Instant payments (Was: Why bitcoin won't make it)

[eugene2k]

Got your attention now, didn't I?  

Anyway, I'd like to talk about one of the disadvantages of bitcoin over other digital currencies. Non-instant payments. In today's world we're used to instant payments. We go to the mall, pay with our credit card at the checkout and we're done, we use various digital currencies and payment systems online to again make payments in seconds. This is not possible with bitcoin even with 0 confirmations, and "0 confirmations" approach is quite insecure to be widely used. So in order for instant payments to be possible we need to have the payment confirmed in a faster way. The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment. In effect, these trusted parties are basically banks. However, because it's very easy to set up such a bank, because it takes few resources, anyone can create such banks. And this leads to the main question of this topic: how do we make sure fraudulent banks do not get included in the system? Or perhaps I'm going about this the wrong way entirely? What are your thoughts?

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[bitfreak!]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

[drrussellshane]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Yep.


Part of the idea of bitcoins is self-ownership.

You don't really own something unless it is in your possession and is free and clear.

[zby]

Got your attention now, didn't I?  

Anyway, I'd like to talk about one of the disadvantages of bitcoin over other digital currencies. Non-instant payments. In today's world we're used to instant payments. We go to the mall, pay with our credit card at the checkout and we're done, we use various digital currencies and payment systems online to again make payments in seconds. This is not possible with bitcoin even with 0 confirmations, and "0 confirmations" approach is quite insecure to be widely used. So in order for instant payments to be possible we need to have the payment confirmed in a faster way. The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment. In effect, these trusted parties are basically banks. However, because it's very easy to set up such a bank, because it takes few resources, anyone can create such banks. And this leads to the main question of this topic: how do we make sure fraudulent banks do not get included in the system? Or perhaps I'm going about this the wrong way entirely? What are your thoughts?

This is also my conclusion - this is the next step for bitcoin.  I think the chances are good here - because there is such a low barrier to entry for the 'banks' there should be much competition between them and the market should fix the trust problems.  Maybe this is where cooperation with Ripple (http://ripple-project.org/) could bring much benefits?

Please change the title of this thread.

[killer2021]

I agree with you.

I am sure eventually there will be a bitcoin bank that helps speed up transactions. It'll be like using a prepaid debit/credit card. You'll put 50 btc on the card. When you go to spend the btc the bank will act as the intermediary to quickly process the transaction. If the merchant wants cash, then the bank sends the cash. If the merchant wants btc then it will send btc.

Going to be interesting to see how the bank actually makes money though.

[digigalt]

Bitcoin won't make it because people don't actually believe in or want a crypto-currency that is anonymous or untraceable. Look at what has happened every step of the way. Bitcoin was supposed to be decentralized, but people flocked almost entirely to a single exchange: Mt. Gox. People wanted a currency that was anonymous - until they got ripped off. People wanted a currency that wasn't beholden to corrupt banking institutions - now you're on the verge of creating bitcoin banks. How long until there's Bitcoin equivalent to the SEC?

[Alex Beckenham]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Um, he said 'trusted'.

[zby]

Pure systems are pipe-dreams.  A bit of centralization on a decentralized framework is a good compromise.  Provided that the decentralized economy is what governs - and more importantly that the super-nodes are subject to competition in between them.  I think that the situation with exchanges will improve and it already started to improve.

[bitfreak!]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Um, he said 'trusted'.

Why don't you trust MyBitcoin? I have used them for a while and they've been fine, most of my BTC is also held by them. They also offer a great payment gateway for merchants.

[Alex Beckenham]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Um, he said 'trusted'.

Why don't you trust MyBitcoin? I have used them for a while and they've been fine, most of my BTC is also held by them. They also offer a great payment gateway for merchants.

Because they never returned a 10 btc over payment. It either went to the merchant, or it went to mybitcoin.com... both are claiming it went to the other. I'm inclined to believe the merchant.

In addition, it took more than 3 weeks to even get back a response from mybitcoin.com to tell me they weren't going to help.

[beeph]

bitcoins are going to be used to pay overseas suppliers where 10 mins is instant, compared to 2 weeks which is my typical wire xfer time to china.
also it's relatively large payments.. this is actually a perfect solution to this and if you've EVER

dealt with a new supplier in china.. and waited for a week on the 30% down payment and wondered for a week if he wasnt just gonna disappear/get shutdown/whatever... this is a GODSEND.

[Hawker]

bitcoins are going to be used to pay overseas suppliers where 10 mins is instant, compared to 2 weeks which is my typical wire xfer time to china.
also it's relatively large payments.. this is actually a perfect solution to this and if you've EVER

dealt with a new supplier in china.. and waited for a week on the 30% down payment and wondered for a week if he wasnt just gonna disappear/get shutdown/whatever... this is a GODSEND.

+1

The sheer awfulness of trying to get small amounts money in and out of China is what got me interested in Bitcoin. 

[Alex Beckenham]

The sheer awfulness of trying to get small amounts money in and out of China is what got me interested in Bitcoin. 

Likewise with South Africa, really strict limits on international transactions there.

[Keefe]

Funny I run across this thread right now...
I'm in the USA and do business with someone in China regularly. But it's annoying paying fees to banks for moving money back and forth. He recently got into bitcoin mining and will be selling at least some of it, so paying me with bitcoins instead of trying to sell bitcoins locally will be win-win! It's the same situation in the other direction as well.

[Crystal Excursion]

bitcoins are going to be used to pay overseas suppliers where 10 mins is instant, compared to 2 weeks which is my typical wire xfer time to china.
also it's relatively large payments.. this is actually a perfect solution to this and if you've EVER

dealt with a new supplier in china.. and waited for a week on the 30% down payment and wondered for a week if he wasnt just gonna disappear/get shutdown/whatever... this is a GODSEND.

Great Point... +1

[walidzohair]

you can use something like mybitcoin or any other service that back your dollars with BTC for instant debiting.. but again this is a little part of your money that you want to go shopping with and not a general Bitcoin solution for all uses.

In my opinion the way we used to buy and see things will change too as we use Bitcoin more and more specially the idea of the trusted middle-man as they already make a lot of all the world transactions.

[patvarilly]

bitcoins are going to be used to pay overseas suppliers where 10 mins is instant, compared to 2 weeks which is my typical wire xfer time to china.
also it's relatively large payments.. this is actually a perfect solution to this and if you've EVER

dealt with a new supplier in china.. and waited for a week on the 30% down payment and wondered for a week if he wasnt just gonna disappear/get shutdown/whatever... this is a GODSEND.

+1

The sheer awfulness of trying to get small amounts money in and out of China is what got me interested in Bitcoin. 

I posted this elsewhere, but this seems a more appropriate forum: immigrant workers sending remittances back home at the end of every month pay enormous fees to places like Western Union, which they would be extremely grateful to avoid.  Remittances are a huge money mover worldwide, about $325bn in 2010 according to the World Bank (http://siteresources.worldbank.org/EXTDECPROSPECTS/Resources/476882-1157133580628/MigrationandDevelopmentBrief16.pdf).  This is one of the main use cases I see for Bitcoins, and here, as in paying Chinese suppliers, 10 minutes is essentially instant, and you can verify then transfer yourself without an intermediary.

[dinzy]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Um, he said 'trusted'.

Why don't you trust MyBitcoin? I have used them for a while and they've been fine, most of my BTC is also held by them. They also offer a great payment gateway for merchants.

Because they never returned a 10 btc over payment. It either went to the merchant, or it went to mybitcoin.com... both are claiming it went to the other. I'm inclined to believe the merchant.

In addition, it took more than 3 weeks to even get back a response from mybitcoin.com to tell me they weren't going to help.

I lost 0.5 BTC when Mybitcoin went down.  It was sent from the pool automatically, but did not show up in my account.  I have contacted them and am awaiting a response.  However it does tend to diminish any trust. 

[eugene2k]

MY-BIT-COIN-DOT-COM

Suppose they become the main bitcoin bank, and if they offer instant transaction confirmation already this will attract merchants and users. If there aren't any competitors, they could one day decide to charge you 10% on all transactions. And so you have a choice: either have instant transactions that cost 10% more or not have instant transactions. Now, this is a very far-fetched situation, and more than likely there will be more banks in the future offering instant transaction confirmations. Everyone wants to jump on the band wagon once they know that it's profitable, don't they. So more than likely is that we'll have more bitcoin banks popping up that offer the same basic service to merchants - instant confirmations. Now here's where it becomes a problem: as there are many banks, they compete with each other for users, so the market is fragmented (especially considering an almost nonexistent barrier of entry). For users that might not be so much of a problem as it is a benefit, but think about merchants for a bit and you realize that it's beneficial for merchants to work with as many banks as possible that would allow them to receive instant payments. It would be a huge pain in the ass to review each bank, not to mention that it's also a risk to rely on this instant confirmation before the transaction is actually confirmed by the network. Now lets forget about these issues for a moment and focus on the experience of a user that tries to pay with bitcoin: the user clicks a "pay with btc" button on the website and is shown a page with a list of banks to choose from, now the user has to search through the hundreds of banks on that page just to fucking make a payment. Compare this with paypal or google-checkout and it's obvious that the user will prefer other payment options to bitcoin.

[qwk]

The problem of instant payments is easily solved.
Not even a high level of trust is required for that, so you don't need a real bank or something. As long as you are willing to trust a minor amount of your bitcoins for a very limited period of time to any instant wallet service, it will work out.
It would be very easy to implement, which may or may not be a good means of protection against centralization like with mtgox.

I proposed that in another thread:
http://forum.bitcoin.org/index.php?topic=25426.0


Of course, you might also like the highly centralized way of mtgox, they are doing roughly the same thing, but both parties need to be their established customers. Which is why i think it goes against the general principles of bitcoin.
You can find info on this here:
http://forum.bitcoin.org/index.php?topic=25307.0


Or maybe Atlas is right with his EasyCoin concept, which would also be a more centralized approach:
http://forum.bitcoin.org/index.php?topic=25771.0


I personally prefer my design, it is very easy to deploy and not prone to a high level of centralization. But the others are a little more advanced right now, while mine is more an idea right now.

[d.james]

In Gox We Hack Trust 

[eugene2k]

As long as you are willing to trust a minor amount of your bitcoins for a very limited period of time to any instant wallet service, it will work out.

Your idea fails here. First you can only trust a minor amount of coins which makes buying expensive things impossible, second if you're a merchant you have no way of finding out if you really were sent coins or not, it's the same as relying on the customer saying "I've sent you the coin, you'll receive it later, can I have my goods now?"

The best approach I could come up with to date is to create a central bitcoin payment processor for banks. This payment processor would have to be a non-profit organization and would ensure an even playground for all the banks wrt instant payments. The banks would store some money with this payment processor and as soon as a bank issues a transfer using the payment processor's api, the payment processor can confirm a transaction. So basically this would be a bank for banks.

[Man From The Future]

As long as you are willing to trust a minor amount of your bitcoins for a very limited period of time to any instant wallet service, it will work out.

Your idea fails here. First you can only trust a minor amount of coins which makes buying expensive things impossible, second if you're a merchant you have no way of finding out if you really were sent coins or not, it's the same as relying on the customer saying "I've sent you the coin, you'll receive it later, can I have my goods now?"

The best approach I could come up with to date is to create a central bitcoin payment processor for banks. This payment processor would have to be a non-profit organization and would ensure an even playground for all the banks wrt instant payments. The banks would store some money with this payment processor and as soon as a bank issues a transfer using the payment processor's api, the payment processor can confirm a transaction. So basically this would be a bank for banks.

Quis custodiet ipsos custodes?

[qwk]

As long as you are willing to trust a minor amount of your bitcoins for a very limited period of time to any instant wallet service, it will work out.

Your idea fails here. First you can only trust a minor amount of coins which makes buying expensive things impossible,

That's what instant payments are all about. If you bought a car, a 10 minute wait for a confirmation would be no problem.
If you bought a coke at a vending machine, 10 minutes is not acceptable.

second if you're a merchant you have no way of finding out if you really were sent coins or not,

That's why you would have to rely upon the instant wallet service. For minor amounts, i could imagine that i'd be willing to trust instawallet.org in exchange for being able to sell via a vending machine.

it's the same as relying on the customer saying "I've sent you the coin, you'll receive it later, can I have my goods now?"

No, it's the same as relying upon another third party. This third party is in no way affiliated with the customer and has nothing to gain from submitting false positives for minor amounts. They do have a lot to gain from building a strong reputation with merchants, which will lead to higher acceptance of their service.

The best approach I could come up with to date is to create a central bitcoin payment processor for banks. This payment processor would have to be a non-profit organization and would ensure an even playground for all the banks wrt instant payments. The banks would store some money with this payment processor and as soon as a bank issues a transfer using the payment processor's api, the payment processor can confirm a transaction. So basically this would be a bank for banks.

That's the mtgox approach i've been talking about. The big issue i have with that is centralization. My approach would allow for a list of accepted service providers, not one single provider.

[qwk]

Quis custodiet ipsos custodes?

A web of trust, for example. Best common practice as another. The market, a third.

[error]

Got your attention now, didn't I? 

Anyway, I'd like to talk about one of the disadvantages of bitcoin over other digital currencies. Non-instant payments. In today's world we're used to instant payments. We go to the mall, pay with our credit card at the checkout and we're done, we use various digital currencies and payment systems online to again make payments in seconds. This is not possible with bitcoin even with 0 confirmations, and "0 confirmations" approach is quite insecure to be widely used. So in order for instant payments to be possible we need to have the payment confirmed in a faster way. The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment. In effect, these trusted parties are basically banks. However, because it's very easy to set up such a bank, because it takes few resources, anyone can create such banks. And this leads to the main question of this topic: how do we make sure fraudulent banks do not get included in the system? Or perhaps I'm going about this the wrong way entirely? What are your thoughts?

You're going about this the wrong way.

At retail, and with the typical retail transaction amounts, it's perfectly fine to accept a transaction with 0 confirmations. The risk on this has a LOT of zeroes after the decimal point, and in any case is far lower than the risk of accepting someone's credit card. The double-spend attacks are pretty much impossible to accomplish while standing in line at Walmart.

[qwk]

At retail, and with the typical retail transaction amounts, it's perfectly fine to accept a transaction with 0 confirmations.

That comes straight from the book, and i unfortunately have to tell you that it is outright wrong.
It may be acceptable for an over-the-counter trade with two real persons involved. It is not very likely that you would buy a coke from me, jump out of the shop, and hit that enter button on your laptop just to make a double-spend, that's true. Even if that may happen from time to time, the loss will be minimal for me as a vendor.

But with vending machines, it's a completely different thing.
If i sell something valuable with a vending machine, it may be very profitable for the attacker to do just that, double- or triple-spend at different machines. Think about prepaid mobile phone cards, they can be purchased from vending machines. Think about train tickets. Cigarettes. Even gold, now that this new goldbar-ATM-thingy is up and running 


But i am working on it , as i have mentioned earlier in this thread

[error]

At retail, and with the typical retail transaction amounts, it's perfectly fine to accept a transaction with 0 confirmations.

That comes straight from the book, and i unfortunately have to tell you that it is outright wrong.
It may be acceptable for an over-the-counter trade with two real persons involved. It is not very likely that you would buy a coke from me, jump out of the shop, and hit that enter button on your laptop just to make a double-spend, that's true. Even if that may happen from time to time, the loss will be minimal for me as a vendor.

But with vending machines, it's a completely different thing.
If i sell something valuable with a vending machine, it may be very profitable for the attacker to do just that, double- or triple-spend at different machines. Think about prepaid mobile phone cards, they can be purchased from vending machines. Think about train tickets. Cigarettes. Even gold, now that this new goldbar-ATM-thingy is up and running 


But i am working on it , as i have mentioned earlier in this thread

Right. I'm thinking grocery store checkout line, not vending machine. That's a bit different (has its own thread, too).

[w1R903]

bitcoins are going to be used to pay overseas suppliers where 10 mins is instant, compared to 2 weeks which is my typical wire xfer time to china.
also it's relatively large payments.. this is actually a perfect solution to this and if you've EVER

dealt with a new supplier in china.. and waited for a week on the 30% down payment and wondered for a week if he wasnt just gonna disappear/get shutdown/whatever... this is a GODSEND.

Forget China, try getting money back and forth from the US to Europe.  They think we (the US) are in the banking stone ages because we still use checks/wire payments and not IBAN (which is true).  That's what got my interested in Bitcoin initially.  Bitcoin has the opportunity to change the (multi-billion dollar) industry I work in.

[LittleGnome]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Um, he said 'trusted'.

Thank you!

[LittleGnome]

The only one I can think of is by having trusted parties managing the money, thus when a trusted party confirms the money has been sent, you can be sure you'll receive a payment.

MY-BIT-COIN-DOT-COM

Um, he said 'trusted'.

Why don't you trust MyBitcoin? I have used them for a while and they've been fine, most of my BTC is also held by them. They also offer a great payment gateway for merchants.

Because they never returned a 10 btc over payment. It either went to the merchant, or it went to mybitcoin.com... both are claiming it went to the other. I'm inclined to believe the merchant.

In addition, it took more than 3 weeks to even get back a response from mybitcoin.com to tell me they weren't going to help.

Because they unilaterally changed my password on me 2 weeks ago (after I had already changed my password after Mt.Gox), and still won't let me access my account, nor do they respond to my support requests. At this point I believe that they've stolen from me.

[eugene2k]

Quis custodiet ipsos custodes?

Are you looking at this from a merchant's perspective, from a bank's perspective or from a bank customer's perspective? The customer doesn't deal with the payment processor. For the merchants it's no different than putting your faith into mtgox. For the banks - this non-profit would need to earn their trust before they put a bit of funds in it. There's no need to transfer all of the funds to the payment processor, only an amount that is needed for the time that it takes the network to confirm all "instant" payments made from such a bank. In other words as the bank's client requests an insta-transfer, the bank connects to the payment processor and requests the same amount of funds to be transfered to the recipient specified by the bank's client. If the bank's account that is managed by the payment processor has enough money, the payment processor issues a transaction, if not - an error is returned. The bank can transfer some funds to the payment processor whenever it feels like and those will be used to issue transactions on behalf of the bank.

That's what instant payments are all about. If you bought a car, a 10 minute wait for a confirmation would be no problem.
If you bought a coke at a vending machine, 10 minutes is not acceptable.

And if you bought an exclusive license to a digital product? A good example would be exclusive web-site templates - some of those cost thousands. Another is software. I suppose the wait doesn't matter that much in these cases, and people would be fine with waiting for some time, but only if bitcoin was the only way to pay for these things. More likely than not people would prefer paypal's instant service to waiting for a while. Besides, I don't think 6 confirmations takes just 10 minutes - it took an hour or so when I checked last (was some time ago, though).

At retail, and with the typical retail transaction amounts, it's perfectly fine to accept a transaction with 0 confirmations.

I suppose it is, but IIRC even 0 confirmations takes time because of the decentralized nature of the network.

For minor amounts, i could imagine that i'd be willing to trust instawallet.org in exchange for being able to sell via a vending machine.

You would trust instawallet.org, but what would you do if a considerable share of customers was using fancywallet.com, bitwallet.org and a hundred more instawallet lookalikes?

[error]

At retail, and with the typical retail transaction amounts, it's perfectly fine to accept a transaction with 0 confirmations.

I suppose it is, but IIRC even 0 confirmations takes time because of the decentralized nature of the network.

Yep, it may take three to five seconds to propagate throughout the network. A well connected bitcoind should get it much sooner.

[qwk]

For minor amounts, i could imagine that i'd be willing to trust instawallet.org in exchange for being able to sell via a vending machine.

You would trust instawallet.org, but what would you do if a considerable share of customers was using fancywallet.com, bitwallet.org and a hundred more instawallet lookalikes?

I hope that the customers would actually spread their favor over a lot of fancywallets. Keeping an up-to-date list of maybe a couple hundred websites i trust, would be no problem at all. And even if one of them turns out to be crooked, i'd be happy that this reduces my actual damage.

Imagine such a vending machine. On the label it would say "I accept fancywallet, mybitcoin, instawallet, wallywallet...", just like merchants today accept VISA, MASTER, AMEX, DINERS...

Hey, the more i think about it, the more i love that idea. Really.

[BitcoinDealer]

Bitcoin will not fail because of the lack of merchants accepting Bitcoin.

Nor will Bitcoins fail because of the lack of 'myBitcoin.com'-like sites.

Bitcoin will fail because of: http://forum.bitcoin.org/index.php?topic=25438.0

Only Satoshi can fix it

[eugene2k]

Nothing stops you from building a p2p network for messaging. There's really no need to build stuff into the client. And even if you think that being built into the client is a must, you can make your own client with the p2p exchange.

Hopefully we can get back on topic now.

Imagine such a vending machine. On the label it would say "I accept fancywallet, mybitcoin, instawallet, wallywallet...", just like merchants today accept VISA, MASTER, AMEX, DINERS...

Imagine how glad the customer will be when she has to skim through a hundred of these labels just to find out whether or not you accept megawallet. She will be even happier to see a simple slot for coins.

[walidzohair]

have you checked  the new android POS application yet ?

[Phinnaeus Gage]

Bitcoin won't make it because people don't actually believe in or want a crypto-currency that is anonymous or untraceable. Look at what has happened every step of the way. Bitcoin was supposed to be decentralized, but people flocked almost entirely to a single exchange: Mt. Gox. People wanted a currency that was anonymous - until they got ripped off. People wanted a currency that wasn't beholden to corrupt banking institutions - now you're on the verge of creating bitcoin banks. How long until there's Bitcoin equivalent to the SEC?

"How long until there's Bitcoin equivalent to the SEC?"

...or taking it to the next level(s)--every nation mints there own physical bitcoins using there own designs back by their fiat currency.

The BTC SEC will be controlled by ALL members of this forum where the person with the most posts is president, newbies voter on important issues, Jr. Members write the newsletters, Sr. Members lobby, and the trolls keep the whole system in check.

[jostmey]

This problem CAN BE SOLVED!

1) Transaction fees
2) Have the buyer send an ip-address of the bitcoin node that first confirms the payment. Then the seller can quickly connect to that node and verify the payment. Of course, this would require a modified bitcoin client program, but it should be a small tweak to the code.

Any thoughts?

[qwk]

Imagine such a vending machine. On the label it would say "I accept fancywallet, mybitcoin, instawallet, wallywallet...", just like merchants today accept VISA, MASTER, AMEX, DINERS...

Imagine how glad the customer will be when she has to skim through a hundred of these labels just to find out whether or not you accept megawallet. She will be even happier to see a simple slot for coins.

Imagine a number of instawallets are already widely accepted.
The vending machine would simply say "instawallets accepted".
You insert your instawallet-banknote into the machine and it goes "no, i don't accept that one".
After some time, that's what's gonna be the practical day-to-day use.
I fail to see a problem with that.
The customer will have a strong motivation not to use too exotic an instawallet service, but at the same time the vending machine will have a strong motivation not to be too picky about the instawallet services to accept.
The market will take care of the rest.