Payment processing with fraud insurance how could that be done?

[ElectricMucus]

One of the major shortcomings in the history of Bitcoin is the amount of fraud and scams happening. We can argue about how much of an extent this is really happening, of course.

But that is not what this thread is about. Even in a fairly civil part of the economy, the classifieds and merchant businesses we should try to minimize the impact fraud has on the perception and potential use of Bitcoin.
So I want us to brainstorm on ideas of how a fraud insurance could be implemented.

Maybe bitpay has something to say, maybe anybody else has a suggestion.


Here is the first pitfall I would like to discuss: The reason insurance claims work in the big world of finance out there is because of the legal system and it's support for legal tender. If the fraudsters can be prosecuted it becomes much easier for the insurance company to remain profitable. So we have two options here:


-) Rely on the existing legal system
The preferable option, but, sadly there are no stunning success stories so far.
-) Devise our own system (This is the realm of crack-pot darknet anarchism, you know decentralized republica and for hire "task forces")
or maybe you have a better idea which can work in the world of ordinary people too?

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[p3b]

I would love to have an escrow payment module for my opencart shop. Even better if this trusted third party site could publish statistics of how reliable a vendor (and buyer) is.

[hazek]

If one is smart fraud virtually can't happen with Bitcoin. Use escrows, use reputation systems, use common sense.

If fraud were such a big problem, there is no way a successful marketplace like Silk Road where no one knows each other's true identity or location could ever exist.

[ElectricMucus]

One of the major shortcomings in the history of Bitcoin is the amount of fraud and scams happening. We can argue about how much of an extent this is really happening, of course.

If one is smart fraud virtually can't happen with Bitcoin. Use escrows, use reputation systems, use common sense.

Ok lets argue:
Do you think the problem is small enough that a fraud insurance would be a bad running business? I argue that people would be willing to pay some extra processing fee for the insurance, if it were possible, I would.

If fraud were such a big problem, there is no way a successful marketplace like Silk Road where no one knows each other's true identity or location could ever exist.

Is it really that important how big the problem is? Wouldn't that speak actually for my proposal?
The creation of such an insurance service would then mean there is good profit for those who make it.

[CIYAM]

Insurance companies are not so concerned with anything apart from their own profits (I worked for a software platform for them for years so this is what I know from an "insiders" perspective).

I also personally know someone who got an insurance company to cover a "hole in one" golf competition (and there are many similar thousands of such examples around that you can find).

Give them the tools (such as blockchain.info) and a sound idea and they will likely accept it if they deem the risk to be acceptable enough to make a profit.

[MPOE-PR]

The problem with insurance is and remains that you have no way of knowing who's buying the insurance. It has nothing to do with enforcing or not enforcing laws or the spurious comments re crackpot and so forth. It's simply that if I have a business making a bitcoin and I insure it with you for two bitcoins my incentive is for it to fail now. And so fail it will.

This has nothing to do with keeping safe from scams, which as hazek points out can be reasonably done as is. The whole problem with insurance is that it creates perverse incentives across the board. Until that problem is resolved there won't be btc insurance.

[franky1]

edit. i used too much waffle in my reply

the best payment processing with fraud REASSURANCE is the mtgox "pay with mtgox account" button

no need to worry about 0 confirm transactions. as the funds have to be pre-confirmed by MTGox to even send to merchants.
it requires customers to log in, which reduces the chances of them crying about leaving their open qt client on the phone/laptop whilst they walked away and a stranger moved funds.