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Author Topic: [BOUNTY] A way to prevent bitcoin fraud  (Read 1116 times)
mindragon
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August 11, 2013, 04:10:28 AM
 #1

Hi,

I realize it's like the wild west here. If EVE-Online is any indication, the problem with fraud will only continue to get worse. There is already one case before a judge (The Savings and Trust guy) and I'm sure there is more coming. But those are only the lucky ones that folks managed to track down. Recently, there was the LTC Wallet guy that is long gone. Also personally, I lost 1.5 BTC into a Southwest Gift Card that looked really legit (but it probably isn't).

Yes, I realize there are escrows but that can be defeated as well with charge-backs and related actions. So, that is of limited effectiveness.

To place the full burden on the buyer on certain transactions is crazy difficult. Because even if the buyer performs as much due diligence as possible, there are scams that can defeat such schemes. Considering those scams on EVE-Online, it has happened time and time again.

In the US (and some other countries) Bitcoin is considered a real currency. I only have the beginnings of an idea, but I'm willing to put 1 BTC into any entity that successfully creates a way to validate an entity or group in such a way to make sure that funds placed there cannot be lost or stolen. Or, if it is, there is some recourse possible against the entity or individual such that funds can be recovered. So I am proposing that perhaps someone with far more time and (and possibly) resources than me devise a way that we can have a "Yelp"-like system (but without their version of the scam) or some mechanism such that consumers of Bitcoin purchased goods and services will now have a resource to go to.

Sellers of products on these forums could then register with this Yelp-like system and it would bring credibility to their posts. Their signature block could contain this "trust validation" and folks like me would then look for it and then buy with more confidence.

For example, in the LTC-Wallet case, if that person was "registered" with this Yelp-like company, that company would have the details on where this person really and truly resides. In the event that this turns into a scam, people can contact this Yelp-like company and then details on where this person lives can then be shared such that police reports / lawsuits can be filed against this individual.

Such an action or agency would end much of the risk associated with these coins and bring a lot more of the legitimacy to Bitcoin related products and services. I would welcome any discussion around this (along with any modifications on this idea). I do not wish to be the 'owner' of this train of thought... In the end, I only wish to be the contributor of 1 BTC into such an action that reduces the risks associated with Fraud.

MD
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August 11, 2013, 05:33:23 AM
 #2

third party company can surly reduce counterparty risk . They hold buyers bitcoins until sellers get positive rate from buyers .
But i think high extra credit charges of a third party is not a good idea
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August 11, 2013, 05:37:31 AM
 #3

Escrow is the way to go sir.


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mindragon
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August 11, 2013, 06:43:08 AM
 #4

Escrow is the way to go sir.

While a noble attempt, Escrow is insufficient as it can be defeated. For example, with Southwest Gift Cards, the card can appear to have funds in it but it can be taken back later.

With LTC-Wallet, the system can appear to be real but later taken off line.

We need something that spans these types of concepts without causing undue risk to the buyer.
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August 11, 2013, 02:02:19 PM
 #5

Guys this is in a nutshell, IMPOSSIBLE. This is one of the main points regarding Bitcoin.

The only way to do that without a third party is only if the other item traded is also a block-chain based commodity like Bitcoin using something like Trading Across chains

Will take me a while to climb up again, But where is a will, there is a way...
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August 11, 2013, 02:13:51 PM
 #6

Escrow is the way to go sir.

While a noble attempt, Escrow is insufficient as it can be defeated. For example, with Southwest Gift Cards, the card can appear to have funds in it but it can be taken back later.

With LTC-Wallet, the system can appear to be real but later taken off line.

We need something that spans these types of concepts without causing undue risk to the buyer.

dude those type of stuff can be taken back , it doesn't matter what method you use to be safe and secure.


mindragon
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August 11, 2013, 11:31:48 PM
 #7

Guys,

I'm not sure why folks are thinking that I'm implying an action around the bitcoin transaction...To the contrary, I am asking if a "YELP"-like system can be developed that would provide a means of recourse against an individual for contributing to a fraudulent transaction.

See here...One fraud damages us all. If someone steals $1,000 or $10,000 from someone, that is $10,000 LESS dollars that we have in our community. The person perpetrating the fraud does not significantly contribute to our community. In fact, they damage our community much like a virus does to a human host.

If we want more net contributors to our community, then we need a way to protect each other from those that would do us harm.

Again, I'm challenging this community to devise a method to protect itself.

MD
mindragon
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August 12, 2013, 05:47:32 PM
 #8

Guys,

Again I would like to encourage someone to help develop a method to ensure that people are not ripped off. Each and every day I see thousands of dollars being stolen on this site.

Most recently this one: http://www.reddit.com/r/Bitcoin/comments/1k7axi/robbed_on_mtgox/

This will only encourage states like New York to insist on "regulation" and that brings a lot of problems with it.

Guys -- let's get our act together and create something of real value here!

MD
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August 13, 2013, 03:49:51 AM
 #9

WHAT would your yelp like system have done for the reddit guy who had his password stolen from MtGox? I mean, Mtgox is as big as it gets in the bitcoin world. He didn't initiate a transaction with them and they stole it, someone pulled money from his account. Yelp doesn't seem like it'd help there at all....
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August 13, 2013, 03:55:59 AM
 #10



 Here is a novel idea:       


  Get the bitcoin community together and create a Credit Union that only deals in Bitcoins and USDs
in which depositors are members who elect directors controlling the credit union. Everybody will get
all the safe guards afforded to an institution that is regulated to insure the public's trust.

 That way, you can get rid of places like MTGox and Bitstamp and start using #bitcoin-otc to
match buyers and sellers and then using the services at the Credit Union to complete the
transaction between accounts.
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August 13, 2013, 05:27:41 PM
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ok, so you want a community, many of whom vehemently hate any form of regulation, to get regulated? What safeguards will anyone get? If a real life credit union burns to the ground with all the money inside, the government can reprint that money to replace what was lost. If a bitcoin credit union burns to the ground and all of its cold storage backup keys were inside, there's no getting anything back.

You're asking for directors, who will therefore take on personal liability, to post Bitcoins to escrow to replace anything that's stolen, maybe? Where is the upside to them? Lots of downside - someone leaves their wallet unlocked. Will people pay for the service of leaving coins on deposit? Can't think why they would.

Besides, what is the use of bitcoin-otc? Wasn't pirateat40 the most trustworthy member there? You'd think his collapse would have at least taken down that site as well. Maybe a new WOT would have been spawned, but that one, not so much.

Ultimately, you're asking people to take on a lot of liability for no real upside. What is the rationale that makes you think that people would want to do that?
mindragon
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August 14, 2013, 02:19:23 PM
 #12

If it isn't done by the community, it will be done by the government and banking regulators. It's happened time and time before and the government will find a way to make it happen here. Downvote me all you want but I am speaking the truth of what will come to pass.

Internet "regulation" as such has led to the creation of companies like Amazon, Ebay and others where folks can buy with more confidence.

If you want the average consumer to buy with more confidence, then there needs to be a way to prevent fraud. In relation to Mt. Gox, self-regulation would have required that 2 factor authentication would be enabled by default such that a loss could not have occurred. This best practices effort demanded by the coin community would have been required for Mt. Gox to continue to get some sort of seal of approval.

Self-regulation would have meant that LTC-Wallet possibly could not have gone on the air with hundreds of thousands of dollars from the community without some sort of background check.

Now that Bitcoin is 'money', we have to either be self-regulated ... or regulated by the folks that are professional thieves (the banking/government community).

MD
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August 16, 2013, 02:46:23 PM
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If it isn't done by the community, it will be done by the government and banking regulators. It's happened time and time before and the government will find a way to make it happen here. Downvote me all you want but I am speaking the truth of what will come to pass.

Internet "regulation" as such has led to the creation of companies like Amazon, Ebay and others where folks can buy with more confidence.

If you want the average consumer to buy with more confidence, then there needs to be a way to prevent fraud. In relation to Mt. Gox, self-regulation would have required that 2 factor authentication would be enabled by default such that a loss could not have occurred. This best practices effort demanded by the coin community would have been required for Mt. Gox to continue to get some sort of seal of approval.

Self-regulation would have meant that LTC-Wallet possibly could not have gone on the air with hundreds of thousands of dollars from the community without some sort of background check.

Now that Bitcoin is 'money', we have to either be self-regulated ... or regulated by the folks that are professional thieves (the banking/government community).

MD

I understand your points fully. But I still don't see how it becomes a winning proposition for anyone who puts their neck on the line. In the real works, there are banks who earn their keep loaning our their customers deposits and there are trust companies earn theirs through trustee fees, and not insubstantial ones at that. Bitcoin lending, at least on a commercial scale, is incredibly risky. Might be less so with much stringer controls, but with controls that strong, there's be no difference in going to a bjtcoin institution versus taking out a dollar denominated loan from an ordinary bank.

You could do it in the form of a trust company but I fail to see a way to value add enough so that people would be willing to pay to keep a balance somewhere. So how does the institution you're proposing suppor itself? How does it adequately compensate its owners or directors for not only sticking their necks out, but also ponying up the bitcoins theyed either post as reserves or post as bond? Let alone paying for audits, because a regulated institution, or one that is expecting that much trust from the public can't just say "we're doing great"they need to establish that as fact.

And really, this is a peer to peer currency. I would say there isn't any reason to leave ones savings in anyone else's hands but your own. I don't understand why people insist on leaving sums at gox or anywhere else. Especially in light of constant losses. People should use exchanges for the purpose they're intended, to exchange bitcoin for cash or vice versa, and when they log out, transfer their balances to a wallet under their control. That alone would stop creating such juicy looking targets.

But I don't understand your idea that "self regulation" would "require" mtgox to use TFA. By its definition, self regulation would mean that they choose what to do. Now, they could require people use some form of TFA going forward, but even that, I'm not a lawyer of course, but I might think that that would open them up to being sued for past losses, where people could claim them negligent for not requiring TFA then even though they should have known it would do a better job at stopping fraud.

End of the day, people need to understand what bitcoin is. It's a means of transacting that is absolutely irreversible. And they need to be responsible. There is zero reason why people should leave balances in anyone's wallet but their own. Doing so opens then up to too many risks. Or someone could take a stand and sue gox for its negligence. But that would cost a lot, require a trip to Japan, and its uncertain that anyone would even find them negligent rather than the person raising the suit for not taking adequate protections. Who knows, maybe a jury (If they have them in Japan) would find in the plaintiffs favor and gox would take steps towards making sure customers removed their excess balances from their books.
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