2013-11-26 Wired Bitcoin...Its Fatal Flaw

[hacknoid]

I am not saying that I agree with the article, but I think his point is that consumers inherently trust all types of electronic transactions because there is a belief that these are reverseable.  I, the consumer, am protected from fraud.  

Examples:

If my credit card number is stolen I am only responsible for $50.

If I order something online and get ripped off I can initiate a chargeback.

We bitcoiners love to brag about the irreversibility of BTC, but it is this very attribute that scares the buyer.  Now I fully understand that consumers are not protected nearly as much as they think, but they believe that they are. "buyer protection" protocols must be implemented before Average Joe will start using them.

Again, that is what escrow is for.  The concept of needing the chargeback/reversal capability is not required.  Using escrow allows for consumer protection, even better than the ability to request a chargeback.  Rather than paying then (possibly) fighting for your money back by proving something went wrong, instead the transaction is just held in escrow until parties are satisfied that everything is right.   If it isn't, then the transaction is cancelled (?).  (That's one point of the escrow [m-of-n] option that I have not been able to clear up for me - what happens if you don't get m-of-n parties to agree?  Does the transaction automatically get cancelled after a point in time?)

[histman]

Again, that is what escrow is for.  The concept of needing the chargeback/reversal capability is not required.  Using escrow allows for consumer protection, even better than the ability to request a chargeback.  Rather than paying then (possibly) fighting for your money back by proving something went wrong, instead the transaction is just held in escrow until parties are satisfied that everything is right.   If it isn't, then the transaction is cancelled (?).  (That's one point of the escrow [m-of-n] option that I have not been able to clear up for me - what happens if you don't get m-of-n parties to agree?  Does the transaction automatically get cancelled after a point in time?)

Some sort of escrow system I think would be fine, but that would be a system built on top of the bitcoin system.  And I can definitely see it as an improvement on the current ridiculously stupid and unfair chargeback system.

There are a few things to keep in mind, however.  First, most consumers will not go back in and confirm delivery after they get the goods.  That takes work.  Second, if it is easy for consumers to rip off merchants by claiming no delivery, then many will, which brings us right back to the current problem that the "irreversible" part of BTC is supposed to solve.

Thus, we are back to the same problem.  Honest consumers are wary of buying with BTC without the ability to reverse things, and merchants don't like a system that will let dishonest consumers rip them off. an escrow system won't solve that basic dilemma.  It may just make things better.

[nelisky]

I am not saying that I agree with the article, but I think his point is that consumers inherently trust all types of electronic transactions because there is a belief that these are reverseable.  I, the consumer, am protected from fraud.  

Examples:

If my credit card number is stolen I am only responsible for $50.

If I order something online and get ripped off I can initiate a chargeback.

We bitcoiners love to brag about the irreversibility of BTC, but it is this very attribute that scares the buyer.  Now I fully understand that consumers are not protected nearly as much as they think, but they believe that they are. "buyer protection" protocols must be implemented before Average Joe will start using them.

Yes, CCs are pretty awesome, but did you ever wondered why the CC companies agree to lose money to give you this protection? Oh, wait, you are paying for this protection... actually every CC card user is paying a premium for this protection which basically amounts to 'worst case scenario how much we'll lose to fraud divided by all suck^H^H^H^Hclients'

Bitcoins can certainly operate the same way. Hell, CC companies can pay and receive in bitcoins if they choose to do so, but having the option of doing your own due diligence and paying (almost) no fee or using the CC company and pay their ridiculous fees, which will you do? With fiat that's not an option, particularly not for online purchases.

All in all this is very much moot, because once bitcoins as a value storage medium gets accepted globally (and I'm assuming it does, obviously) you'll get all those icings on the cake done by 3rd parties. The caveat being right now you can't simply send money abroad instantly without a bunch of services in the middle for which you have no control and which charge fees in which you have no say and also require your name, address and underwear color of choice along the way (because the terrorists...). With bitcoins and other coins alike you can still use a 3rd party if you choose to, but you don't have to

[histman]

Bitcoins can certainly operate the same way. Hell, CC companies can pay and receive in bitcoins if they choose to do so, but having the option of doing your own due diligence and paying (almost) no fee or using the CC company and pay their ridiculous fees, which will you do? With fiat that's not an option, particularly not for online purchases.

The point of the article is that Average Joe consumer will choose to use a credit card, BS fees and all, knowing that he is protected from a dishonest merchant.  I am a huge BTC fan, but I would not use them for a big ticket purchase right now. 

The author is simply shortsighted (as are most critics) because consumer protection can be built on top of the BTC protocol.  Plus, as you point out, BTC gives people the choice to send money without the BS when trust isn't a concern.  Plus there are many other uses of BTC besides purchasing products online.

As is often the case with critics, the author fails to acknowledge that the technology is still in its infancy. 

[hacknoid]

Again, that is what escrow is for.  The concept of needing the chargeback/reversal capability is not required.  Using escrow allows for consumer protection, even better than the ability to request a chargeback.  Rather than paying then (possibly) fighting for your money back by proving something went wrong, instead the transaction is just held in escrow until parties are satisfied that everything is right.   If it isn't, then the transaction is cancelled (?).  (That's one point of the escrow [m-of-n] option that I have not been able to clear up for me - what happens if you don't get m-of-n parties to agree?  Does the transaction automatically get cancelled after a point in time?)

Some sort of escrow system I think would be fine, but that would be a system built on top of the bitcoin system.  And I can definitely see it as an improvement on the current ridiculously stupid and unfair chargeback system.

Actually, escrow using n-of-m is already in bitcoin proper: https://en.bitcoin.it/wiki/Contracts#Example_2:_Escrow_and_dispute_mediation

There are a few things to keep in mind, however.  First, most consumers will not go back in and confirm delivery after they get the goods.  That takes work.  Second, if it is easy for consumers to rip off merchants by claiming no delivery, then many will, which brings us right back to the current problem that the "irreversible" part of BTC is supposed to solve.

Not sure what you mean by "go back in and confirm delivery"; are you saying that they won't verify the transaction after they receive delivery?  If they don't, that's the purpose of the neutral third party, who can confirm and complete the transaction.  In that case the seller could blacklist the buyer as well, so it wouldn't be to the buyer's advantage to do this.  The escrow service/third party is also there for the purpose of protecting the merchants, as well.  So again, escrow solves the "problem".

Thus, we are back to the same problem.  Honest consumers are wary of buying with BTC without the ability to reverse things, and merchants don't like a system that will let dishonest consumers rip them off. an escrow system won't solve that basic dilemma.  It may just make things better.

I don't see why you say it wouldn't solve those things - that's exactly what it is designed to do.

[hacknoid]

Actually, escrow using n-of-m is already in bitcoin proper: https://en.bitcoin.it/wiki/Contracts#Example_2:_Escrow_and_dispute_mediation

... and there you go.  A service to do exactly what is required:

https://www.bitrated.com/

Bitrated
Bitcoin arbitration marketplace
Protect yourself against online fraud with Bitcoin's m-of-n technology.