The transaction trust problem. Reputation ?

[ybabel]

Hello,
bitcoin remove third party in transactions. Great. But does this solve the trust problem ?

Let me explain. Since I started using bitcoin a few years ago, I have the same question raising again.

Imagine I want to buy something expansive (a painting for example) and physical (not a de-materialized good) to a distant seller and pay with bitcoin. Imagine we live in an anarchy, there is no third party at all (no law). How can we make this work ?

If I pay and the transaction is written on the blockchain : the seller already have my money. Put aside is reputation, if he don't send me the package, my money is lost. Unless I have checked the real physical address of the sender before (but if he lives in a distant place this is difficult). So there is it, with any third party law enforcement, my money is lost.
If we reverse the situation and that the seller send the package and I don't want to pay ... all the seller have is a postal address. Even more difficult to get is merchandise back.

For a virtual good (a book, a video, etc...) we can have smart contracts that enforce a fair transaction. But for real physical tangible goods ?

So here I only see one solution : a third party that will handle conflicts.
Traditionally it is the bank.
We usually say that bitcoin remove the third party. Is it really ?

Is there any system that can do that ?
Sure, we can add a decentralized reputation system that will minimize conflicts, but it cannot avoid them fully.
The other solution is to build trust, step by step. First I buy a little thing, then a bigger, then a bigger, till I reach the real size of my expensive good I want to buy.
Should we add a kind of justice/police to the bitcoin to make it really work in real world ?

[gentlemand]

If it were a big ticket item I'd simply show up in person, albeit heavily armed if necessary.

The problem with reputations is that people are patient enough to build them and willing enough to trash them if the payday is big enough.

[BrewMaster]

Imagine I want to buy something expansive (a painting for example) and physical (not a de-materialized good) to a distant seller and pay with bitcoin. Imagine we live in an anarchy, there is no third party at all (no law). How can we make this work ?

well in an anarchy everyone starts creating their own rules and follow them instead. for example if you trade with someone and they don't honor their commitment you go to their house and murder them. and since there is no law, you get away with it.

but we don't live in an anarchy and there are laws. such high value trades could happen with a legal contract that obligates the other party to honor certain commitments otherwise have legal precausions for them.

We usually say that bitcoin remove the third party. Is it really ?

yes it did. it removed any need for a third party to send/receive money. everything else (such as receiving goods) is up to you and any third party you want and it has nothing to do with bitcoin.

Sure, we can add a decentralized reputation system that will minimize conflicts, but it cannot avoid them fully.
The other solution is to build trust, step by step. First I buy a little thing, then a bigger, then a bigger, till I reach the real size of my expensive good I want to buy.

it is not as good as you may think. being honest for 100 times doesn't guarantee honesty for the 101st time.
if you don't believe me google Mt Gox, Cryptsy, Bittrex, ... and a dozen other exchanges that were honest for years then suddenly scammed lots of users.

[beerlover]

Should we add a kind of justice/police to the bitcoin to make it really work in real world ?

If that kind of development will be possible then it will solve the exact problem but I am not seeing any feasibility for such development with respect to what are we are having right away and what we have achieved so far digitally.

One probable solution for the situation you mentioned could be a 3rd party bitcoin payment processor with dispute functionality.

We are already having lots of 3rd party payment processors like coinbase/xapo. If they implement escrow along with dispute functionality like how Paypal is doing then you may find easier solution for concern.

If you are not aware of how escrow and dispute functionality is working, please read further:
1. You and your seller must agree to use a same payment processor for your deal.
2. Seller agrees to send you product and you release funds to payment processor but it will not hit seller unless you confirm arrival the product.
3. If you fail to report about arrival of product for some notification period then funds will be released to seller.
4. If you report damaged product or non-arrival of product then funds will be locked and you need to prove yourself to get refund.

[ybabel]

Thank you all for the answers. It confirm what I thought. There is still a need for 3rd party for "real" (physical) transactions.

Face to Face transactions would not require a 3rd party, as the transaction occurs directly between two individuals.

Are you sure ?
I have thought about it and I have come to the conclusion that yes, we must have a third party.
Maybe I'm wrong, here is my reasoning.

Let's say I sell to you a highly expansive painting. We will set an appointment. The day comes. I'm putting the painting in my car.
I met you. But I don't know you. Maybe you have a gun ? If you have a gun and I don't, it will be very easy for you to steel my painting without paying.  (there is no police here because police is a 3rd party)
So, I will grab a gun AND a 2nd man with a gun also, to be sure that my painting is safe.
But you will make the same reasoning on your side. So you will come with your gun plus a friend and a machine gun, or a riffle.
And I will make the same reasoning, and so, I will have to come with at least the same destruction capacity than the value of the painting, so that it neutralize any wish to steel it.
So we will both come with huge fire power and men to help us. Those men can be considered 3rd party.
That's a kind of byzantine general problem.

But, in fact, it cost too much to deal transactions that way. So we will both give our guns to a 3rd party that will be set as judge in case of conflict. It's a 3rd party, and economically it's the only (is it ?) solution ...

Anyway, no matter how I try, I alway end up with a 3rd party for real transactions. There is no way any algorithm can help us. Unless we can built an automated justice with a robocop.

Do you agree ?

[avikz]

Is there any system that can do that ?
Sure, we can add a decentralized reputation system that will minimize conflicts, but it cannot avoid them fully.
The other solution is to build trust, step by step. First I buy a little thing, then a bigger, then a bigger, till I reach the real size of my expensive good I want to buy.
Should we add a kind of justice/police to the bitcoin to make it really work in real world ?

No bitcoin or blockchain doesn't really solve the trust problem. No cryptocurrency or no blockchain system is capable of doing that! Adding a reputation system won't help either. If you add a reputation system to the bitcoin blockchain, there are lot of ways to bypass that! People can use lite wallets everytime they are accepting a payment which can be installed and uninstalled very easily! The reputation system will only work if it can be tied with the mac address of a computer but again it will create security issues.

The best way to use a reputed escrow service for such high value transactions if you can't trust the other party completely!

[figmentofmyass]

If I pay and the transaction is written on the blockchain : the seller already have my money. Put aside is reputation, if he don't send me the package, my money is lost. Unless I have checked the real physical address of the sender before (but if he lives in a distant place this is difficult). So there is it, with any third party law enforcement, my money is lost.

bitcoin is great for merchants---fast settlement and irreversible payments. this payment irreversibility does not favor consumers. it means there is no arbiter like a bank/credit card issuer who can recover the consumer's money in case of dispute.

if it's a situation where i need consumer protection (untrusted vendor, unreliable delivery, etc) i would opt for a reversible payment method.

Should we add a kind of justice/police to the bitcoin to make it really work in real world ?

if you defraud/cheat someone, the same legal standards and police/court jurisdiction applies whether you do it with BTC or $. you can still be sued or arrested.

all bitcoin does is remove intermediaries, so an intermediary can't claw back the payment.

[joniboini]

I don't think 'trust' is possible to be eliminated completely. Even if there are a system/escrow where the buyer/seller is guaranteed to be safe, both of them need to trust it. Human being do not always have a good intent, which is why the problem exist in the first place.

Blockchain/bitcoin is just removing the party that 'controls' the money from their issuance, blockade, confirmation, etc. If a case from OP happens, or the gunman case as described above, involving a 3rd party is fine even if they're an assassin.

[TheUltraElite]

One should use money to transact only after they know the risks of using the method to transfer. Bitcoin does not change that. What it does is removes the intermediary between parties transacting. That does not mean the person on the other side is trustworthy again before or after the work is done. While it is true that you should use escrows to intermediate the transaction if you think there is possibility of scam, it is also true that once the money has been sent, it is gone forever. So it is better to verify before trusting and bitcoin does not change that.

Again that does not mean another trust/reputation system is better. Bitcoin and that are not exclusive.

[Ucy]

This will work better if there is a well written, easy-to-understand contract or Terms of Service, which should be read, agreed and signed by both parties. The copy of the contract distributed to parties involved. This will help in time of dispute. You could tip knowledgeable people to write a good agreement or get custom ones suitable for that particular good(painting) .


I have thought about this too. The possible solution is a bit long to explain here.   I think crypto communities could also have people providing the arbitration service for some fee via dapps or something.

[Reputation tied to the sellers/buyer's real address and identity eill also help. This can be done without violating the privacy/anonymity principle of Blockchain]



This could work:   a decentralized service gets you two/three trained arbiters or witnesses down to your location. The witnesses have copies of the contract too. (The witnesses will need to be randomly picked by a well decentralized system.)
It's important you go through the sellers product specifications, quality, health, pictures etc before buying a product. That's what the arbiters will use to judge any case.

The dapps will also help provide or advise on security if necessary. Or you get that from  different dapps.
If you are buying or selling expensive products, then the 2 to 3 witnesses are worth using.

It's fairly safe to rely on reputation & identity feature if you are buying/selling cheap things.

[hatshepsut93]

We still need middlemen in Bitcoin, the fact that even on this forum lots of transactions are done via escrow only proves it. You may ask - then why bother with Bitcoin at all? The problem is - banks are the ultimate middleman, all transactions are done through them whether you want it or not, there are only 2 ways to opt out of this system - cash and BTC, and cash is limited to physical transactions. Bitcoin removes the one middleman that is unnecessary.

[fullhdpixel]

We still need middlemen in Bitcoin, the fact that even on this forum lots of transactions are done via escrow only proves it. You may ask - then why bother with Bitcoin at all? The problem is - banks are the ultimate middleman, all transactions are done through them whether you want it or not, there are only 2 ways to opt out of this system - cash and BTC, and cash is limited to physical transactions. Bitcoin removes the one middleman that is unnecessary.

Middlemen would mean that someone who we can trust. We surely can't trust banks in terms with bitcoin transaction. I guess a solution for this would be a digital decentralized blockchain bank which would give us an ease of transacting with unknown individuals. This would in short regulate the transactions by keeping an eye on them but the most important part is that we would not involve the centralized authorities to regulate the transactions instead we would create our own decentralized bank to do so.

This would solve a lot of questions I guess. Not each time a middleman is required which might even save some of our fees a lot of times. Transacting with bitcoins have never been a difficult task but might be something which can be riskier and we could even loose our funds if those are sent to a entrusted individual.

[dothebeats]

Good question. Trust and reputation is something that holds little to no value in a scenario like this. If people want to expand thwir network and be known as a legitimate seller of goods, they will build trust and make a good rep for everyone to know that they are the real deal. However for the right amount of money, the same legit business can scam anyone in the way (we have tons of examples here in this very forum.)

Now perhaps you can say an escrow would be viable, then again how sure can you be that the escrow wouldn't run with the funds? There's really a lot of loopholes with that though bitcoin only does one thing: facilitate transactions but not act as a guarantor that party A would release items to party B even if the tx is visible to everyone. I'm afraid to say that it will really boil down to the type of person you will be dealing with if you want to go the route of your scenario. Escrows are nice, but then again you have to pick someone who has a track record of keeping it clean even with large sums of money.

[darewaller]

The shortest answer to yours this long thread would be "Using escrow". I guess this would solve your queries. An escrow would act like an third party who would secure the funds until the physical good is been delivered to the buyer. This would keep the buyers as well as the seller on the safe side by just paying some amount of fees. We are revolutionizing and that means that we are bringing a lot of new concepts to the space.

Buying physical good have never been a problem for me on this forum because of the trusted escrows who are already much active over here. Reputation might play an important factor here as we would only hire a escrow who already is been trusted.

[LoyceV]

So here I only see one solution : a third party that will handle conflicts.
Traditionally it is the bank.

I think you have the wrong impression of banks. In general, when I make a payment by bank, my money's gone. If the seller of a product doesn't deliver, the bank isn't going to help me. There are some exceptions with credit cards, but that can still lead to either one of the involved parties getting screwed in some cases.

Imagine we live in an anarchy, there is no third party at all (no law). How can we make this work ?

I imagine this will be like mob-deals in the movies: both parties bring many guys with guns, and they either all walk away or they all die.

Let's say I sell to you a highly expansive painting. We will set an appointment. The day comes. I'm putting the painting in my car.
I met you. But I don't know you. Maybe you have a gun ? If you have a gun and I don't, it will be very easy for you to steel my painting without paying.  (there is no police here because police is a 3rd party)
So, I will grab a gun AND a 2nd man with a gun also, to be sure that my painting is safe.
But you will make the same reasoning on your side. So you will come with your gun plus a friend and a machine gun, or a riffle.
And I will make the same reasoning, and so, I will have to come with at least the same destruction capacity than the value of the painting, so that it neutralize any wish to steel it.

Bitcoin isn't meant to solve the real-life side of the trust problem. Bitcoin solves the part where you don't have to trust banks. You'd have the same problem if you pay in cash (or gold).

[joniboini]

there are only 2 ways to opt out of this system - cash and BTC, and cash is limited to physical transactions.

Cash still lives inside the banking (or we should call it fiat) system, so it still has other problems like value, how 'sound' they are, etc. If you use cash for physical transactions you still trust that the fiat works and has value in the near future. It is not directly related to the case OP is talking about btw.

If you want a completely trust-free system (where you don't need humans to act ethically) then you need to build a high-degree financial system based on logic/AI. However, there is no guarantee that they won't go wrong or if somebody is controlling behind the back.