  In 6 months, you get 10 of that 100 btc for being right and the company has to front another 10 btc thus you start seeing a community rallying around the success of a company. Good thinking!

I don't think the business would even need to put up money.  A person that opened an account with a bitcoin financial service company wants to insure their money.  That person just wants to lower their risk.  A speculator is willing to take that risk in return for a potential profit.  The "insurance company" makes standard contracts that expire every quarter.  They can also help out their customers by rating each company to give their customers a better idea of the solvency of the company.  Some people may not get insurance, but if they get burned by a scam company everyone can say, "you should have gotten insurance!"

Mybitcoin would have had ZERO problem forking over 100 BTC ... 

Hence this just makes it more expensive to start up,  not stop fraud.

It's at least something and that is 100 more bitcoins we all would have gotten back!  actually the only bitcoins we would have gotten back since they never paid 50 percent like they said they would.

Of course, the amount of money on the line needs to be proportional to the profit opportunity from fraud. Is that your point?

Another good thing about doing it this way is that this is not considered gambling.  Since risk already exists by someone putting their money in a bitcoin financial company, that risk is just being transferred to someone else in exchange for a cost.  Something is considered gambling if risk is created like when someone goes in a casino and bets on a craps table.  The act of betting is creating risk.

The below quote better explains the process of insurance betting, but in my case I am suggesting to allow institutions and individuals to use them.

I like some components of this idea. I have a simple way of actualising this in a fast manner.

At present in the community there are several Escrow businesses; like btcrow.com . So my idea is that these Escrow businesses "expand" their role and do the following: For persons wanting to start a new BTC business and who are lacking enough Trustwothyness due to the reason that they are very new, they would deposit an amount of their choosing into the Escrow business, and have this as a Public record. The more they deposit, the more Trustworthy they can be perceived by the community.

The new BTC business would launch, and advertise the fact that they are "registered depositors" at XYZ Escrow service. XYZ can get a percentage for playing this role from the deposit; they can also charge a fee for future arbitration.

If any client in the future has a serious issue with the business, they can claim against the deposit at the Escrow service; these issues will also be public record.

Basically, what you said is exactly what I have in the works. You are spot on with your thinking.  ;D