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You can't always reverse the transaction in regular financial world. It is typically possible if all parties involved act in good faith, and often possible in o

by xyzzyz 5y ago

You can't always reverse the transaction in regular financial world. It is typically possible if all parties involved act in good faith, and often possible in other cases too, if you act fast, or the bad faith actor is less than competent. However, this is not always the case. Imagine the following scenario: bank A sends $100M to bank B, which then sends it to bank C. By "reversing" the A->B transaction, all you're doing is making bank B on the hook for the $100M. Bank B will obviously not be very happy about this, and if you try to force it through some legal means, this will effectively amount to stealing $100M from bank B and its customers. Reversing erroneous transactions is a useful feature of regular financial system, and lack of it in blockchains often poses huge and avoidable practical problems. At the same time, this in no way should be seen as panacea for restoring stolen money, neither in real financial systems, nor in blockchain.

thawaya3113 5y ago
The shifting of the goalposts is incredible. Yes, there are flaws in the real world financial system as well. Yet, we’ve heard of more of these scams in years of crypto than in decades and centuries of banking. And no one has still provided an explanation of why crypto is better than the established working system other than “it’s decentralized” except as we find repeatedly, it’s not decentralized.
- neffy 5y ago
  I wouldn't go with "centuries" of banking on that one. Truth to tell the early days of banking, which is most of the 19th century for the US, were replete with exactly the kinds of frauds and cons that crypto is now replete with. Which is what has led to the regulation and supervision that crypto is in de facto rebellion against. Of course, the best way to find out why something is not done a certain way, is to try doing it that way.
  - sumedh 5y ago
    > Which is what has led to the regulation and supervision that crypto is in de facto rebellion against. Who supervises the supervisors?
- makomk 5y ago
  It's not really goalpost shifting - thieves in countries without extradition treaties and with justice systems that don't care are a serious ongoing problem with the existing banking system, and those transactions are not in general reversable. Hell, someone managed to steal a substantial sum of money from Bangladesh's central bank and almost none of it could be recovered. The only reason they didn't manage to rob all 1 billion dollars of the central bank's reserves was a random false positiver in some AML check.
- sumedh 5y ago
  > no one has still provided an explanation of why crypto is better than the established working system because the govt cannot ban you from receiving payments if they dont like you.
  - simonh 5y ago
    They can’t with fiat currency either, if they could crime would be almost impossible.
    - sumedh 5y ago
      Wikileaks were banned from receiving payments by the US govt.
      - simonh 5y ago
        And they found no workarounds to that whatsoever? (that didn't involve crypto)
        sumedh 5y ago
        Should a govt be able to ban your payments or take your cash if they dont like you?
        simonh 5y ago
        Yes. How else do you police criminals? It's an absurd question anyway, they can and do, while there are methods people use to try and evade them. There's nothing about Crypto that changes that. It's just another system. https://xkcd.com/538/ https://xkcd.com/538/
        sumedh 5y ago
        > How else do you police criminals? Who is talking about criminals? Just because you expose the misdeeds of US govt does not make you a criminal. > There's nothing about Crypto that changes that. It's just another system. You can still receive payments in Crypto even though the govt forces the bank and credit card providers to close your account. Its not just the US govt who wants to control your life, other govts want to do it to. Payments might be a joke to you but there are many people whose life depends on it. https://cointelegraph.com/news/how-are-afghans-using-crypto-under-the-taliban-government https://cointelegraph.com/news/how-are-afghans-using-crypto-...
MereInterest 5y ago
Isn't the obvious solution to also reverse the transfer from Bank B to Bank C? If multi-hop transfers are treated as irreversible, then it creates an incentive for fraudulent sellers to collect all payments through multiple hops. If instead fraudulent transactions may be reversed at the first payment processor, the payment processor then has a financial incentive to make sure that they only pass through valid transactions. In an analogous situation, suppose I go to a physical store and buy a TV, only to find that it doesn't turn on. I have the right to return it to the same store that I bought it from, and to receive a full refund. Nobody at that store manufactured or designed the TV, so why should they take the financial hit for a broken TV? Except that without that financial incentive, the store has little reason to bargain with their suppliers about defective merchandise, and the supplier has little incentive to fix a defective product.
- deleted 5y ago
  [deleted]
- xyzzyz 5y ago
  > If instead fraudulent transactions may be reversed at the first payment processor, the payment processor then has a financial incentive to make sure that they only pass through valid transactions. Yes, but it's only one of the incentives they're facing. Another one is to provide useful and convenient service to its customers. Try to think more about the example I provided. The account in bank A is victim's, while accounts in banks B and C are owned by the fraudster. The transfer from A to B is fraudulent, but the transfer from B to C is perfectly legitimate as far as B bank knows: the name on the destination account in bank C might even be exactly the same as in bank B, so why would bank B have any suspicions? At best, it could reject incoming transfer from bank A if it had suspicions (which, by the way, why would it have?). Would you want to be a customer of a bank that can just reject incoming transfers, so that you have trouble getting paid? Finally, consider that bank C might then allow the fraudster to withdraw the proceeds in cash. Bank C might be foreign, and B communicates with it through SWIFT, and might simply refuse reversing the transaction, or again might already have sent the funds to bank D in yet another country. The point is that you cannot treat regular financial transactions as reversible either. They might be reversible sometimes, especially if everyone involved acts in good faith, but there is no guarantee. > In an analogous situation, suppose I go to a physical store and buy a TV, only to find that it doesn't turn on. I have the right to return it to the same store that I bought it from, and to receive a full refund. That's not really an analogous situation. Here's what would be closer: imagine you order a specialty TV online from China. The retailer A orders a company B that manages it warehouse to pack it on a truck of company C that specializes in LTL, which then ships it to company D which coalesces LTL freight into packed containers, then puts on containers owned by a shipping company E, which ships them across the Pacific to port authority F, then we have a shipping company in G in states, another truck company H to ship it to train yard H that gets it to LTL company I's warehouse, which then is passed on to courier company J, an independent subcontractor K of which finally gets it to your front door. Then your TV doesn't work, and you want to return it. Will you try to unravel the chain back the same way it arrived? Are you going to find the subcontractor K, and have him ship it back to courier company J, to send it back to the LTL company K etc? No, you'll go straight for the original retailer. Similarly, with financial fraud, you'd need to go straight for the fraudster.
Animats 5y ago
Reversing erroneous transactions is a useful feature of regular financial system. Yes. A friend of mine is a branch manager for a major bank. She's one of the people who has to deal with unhappy customers victimized by scams. Recently, she had a customer who wanted to send a significant amount of money to a country in Southeast Asia. That's not unusual for a California bank. Then the customer showed up at the branch in tears. It turned out the customer was being victimized by a "relative in trouble" scam. Fortunately, the receiving bank had flagged the account at their end as suspicious, and hadn't yet let the recipient withdraw the funds. This allowed the transaction to be clawed back. It took phone calls, messages, management signoffs, and work by people in multiple banks to unwind the transaction, but the money was back in the customer's account in the US in a week. Reversing a fraud transaction in the banking system is a rare event, and not easy, but it is often possible for a few days after the event.
- ethbr0 5y ago
  I'd imagine "customer suddenly initiates an international wire transfer for a large amount, with no previous history of doing so" is a pretty reliable signal. I've certainly had banks call me and explain the nature of wires, in an attempt to prevent me from financially foot-gunning.
  - SilasX 5y ago
    In other words, the conventional financial system has footguns that you have to avoid too.
pchristensen 5y ago
Patio11's recent article dives into this more - https://bam.kalzumeus.com/archive/no-payments-are-final/ https://bam.kalzumeus.com/archive/no-payments-are-final/

by xyzzyz 5y ago

thawaya3113 5y ago

The shifting of the goalposts is incredible. Yes, there are flaws in the real world financial system as well. Yet, we’ve heard of more of these scams in years of crypto than in decades and centuries of banking. And no one has still provided an explanation of why crypto is better than the established working system other than “it’s decentralized” except as we find repeatedly, it’s not decentralized.

neffy 5y ago
I wouldn't go with "centuries" of banking on that one. Truth to tell the early days of banking, which is most of the 19th century for the US, were replete with exactly the kinds of frauds and cons that crypto is now replete with. Which is what has led to the regulation and supervision that crypto is in de facto rebellion against. Of course, the best way to find out why something is not done a certain way, is to try doing it that way.
- sumedh 5y ago
  > Which is what has led to the regulation and supervision that crypto is in de facto rebellion against. Who supervises the supervisors?
makomk 5y ago
It's not really goalpost shifting - thieves in countries without extradition treaties and with justice systems that don't care are a serious ongoing problem with the existing banking system, and those transactions are not in general reversable. Hell, someone managed to steal a substantial sum of money from Bangladesh's central bank and almost none of it could be recovered. The only reason they didn't manage to rob all 1 billion dollars of the central bank's reserves was a random false positiver in some AML check.
sumedh 5y ago
> no one has still provided an explanation of why crypto is better than the established working system because the govt cannot ban you from receiving payments if they dont like you.
- simonh 5y ago
  They can’t with fiat currency either, if they could crime would be almost impossible.
  - sumedh 5y ago
    Wikileaks were banned from receiving payments by the US govt.
    - simonh 5y ago
      And they found no workarounds to that whatsoever? (that didn't involve crypto)
      - sumedh 5y ago
        Should a govt be able to ban your payments or take your cash if they dont like you?
        simonh 5y ago
        Yes. How else do you police criminals? It's an absurd question anyway, they can and do, while there are methods people use to try and evade them. There's nothing about Crypto that changes that. It's just another system. https://xkcd.com/538/ https://xkcd.com/538/
        sumedh 5y ago
        > How else do you police criminals? Who is talking about criminals? Just because you expose the misdeeds of US govt does not make you a criminal. > There's nothing about Crypto that changes that. It's just another system. You can still receive payments in Crypto even though the govt forces the bank and credit card providers to close your account. Its not just the US govt who wants to control your life, other govts want to do it to. Payments might be a joke to you but there are many people whose life depends on it. https://cointelegraph.com/news/how-are-afghans-using-crypto-under-the-taliban-government https://cointelegraph.com/news/how-are-afghans-using-crypto-...

MereInterest 5y ago

Isn't the obvious solution to also reverse the transfer from Bank B to Bank C? If multi-hop transfers are treated as irreversible, then it creates an incentive for fraudulent sellers to collect all payments through multiple hops. If instead fraudulent transactions may be reversed at the first payment processor, the payment processor then has a financial incentive to make sure that they only pass through valid transactions. In an analogous situation, suppose I go to a physical store and buy a TV, only to find that it doesn't turn on. I have the right to return it to the same store that I bought it from, and to receive a full refund. Nobody at that store manufactured or designed the TV, so why should they take the financial hit for a broken TV? Except that without that financial incentive, the store has little reason to bargain with their suppliers about defective merchandise, and the supplier has little incentive to fix a defective product.

deleted 5y ago
[deleted]
xyzzyz 5y ago
> If instead fraudulent transactions may be reversed at the first payment processor, the payment processor then has a financial incentive to make sure that they only pass through valid transactions. Yes, but it's only one of the incentives they're facing. Another one is to provide useful and convenient service to its customers. Try to think more about the example I provided. The account in bank A is victim's, while accounts in banks B and C are owned by the fraudster. The transfer from A to B is fraudulent, but the transfer from B to C is perfectly legitimate as far as B bank knows: the name on the destination account in bank C might even be exactly the same as in bank B, so why would bank B have any suspicions? At best, it could reject incoming transfer from bank A if it had suspicions (which, by the way, why would it have?). Would you want to be a customer of a bank that can just reject incoming transfers, so that you have trouble getting paid? Finally, consider that bank C might then allow the fraudster to withdraw the proceeds in cash. Bank C might be foreign, and B communicates with it through SWIFT, and might simply refuse reversing the transaction, or again might already have sent the funds to bank D in yet another country. The point is that you cannot treat regular financial transactions as reversible either. They might be reversible sometimes, especially if everyone involved acts in good faith, but there is no guarantee. > In an analogous situation, suppose I go to a physical store and buy a TV, only to find that it doesn't turn on. I have the right to return it to the same store that I bought it from, and to receive a full refund. That's not really an analogous situation. Here's what would be closer: imagine you order a specialty TV online from China. The retailer A orders a company B that manages it warehouse to pack it on a truck of company C that specializes in LTL, which then ships it to company D which coalesces LTL freight into packed containers, then puts on containers owned by a shipping company E, which ships them across the Pacific to port authority F, then we have a shipping company in G in states, another truck company H to ship it to train yard H that gets it to LTL company I's warehouse, which then is passed on to courier company J, an independent subcontractor K of which finally gets it to your front door. Then your TV doesn't work, and you want to return it. Will you try to unravel the chain back the same way it arrived? Are you going to find the subcontractor K, and have him ship it back to courier company J, to send it back to the LTL company K etc? No, you'll go straight for the original retailer. Similarly, with financial fraud, you'd need to go straight for the fraudster.

Animats 5y ago

Reversing erroneous transactions is a useful feature of regular financial system. Yes. A friend of mine is a branch manager for a major bank. She's one of the people who has to deal with unhappy customers victimized by scams. Recently, she had a customer who wanted to send a significant amount of money to a country in Southeast Asia. That's not unusual for a California bank. Then the customer showed up at the branch in tears. It turned out the customer was being victimized by a "relative in trouble" scam. Fortunately, the receiving bank had flagged the account at their end as suspicious, and hadn't yet let the recipient withdraw the funds. This allowed the transaction to be clawed back. It took phone calls, messages, management signoffs, and work by people in multiple banks to unwind the transaction, but the money was back in the customer's account in the US in a week. Reversing a fraud transaction in the banking system is a rare event, and not easy, but it is often possible for a few days after the event.

ethbr0 5y ago
I'd imagine "customer suddenly initiates an international wire transfer for a large amount, with no previous history of doing so" is a pretty reliable signal. I've certainly had banks call me and explain the nature of wires, in an attempt to prevent me from financially foot-gunning.
- SilasX 5y ago
  In other words, the conventional financial system has footguns that you have to avoid too.

pchristensen 5y ago

Patio11's recent article dives into this more - https://bam.kalzumeus.com/archive/no-payments-are-final/ https://bam.kalzumeus.com/archive/no-payments-are-final/