Topic: 2013-11-26 Wired Bitcoin...Its Fatal Flaw (Read 1973 times)

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

https://www.bitrated.com/

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


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".


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

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. 

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

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.

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?)

Well, here you will have to sign every package, or you don't get it.

As for unsatisification with the product, it will be handled differently according to the returning policy, the refund will be processed independently, rather than just reversing the original transaction.

The fact that you cannot take back a transaction is old news.

This is already how the chargeback system works.  When the buyer initiates a chargeback, the credit card company asks the merchant to produce a "proof of delivery" signature.  If the buyer signed for the product then the merchant doesn't have to eat the loss.  If the buyer did not sign for it, then the merchant does.  That's the idea, anyway.

Of course most products purchased online are delivered without requiring a signature and I don't see this changing, bitcoin or not.  Smaller ticket items are generally considered not wiorth the hassle. 

Also, however, customers can seek a chargeback for other reasons, such as the product not being as described, or being damaged. 

How thoroughly some Americans are spoiled and brainwashed by the credit card industry is beyond belief, they seem to be completely ignorant that there is a much superior method for customer protection, which Bitcoin fully supports and improves to a new level, and has been employed to process trillions of dollars of transaction in China by payment processors like Alipay, called escrowing.(shocking revelation!)

Escrowing provides equal protection for the seller and buyer, unlike chargeback, the favored system in the U.S, which unfairly protects the buyers only and allows a buyer to conveniently scam a merchant on the pretext that no good is received, because the fund is placed in the wallet of a third-party, and once there belows to neither the buyer nor the seller.

You may ask, how does the third party verify if the buyer is lying when he requests a refund? Dead and simple, all delivery companies have a auto-tracking system, which will update the escrower about the status of the package, once the buyer signs the package(which is required if he wants to accept it), the escrower will be immediately informed, there will be no way for you to lie.

I was shocked to find even Paypal doesn't support escrowing, cause the business model is beyond maturity.  It may sound crazy but I am convinced that had the U.S has proper escrowing payment and delivery industries, their unemployment problem would have been solved by now by a C2C platform like Taobao, which alone supports millions of online shops and creates 20 million jobs for China,(no kidding)

Chargeback is a dinosaur and should have long gone into the history, yet there is this journalist defending it like it's jewel in the crown.

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.

well, to play the devil's advocate, cash is usually traded in-person, where meeting someone face-to-face reduces the risk. and if it's traded electronically, it'd be reversible.

in order to use bitcoin successfully, you need to not be an idiot.. because if you are, you're risking quite a bit of your money.

New paradigms require new thinking. Bitcoin's irreversibility is a feature, not a bug.

Cash and gold are also "irreversible". If you need reversibility, use a credit card - or escrow (there, mentioned it!).

Bitcoin is the new paradigm, eventually they will 'get it' it just seems to be taking Wired a while.

This thread's a day old and nobody's mentioned escrow?

To anyone over the age of 50 this "fatal flaw" is a very valuable feature of Bitcoin. The trouble is that over the last 20 years the banking industry has moved to inherently insecure methods of payment (starting with credit cards over the Internet, and then cheques that are cleared electronically, ACH payments etc., ) and has then become totally reliant on fixing the problem after the fact by reversing payments. The result is that an entire generation has been brainwashed into the concept that reversing payments after the fact is necessary to prevent fraud.

Now turn back the clock 40 years or earlier and one finds out that commerce and banking worked perfectly well for centuries without this need to reverse transactions. When I explain Bitcoin to seniors I simply tell them it works like cash that one can use on the Internet, and they get it. This is because Bitcoin is way closer to the way payments were done during their youth, cash and bearer instruments that were not reversible. Something to keep in mind for a 20 year old wishing to introduce Bitcoin to his or her grandparents.

Cash didn't have chargebacks either.  People built systems on top of cash that allowed chargebacks.  The same thing can (and very probably will) happen.

You obviously haven't factored the strength of the decentralised network model into your thinking there. You've provided a indirect argument for taking all the control out of the hands of the people who may typically use the network in the future, and putting it back into the hands of trusted institutions, which is no different to the way the financial system works today. Hence, you're doing it wrong.

You got it
Nice riposte

I don't understand how others don't understand that there will be a magnitude of services built on top of virtual currency protocols.

It's not about the masses using Bitcoin. It's about the infrastructure that can be built around it, and that is as broad as the imagination of a capable mind.

I didn't read the article, but from what I gather it looks like he's saying the fatal flaw is the irreversibility of transactions.

Ok, first of all, these are primitive times for Bitcoin. We are in beta. If transactions need to be reversible (which I absolutely disagree with) then the protocol can be amended. But even without amending the protocol, services can and will probably be required to take the responsibility for transaction reversals. It is unlikely that in the future masses of people will be hosting their own wallets and sending to a company's self hosted wallet. In fact, most company's even today use services such as BitPay and Coinbase. Now companies such as these will eventually be required to enforce regulation E (at least I would imagine so, as every other payment processor to date has.) So in doing so, the businesses that use their service to accept bitcoins will be subject to the same chargeback rules that any other payment processor is required to enforce. And the die hard bitcoin believers don't like that. But it's just the way it's probably going to go in the US for any businesses that isn't operating a libertarian mom and pop shop . The huge advantage of bitcoin as a payment vehicle is the fact that a comprehensive service can be built on top of its protocol that allows for all of the same benefits of traditional merchant processing at costs that are more than 66% cheaper. ACH is no longer necessary. And that's huge.

Bitcoin is beautiful in beta. But rest assured, the way we have used it for the past few years will not be adopted by the masses. They are waiting for us to make it easier and safer, and we are doing just that.

I hope this is relevant. I should have read the article, but didn't have time.