The Problem of Bitcoin Anonymity

[delaro]

One of the reasons I became interested in bitcoin was because of its ability to act like cash that can be given instantly to anyone in the world. This is a very important trait and I like the idea of whipping out my smart phone and paying, for example, a random stranger on Craigslist for something instead of having to carry cash around.

However there is a big problem standing in the way of the security of that concept and that is the anonymous nature of Bitcoin. Because Bitcoin cannot be charged back (like a credit card) it is impossible to reverse a transaction once it is done. Since any one can use a coin mixing service to launder bitcoins it can be very hard to prove that the recipient actually received bitcoins.

Use this hypothetical situation as an example: Party A and Party B agree to meet in public to buy alpacca socks. Party A agrees to buy the alpacca socks from Party B and sends bitcoin to the address that Party B provides. Party B then gets up and walks out with the socks claiming that Party A never paid. Though Party A can prove that he sent bitcoins to an address at this time, he can’t prove that the address belonged to Party B and therefore does not have the proof needed for any type of legal recourse.

Is there a way for bitcoins to be transferred in order to prove that bitcoins were in fact being given to the payee? Unless I have over looked some way of doing this, I don’t believe there is a realistic way for this to function.

There should be some way of identifying bitcoin addresses with people so that the needed proof exists. Does anyone have any solutions to this problem that would provide the payer with information that would prove the payee received payment?

[maxtoshi]

The same thing could happen with paper money or wire transfer, if you would actually transfer large quantities of BTC you would print up a contract with his public address, it would then be incredibly easy to determine if he received the BTC or not.

[cr1776]

This is a feature.  No chargebacks is a positive.

If you are concerned about trusting the other party, then you would use a contract or use escrow.  If the other party is honest they will have no problem doing that.  If they are not honest, then they won't do it and you won't do business with them.

[retrend]

You can prove you sent it to an address via the blockchain.  If someone sends you the wrong address it's their fault.

[qfdev]

Basically if you want a chargeback system you need a means of arbitrating disputes and this will add a cost to each transaction. It will also require a central authority who has the power to reverse a transaction and it kind of goes against the decentralised model that Bitcoin engenders. There are already Bitcoin escrow services out there you can use to secure transactions at the point of exchange.

I think you raise a good point though and I like the idea of being able to add verifiable meta data to a wallet address (e.g. name, address contact number etc) that bitcoin users can volunteer to give their buyers peace of mind. You could even build in a feedback system so buyers can + 1 the seller and leave reviews that are publicly visible for other future buyers. This may already exist, I have no idea...just thinking out aloud

EDIT ---

I should have read @delaro's comments who I think is alluding to the same sort of thing. Coinbase would be a good candidate to back this meta data with their own verification procedures.

[bluemeanie1]

The same thing could happen with paper money or wire transfer, if you would actually transfer large quantities of BTC you would print up a contract with his public address, it would then be incredibly easy to determine if he received the BTC or not.

not exactly.  Using USD as an example, it has 'legal tender' status which means that payments have a certain legal value.  If goods or services are not rendered in full, then potentially the cash could be refunded.  There's really no such thing as a 'cash transaction' as far as the law goes, it's all binding, just varies in levels of enforceability.

BTC does not have this legal status.  If someone sends you 1 million in BTC accidentally, then there is absolutely nothing that eg. American courts are willing to do about it.  As far as they are concerned you're playing some stupid video game.

-bm

[markm]

Doesn't the payments protocol cover this?

All the purchase orders, invoices, receipts and so on involved in communicating what you want to buy how much you are to pay and to what bitcoin address are all signed.

Presumably alongside that you would use some kind of lookup to "prove" the entity that signed was the same entity that signed a certain website's https certificate, or signed a certain passport/ID/etc scan, or is shown in a know your customer database as being a certain person, or whose government ID shows the public key the government attests to belonging to that person or whatever.

Get them to PGP sign their bitcoin address with a known PGP key for example, and compare it to the bitcoin-OTC web of trust.

Take a video of them signing using the bitcoin address a photo of them holding their drivers license.

Have them sign using the address they show on their myspace, facebook, linkedin etc etc etc massively connected social networks.

Look them up in namecoin to find the locations and hashes of all kinds of proofs of their identity.

Etc etc etc.

-MarkM-

[retrend]

You can prove you sent it to an address via the blockchain.  If someone sends you the wrong address it's their fault.

True but I can't prove that the person who I am sending bitcoin to owns the address. What is there to keep me from sending the bitcoins to myself and then claiming that I sent it to the address he told me to send it to.

The facts on the blockchain.

[pening]

You can prove you sent it to an address via the blockchain.  If someone sends you the wrong address it's their fault.

True but I can't prove that the person who I am sending bitcoin to owns the address. What is there to keep me from sending the bitcoins to myself and then claiming that I sent it to the address he told me to send it to.

Why would anyone give you an address that isn't theirs? Your second case makes even less sence, if you sent coin to an address other than the one i've asked you to, im going to keep asking you to send until i see receipt of the coin to my address. That the whole point of confirmations, you wait for the blockchain to show the transaction completed. 

Now if there is a problem with anonymity, its that the receiving party can easily defraud you and say they've sent the goods after seeing the transaction complete, but dont send anything.  or in other words, you have the issue back to front.  Chargebacks favor the buyer, removing them favors the seller.

[pening]

Does this make any sense?

yah, Think so.  Such a mind numbing obvious way to fraud i didnt consider that properly.  But they would have an email/communication chain where you show you've given that address as yours, if they where to follow it up it would probably stand in court i reckon.

[ljudotina]

This is not problem at all. If you are dealing trough sites like Ebay, before you two meet and execute transaction, buyer leaves receiving adress inside system (in my example ebay messaging). Once transaction is executed, you can prove that exact amount of btc came to that adress via blockchain.

If you are not dealing trough site like ebay and your selling it "in person", than there is no difference from normal cash. You two stand by each other, you execute transaction on your phone, he checks if BTC came to him on his phone, you guys wait for confirmations if needed and that's it. If eather you or him tries to do something stupid other one will just bitchslap him. Just as same as dealing with cash. He cant say "you didint pay" as you are standing in front of him. Yes he can always be like 120kg bodybuilder, but in that case, he can just rob you and walk away, and that's no BTC problem.

[Duane Vick]

You can prove you sent it to an address via the blockchain.  If someone sends you the wrong address it's their fault.

True but I can't prove that the person who I am sending bitcoin to owns the address. What is there to keep me from sending the bitcoins to myself and then claiming that I sent it to the address he told me to send it to.

Why would anyone give you an address that isn't theirs? Your second case makes even less sence, if you sent coin to an address other than the one i've asked you to, im going to keep asking you to send until i see receipt of the coin to my address. That the whole point of confirmations, you wait for the blockchain to show the transaction completed. 

Now if there is a problem with anonymity, its that the receiving party can easily defraud you and say they've sent the goods after seeing the transaction complete, but dont send anything.  or in other words, you have the issue back to front.  Chargebacks favor the buyer, removing them favors the seller.

I think your misunderstanding me. Consider this example: I give someone an address that is mine. They then pay me. I then claim that the address is not mine. They have no way of proving that the address was mine. Even though they can show that they sent Bitcoins to the address I gave them (via the blockchain), they can't show that I own that address when I later claim I wasn't paid. They could have a case against me if there was some form of proof that I gave them my address and told them it was mine. However, if I had showed it to them in person (say from my phone) they probably would not have any proof that I gave them the address they sent money to.

Does this make any sense?

Sworn personal statement. You as a buyer can require the seller to make a sworn personal statement that the address he is giving you is the address where he is capable of receiving the funds. If you are arranging the meeting in advance, have him write out the public key and a statement that it is his public key and have him sign it. If he won't do that, you need to consider what to do at that point.

[profall]

What's the difference between using cash to buy something on craigslist. The guy can just take the fiat cash and run on you, say he's going out to his car to grab it or whatever and leave. Happens all of the time. That's where physical security is a big deal, if your going to do a large transaction bring a friend with you. I know that if I am paying for a car in cash (which I recently did) I brought a friend with me to the bank where I took all the cash out, and he came with me to the sale. Just simple physical security that deters would-be thieves.

[marcus_of_augustus]

another new low in the level of informed discourse on the forum should be noted, I guess ...

[johnyj]

The security camera does not help in the cash's case either, since it can not identify the amount of cash you handed over to him, or not able to identify if it was cash or some other paper

BTW, you can take a google glass and record all what happened when you meet, if really that paranoid 

[Cryptopher]

Easy, Party B sends a signed request for payment which you verify using their public key.

[BTCisthefuture]

Bitcoin doesn't have to be perfect in every situation.  Some situations youll want to use cash, some debit/credit, some bitcoin, some a check, some a money order  etc etc etc.

With that said, if there ends up being a big demand for people wanting to be able to dispute fradulent charges and have chargebacks, then theres no reason to think that companies wont pop up that offer services that have that type of protection as bitcoin gets more adoption. Of course there would have to be extra fees associated with that so if it's not cheaper than what card companies charge merchants then it wouldnt work out well.

And then there will be people who don't mind the risk that comes with bitcoin, just like many dont mind the risk that comes with cash or debit cards etc etc.  Bitcoin can and I suspect will function in quite a few different ways and there will be quite a few different services/companies making the bitcoin experience different for different people.