ClearCoin: for safer bitcoin transactions

[Gavin Andresen]

I'm happy to announce ClearCoin, my bitcoin escrow service:
  https://clearcoin.appspot.com/

It makes bitcoin transactions safer by securely holding coins in escrow until both buyer and seller are satisfied.

If you are buying something using bitcoins, it makes the transaction much safer.  If you are unsatisfied, you will eventually get your bitcoins refunded to you-- you can think of ClearCoin as do-it-yourself chargebacks.

If you are selling something using bitcoins, ClearCoin is safer than ad-hoc arrangements to reassure reluctant customers (like "I'll ship you the product if you promise to pay within 30 days" or "pay me half now and half on delivery").

I'm looking for questions, comments and feedback.  You can give it a try for free-- transactions of less than 100 bitcoins are free, and you can setup an escrow account to yourself just to see how ClearCoin works.

[davout]

You could also add the possibility to define how bitcoins get split in case of dispute.
Example : You could say that instead of a full chargeback in case of dispute you only do a 80% refund, merchant gets 20%

[Vinnie]

Clearwing's Role

Clearwing cannot, and will not, mediate any disputes arising from the use of ClearCoin. If Alice claims she was cheated we will not refund her coins before the escrow expiration date. And if Bob claims he was cheated we will not give him the 100 bitcoins Alice deposited. Buyer, and seller, beware!

Do you mean Clearcoin?

I know paypal/ebay offers arbitration, and as controversial as it can be, it is a valuable, low cost service. Given that you aren't providing such services, would there be room down the road for a third party arbitrator to control the release of funds to Bob or back to Alice? Any service that is more convenient than going to court would be very appreciated by the community, I imagine.

Oh yeah, nice site!

[mtgox]

Doesn't this just shift who is taking the risk?
A sends Item to B
B gets Item.
B claims he never got Item.
B gets his bitcoins back.

Am I missing something?

[ptd]

Doesn't this just shift who is taking the risk?
A sends Item to B
B gets Item.
B claims he never got Item.
B gets his bitcoins back.

Am I missing something?

B has to wait a whole year first. The system is designed so that the only thing that one party can do is penalise the other, giving them an economic incentive to cooperate.

Maybe it should be that ClearCoin keeps the coins indefinitely?

[caveden]

I find it a bit dangerous to give the final decision to the buyer.... at least in retail, it's the seller who has a reputation to care for. Buyers have less to lose in cheating.

Not complaining about your site though, it's a good initiative.

[ptd]

I hope you plan to offer an API for sellers.

[Gavin Andresen]

Thanks for all the great feedback!

Maybe one way to think about ClearCoin is as a tool to help manage risk between buyer and seller.

If the buyer completely trusts the seller, then you don't need ClearCoin-- just send bitcoins directly.
If the seller completely trusts the buyer, then just send the product first.

Usually there's some level of trust/mistrust between buyer and seller.  If you use ClearCoin in creative ways, you should be able to come up with a way of using ClearCoin that balances the risks to both buyers and sellers.

To take davout's example:  The person paying could deposit 20% of the funds in a ClearCoin account, then immediately release that 20% as a "good faith payment".  Then they deposit the other 80%.

That gives an 80/20 risk split.   "Half now, half on delivery" type arrangements can be done the same way.

davidonpda:  You can choose how long your coins will be tied up when you create the escrow account-- one month, six months, or a year.  Of course, the longer they're held the more comfortable the person on the other side of the transaction will be.

PS to Vinnie:  ClearWing Software is the company; ClearCoin is the service.

[Gavin Andresen]

I hope you plan to offer an API for sellers.

Yes, although the first big feature on my ClearCoin TODO list is a reputation/feedback system.

[MoonShadow]

It's a good start, but perhaps a better system is dual funding of escrow, whereing both parties contribute the full purchase price (plus half of any escrow fees), and then it takes the consent of both to release any of the funds to either party.  This lays risk upon both parties until the transaction is completed to the satisfaction of both.  If after a year (or some other long period) any conflict cannot be resolved, then the funds are released back to both parties.  The risk to the buyer is exactly the same, but the near term capital risk to the seller is increased.  In the interim, parties agree that the deposit can be used by the site for lending, which should more than cover the costs & annoyance of the site owner.  The time period for frozen funds needs to be long enough that the time preferences of the currency is enough of a threat to strongly discourage cheating.

The problem that I see is that if the seller is a cheat, he has no incentive not to attempt to cheat even if he isn't likely to succeed under your system.  However, not only would an honest seller have a greater incentive to complete the deal quickly, he would also be supporting his honest reputation by the willingness to risk locking up funds in a dispute.

[ploum]

I find it a bit dangerous to give the final decision to the buyer.... at least in retail, it's the seller who has a reputation to care for. Buyers have less to lose in cheating.

Not complaining about your site though, it's a good initiative.

exactly my opinion. I also think that there should be more risk on the buyer side. The one year is not really incentive as, well, I might have enough money to wait for it.

Also, the seller might have a proof : the delivery receipt. When you receive a delivery, you have to open it in front of the deliverer. Else, it is assumed that the content of the box is what is written on it.


Anyway, thanks Gavin. I was thinking about doing such a service myself but I hadn't the time to do it yet. Now, I don't need it anymore ;-)

[MoonShadow]

Also, the seller might have a proof : the delivery receipt. When you receive a delivery, you have to open it in front of the deliverer. Else, it is assumed that the content of the box is what is written on it.

which is why it's difficult to completely remove the human element of it.  When two parties agree to use such a service, they are ultimately putting trust into a human being.  Most of even the conflicts will resolve out without intervention of the escrow site owner, as a sour deal will most often not be caused by an attempt at fraud but a misrepresentation/misunderstanding that will just end in the two parties agreeing to keep theirs and move on.  Only the rarest of deals will be unresolvable without adjudication, but some will.  The one year wait is a strong encentive for the two parties to work it out, even if they would prefer to just stick it to the other; which is part of why I think that a double escrow would be better, because otherwise the seller could get ticked and just refuse to release the buyer from the agreement until the year was up, as he has no real skin in the escrow itself.

[MoonShadow]

I also think that there should be more risk on the buyer side. The one year is not really incentive as, well, I might have enough money to wait for it.

That really depends on so many factors that it's hard to judge.  A double escrow could be limited far longer, because it would be rare that any conflict would last to the limit, but you don't want it to be indefinate either, because the site owner doesn't want to have to hunt down disgruntled clients should there be a need to close the site.  I would say that three years is about the high end limit for such a thing, but one year should be long enough.

[Stephen Gornick]

I would say that three years is about the high end limit for such a thing, but one year should be long enough.

Will people still have their current wallet a year, or three from now?

[MoonShadow]

I would say that three years is about the high end limit for such a thing, but one year should be long enough.

Will people still have their current wallet a year, or three from now?

Current client, no.  But everyone should still have their past wallet.dat data intergrated into whatever current client that they use.

[Stephen Gornick]

How would one merge adresses from old wallet into a new one?

[Stephen Gornick]

What if I send the escrow payment from an e-wallet provider, ... MyBitcoin, for example. 

If I fail to release the escrow amount to the counterparty, after the 30 days the refund goes back to MyBitcoin, ..., which would not make it to my account with them, correct?

[nanotube]

What if I send the escrow payment from an e-wallet provider, ... MyBitcoin, for example. 

If I fail to release the escrow amount to the counterparty, after the 30 days the refund goes back to MyBitcoin, ..., which would not make it to my account with them, correct?

when you set up your account, you can set the 'refund address' to whatever you want it to be.
and you can change it as many times as you like.

[Babylon]

I just want to check and make sure people have had good experiences with these guys,. I haven't seen anyone post any good or bad.

[Stephen Gornick]

I just want to check and make sure people have had good experiences with these guys,.

Clearwing Software LLC is a Massachusetts corporation founded by Gavin Andresen.

Gavin is one of the Bitcoin project developers, and will continue to support its development and growth.
  http://clearcoin.appspot.com/about

I haven't seen anyone post any good or bad.

[Edit]
As the seller in an escrowed transaction it worked perfectly for me.