Is Bitcoin LESS Secure than Face to Face Cash?

[CombustibleLemon]

So I think there is a rather large barrier to consumers and retailers adopting bitcoin even in a merely online situation where bitcoin has the most appeal.  Trust.

Once you send bitcoins to a retailer you are completely relying on their word that they will send you the goods you ordered.  Contrast this with a face to face cash transaction where you have the goods in hand and offer cash to be afforded the opportunity to walk out the door with that item.  If either party decides that they want to renege on the deal they can do so until the moment they essentially exchange goods for cash.  You cannot do this with bitcoin.  Once you send bitcoins they're gone.

In a bitcoin transaction you blindly send cash online, and then wait and hope that you get a product.

Now there are certainly the online 3rd party wallet ideas, but that's still sending your money to a third party and relying on them to verify and return our money if it goes bad.  It occurs to me that there might be another option.

What about some sort of certificate authority?  Kind of like https gets, except a bitcoin certified honest vendor certificate.  It would still be a third party but a very limited third party.  Individuals could still step out of the certificate authoriy and use blind faith or a 3rd party wallet service, but a certificate authority would go a long way to allaying some fears and increasing the speed of adoption of this new monetary system.

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[wumpus]

With all controversy surrounding HTTPS lately, I wouldn't be sure it's such a good option.

The PGP "web of trust" idea might be better for a distributed system such as this.

[CombustibleLemon]

Interesting, I had never read about web of trust before.  So maybe if a merchant PGP web of trust were built into bitcoin consumers who purchased an item and did indeed receive said item could verify it via the web of trust?

This would be a bit similar to ebay's seller feedback model I suppose and consumers would gain a great deal of trust that their transaction would proceed as expected.

[Meni Rosenfeld]

See bitcoin-otc WoT. Also, if you want yoo can demand from the seller a digitally signed certificate that says that if X bitcoins arrive at address Y they will send you product Z, which is a little better then just sending money and hoping for the best. This works especially well with bitcoin loans where it can be easily checked if the loan was eventually repaid.

[CombustibleLemon]

So that bitcoin web of trust you linked shows a ranking of how many people have approved/trusted their word online?

I suppose that is basically what I'm talking about, a place that an average, uneducated consumer can check the trustworthiness of their retailer.

[wumpus]

Yes, the bitcoin-otc WoT is exactly that. But it's very much aimed at trading bitcoins, not so much around buying services/things for bitcoins. It could be extended to that, of course.

[LMGTFY]

There's always ClearCoin, an escrow system for bitcoin. You put your coins into ClearCoin, and if the retailer doesn't deliver as promised then they don't get paid (and you get your bitcoins back... once the ClearCoin transaction expires).

[CombustibleLemon]

Interesting.  But with clear coin the shoe now seems to be on the other foot.  The retailer now has to wholeheartedly trust that you will release the coins upon receipt of merchandise, again a situation where the bitcoin transaction is LESS secure than cash.





PS  I really am totally in love with the whole idea of bitcoin, I've bought a lot of them.  I'm simply playing devil's advocate here and hoping we can solve what I see as the biggest problem to actually using bitcoins.

[grondilu]

My opinion is that in every commercial transaction, at some point there is always some "exchange risk".  There is no way to get rid of that.

Even with cash, there is the risk that one of the party runs away with both the money and the stuff bought/sold.

Bitcoin makes it clearer because it's so new and there are therefore almost no escrow services.

[ribuck]

There is always a risk that the cash is counterfeit.

Plus, cash can become invalid. I once had some Swiss banknotes. Some years later I was transiting through an airport in Switzerland and tried to spend them. I was told by every store that the design had been replaced by a newer one and that I couldn't spend them. All I could do was to send them to the central bank to be replaced by the new design, but that wasn't practical for me.

[CombustibleLemon]

It seems to me that a significant part of modern retail is about minimizing exchange risk.

The consumer could run out the door with the goods and the cash, but security or the police would give chase.

The retail could snatch the goods and the cash from your hand and throw you out of the store but you could fight them and call the police.  If the police came and saw this situation of they would help to fix it.

While there may never be a transaction where there is no exchange risk at all I think that the exchange risk in bitcoins is far higher than it needs to be in our current model.

We can't generate a force of internet police but perhaps we can do something even better and build some sort of verification system into the network itself.  Something at least akin to current cash transaction models where the retailer is open and accessible but the consumer can still be anonymous to a certain extent.

[MoonShadow]

While there may never be a transaction where there is no exchange risk at all I think that the exchange risk in bitcoins is far higher than it needs to be in our current model.

Could you elaborate on what risks you are talking about?

We can't generate a force of internet police but perhaps we can do something even better and build some sort of verification system into the network itself.  Something at least akin to current cash transaction models where the retailer is open and accessible but the consumer can still be anonymous to a certain extent.

That's pretty much what Bitcoin is.  Perhaps you still don't quite grok the system?

[MoonShadow]

So I think there is a rather large barrier to consumers and retailers adopting bitcoin even in a merely online situation where bitcoin has the most appeal.  Trust.

Okay, I understand now.

If you are shopping online, say at Thinkgeek.com, you would have to provide them with your creditials and payment info so that they could trust that they were who you said you were, but do you demand that the ownership of Thinkgeek.com prove to yourself who the owners are?  If you don't trust an online retailer to abide by his word, would you send him your name and credit card number?  Trust is an issue, but in most online commerce, the trust issue tends to be one sided; and with Bitcoin the untrusted party is paying up front.  If you don't trust an online retailer enough to send you your paid for items as agreed, should you be buying from them at all?

[PLATO]

I can beat you with a lead pipe and take your dollars very easily, but I can't take your bitcoins until I beat you long enough to get your wallet file and decryption password.

Luckily, you keep your savings in one wallet, and your spending money in another. In fact, the smartcard/passphrase to decrypt the savings wallet is in a safe deposit box; you couldn't give that up if I beat you all day.

I realize this isn't exactly what you're asking, but I think it's worth bringing up. More on-topic, if you send cash through the mail to some dude on Ebay, he could still take the money and run. The difference is that you are accepting the security that Paypal/Visa give you in exchange for fees.

If you build the BitPal that everyone wants, to solve this problem, you will be rich.