Bitcoin transactions are a Mexican stand-off

[Sigmoid]

I have a thing I want to sell. There's a guy who wants to buy it. We'll settle in bitcoin.

What happens? Well, the situation is similar to two criminals doing an exchange, each with a gun pointed at the other. It's a modified prisoner's dilemma. If one shoots the other, he gets both the money and the drugs.

If I ship before I get the bitcoins, the buyer can just walk away with the merchandise, and never pay me. Since bitcoin transactions are untrackable, there is no way for me to legally prove that I haven't been paid.

If he pays first, I can walk away with the bitcoins, and never ship. He has absolutely no way of proving that he ever paid me.

The only solution would be using a payment processor, but that takes away the very essence of why bitcoin was created in the first place, as it brings "banks" back into the business...

[Kluge]

Yeah, except the "payment processors" are almost entirely unlicensed individual escrow providers operating on a decentralized web of trust.

Actually, the problem has been more properly solved. See Casascius' Bitcoin Address Utility: http://casascius.wordpress.com/2013/01/26/bitcoin-address-utility/ It looks a bit intimidating, but it's actually very easy to use. It eliminates a good bit of the trust requirement in the escrow agent except in instances where there's an actual dispute and you want him to rule fairly or turn it over to a proper arbitrator. (you obviously also don't want the escrow agent acting in cahoots with the seller or buyer to scam people)

[dan123]

Bitcoins can have 3 people in the transaction, then 2 of the 3 people have to agree.  Too many way to count how this can be done.  But there also a reason why people want a trusted sell rating on ebay.

[TheJacob]

Transactions are actually easily trackable. If you have them on record stating the payment address you can can easily prove they didn't pay or prove that you did pay.