7 ms·

Stop Saying Bitcoin Transactions Aren’t Reversible

178 points by tlo 13y ago

hrjet 13y ago
This is nice; I hadn't heard about m-of-n txns earlier. But on the con side, unlimited, distributed arbitrators may not work out in practice. The more the number of arbitrators, the smaller the intersection set of arbitrators that are trusted by two unrelated parties.
- eurleif 13y ago
  Not with a reputation system. Perhaps the reputation system could even be based directly on the blockchain; just sum the total BTC the arbitrator has arbitrated in the past.
  - davmre 13y ago
    The naive total-arbitrated-BTC solution wouldn't work, since someone can always arbitrate a bunch of 'transactions' between sockpuppet addresses they themselves control. But as long as there's some mechanism to pay arbitrators for their services, it seems reasonable to expect a small set of trusted arbitration services to spring up, analogous to CAs. Of course, once you're paying an arbitration fee on top of a bitcoin transaction fee, it's not clear that you're saving any money relative to a standard credit card transaction.
    - eurleif 13y ago
      How about max arbitrated transaction? It at least requires significant capital to be a scammer.
TheRubyist 13y ago
Seems like Bitcoin doesn't have lots of tools to be considered as reliable payment tool for every possible scnerio in which current currencies are being used without issues. I'm wondering how this and other informations could impact on bitcoin price in the future
maaku 13y ago
If I send coins to an M-of-N multisignature output, I can't economically back out once it's confirmed. In finance we have a special word for that kind of transaction: irrevocable. Stop Making Misleading Headlines That Aren't True.
- aianus 13y ago
  You can't single-handedly back out of a credit card transaction either. The credit card company has to agree with you and give you your money back. Most people would, however, consider a credit card payment reversible.
  - bunderbunder 13y ago
    In the credit card situation, it's possible for the consumer to change their mind for up to 180 days. If so, then the credit card company gets involved and things move on from there. If I understand this BTC mechanism properly (and I've never used it, so disclaimer there), once the consumer says "yes" there's no going back as far as they're concerned. Since the merchant is going to always say "yes" right away, that means that the only way to approximate the level of consumer protection that credit cards offer using this protocol is if the consumer makes a habit of waiting up to 6 months to release funds to the merchant. Which is something I wouldn't blame merchants for not being willing to accept such a situation. Defaulting to "180 days, same as cash" sounds like a terrible business practice to me.
    - aianus 13y ago
      That's not how the mechanism works. The buyer sends the money to a special address which is like a staging area. The money cannot leave that staging area in any direction (including back to the buyer) until two of the buyer, seller, and arbiter agree on its destination.
      - ars_technician 13y ago
        i.e. not reversible. Once the buyer says they received the merchandise and signs off, the money goes to the merchant. If after two days the merchandise goes bad because it was fraudulent, the buyer is screwed. No 180 day waiting period.
jluxenberg 13y ago
The Bitcoin ledger doesn't provide credit. There's nothing stoping someone from offering a credit account (e.g. a consumer credit card) denominated in Bitcoin.
- socialist_coder 13y ago
  How is that relevant here?
  - gabriel34 13y ago
    It's relevant because the article opens up comparing BC and CC. If there were a credit card denominated in BC, the credit provider would probably hold the BC for a while just like they do with money, therefore grating it's users the same warranties. A better, tough far from perfect, comparison would be to sending money through mail to later receive the goods, or a debit card sans the paper trail. The article starts from a fallacy, but that doesn't mean it's point is null.
    - socialist_coder 13y ago
      Understood, thanks for the now-obvious explanation =)
  - DrStalker 13y ago
    Credit cards are a service that exists on top of traditional currency, so comparing the features of bitcoin to the features or a credit card is in some ways an unfair comparison; in other more pragmatic ways it reflects the way bitcoins and and traditional currency are used for online purchases today.
- sehrope 13y ago
  > There's nothing stoping someone from offering a credit account (e.g. a consumer credit card) denominated in Bitcoin. It's definitely possible to offer a credit card transacting in bitcoin though it would have a number of technical differences. One big one is that the settlement process would need to be immediate, otherwise the transaction would be rejected. With a normal credit card transaction the funds don't actually transfer till the end of the day (if you're lucky) or the next business day (most of the time). With a bitcoin backed card it'd need to be immediate and the credit card company would need to have the bitcoin "at hand" at the time of the transaction.
jseims 13y ago
I find this title misleading. What this post describes is a 2-of-3 multisig, which adds further encumbrances in constructing a valid transaction. But any transaction, once broadcast, is irreversible.
- w-ll 13y ago
  Not to be pedantic, but that's not necessarily true; we've had 1 major chain split before that killed ##'s of blocks containing thousands of transactions. And also transactions that don't make it into a block will just die if the original node doesn't rebroadcast it. So after 1 confirm it's mostly irreversible.
  - fragsworth 13y ago
    That's pretty pedantic...
    - paulgb 13y ago
      I'm sure it isn't pedantic to the recipients of transactions in the orphaned block chain
      - wmf 13y ago
        If your transaction gets orphaned you can just broadcast it again.
        jameshart 13y ago
        If the goods you purchased are already in your hands, and your bitcoin payment has been lost in a blockchain accident, what is your incentive to rebroadcast your bitcoin payment?
        ZoF 13y ago
        Honor my friend, honor. Unfortunately I find myself sorely lacking.
gesman 13y ago
Stop saying that someone should stop saying anything
socialist_coder 13y ago
This is great. I had read about the M of N multi-signature support before but from what I understood, it was half baked and not supported at all. I'm glad to hear that it's usable. Is there built in support for paying the mediator a percent or fixed fee from the transaction or is it expected the buyer or seller would just pay them in a separate transaction? I paid for an asic bitcoin miner using bitcoins and after 10 months of non-delivery I really wanted to just get my money back but then I realized I couldn't. I had been so accustomed to being protected by credit card chargebacks and bank reversals that I just didn't think about a bitcoin payment as being non reversible. It actually made me really cautious about paying for ANYTHING on the internet with bitcoin because it is so easy for the seller to rip you off.
- deleted 13y ago
  [deleted]
- nadaviv 13y ago
  Hey, I'm the author of Bitrated. Yes, currently you're expected to pay the arbitrator separately. I'm still thinking how to go about it exactly, and might improve that in the future.
pesenti 13y ago
What's the protection against double spending given that the transaction isn't yet broadcast? Imagine that I am the buyer and as soon as I receive the goods I double spend what was on my key. If the third party signs the transaction, wont it fail because the funds will already be spent?
- givehimagun 13y ago
  I think this is why most merchants who accept bitcoin won't consider the balance paid until it has been confirmed x times. I vaguely remember Humble Bundle having some verbiage about confirmations before completing the sale.
  - w-ll 13y ago
    I wonder how many of their sales processed by Paypal get reversed.
  - nanidin 13y ago
    The Humble Bundle uses Coinbase to accept bitcoin, so they'd be completely insulated from actually dealing with bitcoin. I did notice that I got the payment confirmation & game link email when the transaction I sent had 1 confirmation though.
  - vertex-four 13y ago
    I've bought from the Humble Store twice recently, both transactions have been accepted instantly (i.e. before being included in the blockchain). I don't believe that anyone's heard of a successful Bitcoin double-spend attack against a competent merchant yet.
    - ars_technician 13y ago
      That's because protection was added (about a year ago I think) to rapidly broadcast detected double-spends through the network. Before the canary function, it actually used to be pretty easy to get a double-spend accepted into the network within 5 minutes of the first spend.
vacri 13y ago
This is not 'reversibility'. It's a go/no-go system, basically the same as an escrow. The article is wrong in saying it's not escrow - the justification used is "the independent party might sod off with the money"; that is a downside to current escrow services when they go wrong, not the actual escrow function itself. Multisig offers the same basic function as an escrow: an independent third party signs off on the payment or the cancelling of it. So, once a payment has been made, how does multisig reverse the payment, as the article title promises?
- nadaviv 13y ago
  > Multisig offers the same basic function as an escrow: an independent third party signs off on the payment or the cancelling of it. Multisig allows the escrow to do _just_ that, and nothing else with the money (at least, not without the buyer/seller agreeing to it). Regular escrow puts the funds under the full control of the escrow provider, where he _could_ do something else with the money, regardless of the buyer and seller wishes. I find this to be an important distinction. > So, once a payment has been made, how does multisig reverse the payment, as the article title promises? The payment is made to the multisig address and not released to the seller until the buyer is satisfied. If there are any problems with the sale, the buyer and the arbitrator could together send the money back from the multisig address to the buyer. You aren't exactly reversing the original transaction, you're creating another transaction that reverses the effect of the original one. Disclaimer: I'm the creator of Bitrated.
  - DerpDerpDerp 13y ago
    > The payment is made to the multisig address and not released to the seller until the buyer is satisfied. If there are any problems with the sale, the buyer and the arbitrator could together send the money back from the multisig address to the buyer. You aren't exactly reversing the original transaction, you're creating another transaction that reverses the effect of the original one. So it's just more secure escrow?
    - nadaviv 13y ago
jczhang 13y ago
lol somebody listens to KCRW...
mmaunder 13y ago
The point the article is making is that: Saying "Bitcoin transactions aren't reversible" and then using that as a premise for a "well it's fucked before getting out the gate" argument is bullshit. Reversible transactions will emerge with very little friction because the currency has the m-of-n feature and there's a clear business model for service providers to be the trusted third party.
trekky1700 13y ago
A multisign service like this would be very difficult to make worthwhile. On small transaction, it would be hard to justify doing an investigation for a rate that would be worthwhile to the parties involved. It works well for Visa because Visa's already handling everything. Having these investigation services encourages people to use Visa, due to the peace of mind. It comes with it. With this type of service, you have to seek it out, pay for it separately and pay enough that this party will actually do an investigation. Obviously, it would have to work like insurance, were a majority of people aren't being scammed, but it's a difficult business model to comprehend.
ChuckMcM 13y ago
Sigh. The author misses the point. Amex can tell a Bank which is analgous to the BitCoin Wallet in this case, to move your money from it into some other Bank, whether you agree or not based on your agreement with Amex and the Bank's agreement with Amex. Nobody can 'force' a BitCoin wallet to transfer funds without the express permission and co-operation of the person who has the wallet's secret key. So in the example, seller and buyer agree on an escrow agent, seller sends merch, buyer says they got it, transaction completes, but if the buy then discovers that the transaction was fraudulent [1] then there is no way for them to "force" the seller to give them back their money or, in the parlance of payments markets, "reverse" the transaction. Can't do it unless the seller initiates a new transaction to send you the funds back, and if they don't or won't, you are out of luck. [1] (say only the top layer of kilos were cocaine and the layers below that were just corn starch)
- conductr 13y ago
  I feel it should be that way. Buyer flip flopping on whether the merch is acceptable opens up another type of fraud.
  - ChuckMcM 13y ago
    The fraud works both ways, seller to buyer, buyer to seller. But in the payments market it seems to be stacked in the buyer's favor.
- olalonde 13y ago
  > So in the example, seller and buyer agree on an escrow agent, seller sends merch, buyer says they got it, transaction completes, but if the buy then discovers that the transaction was fraudulent [1] then there is no way for them to "force" the seller to give them back their money or, in the parlance of payments markets, "reverse" the transaction. I think you are missing the point since the same is true of credit cards. Credit cards typically freeze the merchant's money until a given chargeback period is over or they require the merchant to always have a minimal amount of money in their bank account. Even a credit card company can't reverse a transaction if the merchant's bank account is empty. At best, they can refund the buyer out of their own pocket. With Bitcoin "escrowed" transactions, all those schemes are possible. If a buyer wants to be able to reverse a transaction after X days, "chargeback period", he can simply wait X days before he signs the transaction. If he doesn't file a complaint within X days, the escrow is authorized to sign the transaction. Obviously, the "chargeback period" should be agreed upon beforehand between the seller, buyer and escrow.
whitcrrd 13y ago
bitcoin transactions aren't reversible.
dzshx 13y ago
it's called escrow service
SilasX 13y ago
Dourado is right -- but only in the same sense that physical cash transactions "aren't reversible". Which is to say that: a) Once the transfer is made (of physical cash or bitcoins), then only a big show of force against the right people can reverse it. b) But you can still layer an escrow particle on top of bitcoins and physical cash to extend the window of (non-forced) reversibilility. It's still meaningful to say that bitcoin transactions in themselves, per the protocol, are irreversible. (And it's still stupid to promote Bitcoin on the false, flaky grounds that somehow makes chargebacks impossible, even if the parties agree to enable them.)
sfjailbird 13y ago
Not technically related, but wouldn't any bitcoin transaction be covered by consumer protection rules anyway? Like if I had paid cash in a shop? I pay a certain amount into a seller's publicized bitcoin wallet and I have a receipt from the seller explaining what I bought, the agreed amount, terms, etc. Same as a cash transaction?
- pbreit 13y ago
  Yes, but on far worse terms than when using a credit card which also entail Visa/MC rules which are specifically designed for transacting parties.
- aestra 13y ago
  Yes. Or same if you agreed to pay in diamonds or gold or jewelry. If the original item can't be recovered (it was sold) I am guessing the worth in USD would be substituted.
tlrobinson 13y ago
I agree, though he's using a different meaning of "transaction" than is normally used in Bitcoin. I'd call it "payment" or something. It's kind of like saying IP isn't a reliable transport protocol, which is true, but a reliable transport like TCP can be built on top of it. Bitcoin transactions aren't reversible, but payments can be.
logfromblammo 13y ago
Even a 2-of-2 transaction would work, without any arbitrator, if both buyer and seller place additional funds at risk and specify a verifiably neutral means to sacrifice funds in a non-destructive way. This could be as funding the jackpot of an automatic lottery, giving to the EFF, or as a prize added to the next block mined--any transaction that is verifiably not controllable by either party. The seller commits the sale price in bitcoins. The buyer commits double the sale price. If both agree the sale was good, the seller gets what the buyer committed, and the buyer gets what the seller committed. If both do not agree, the entire amount goes to the verifiably neutral address, or becomes a windfall for the next block miner. If the buyer cheats by accepting the goods and rejecting the transaction, he pays double the sale price for it. The seller is twice as screwed as usual. If the seller cheats by failing to deliver, he loses the cost of the item, and the buyer is twice as screwed as usual. Normal transaction: There is a Nash equilibrium for both parties reneging. You cannot buy or sell with confidence unless you have a retaliation strategy, like chargebacks and blacklists. Bonded transaction: The only Nash equilibrium is at both parties being honest.
- genericuser 13y ago
  The bonded 2 of 2 having a Nash equilibrium only when both parties are honest makes some assumptions that leave some opportunity for abuse regarding comparative advantage. For instance if I the seller benefit from having the purchaser lose money. I can remove twice as much money from the other party as from myself. Extremely Hypothetical Example: Party 1: Rich Grape grower Party 2: Upstart Raisin maker Party 1 sells grapes to party 2 which sells raisins, party 1 decides to enter the Raisin market off party 2 demonstrating its profitability. The next order for N bit coins worth of grapes Party 2 places never arrives, party 2 is now out 2N bitcoins which to them as a small bussiness is huge and may delay or reduce their next order from an alternate supplier, Party 1 is out only N bitcoins which to them as an established business is minor and they have hurt the existing player in the market they are about to enter.
  - logfromblammo 13y ago
    Your hypothetical example shows that you know nothing of raisin farming. The grapes are laid out on paper next to the grapevine, and don't move a centimeter until they are dried. Moving grapes that are mostly water to be dried at a second location is a waste of cargo capacity--you would be moving water just for it to be evaporated somewhere else. But let's fix it by changing the grapes to ARM CPUs and the raisins to tablet computers. The chip fab decides to stiff the customer intentionally. You still didn't say who the known reneg recipient is. Perhaps an open-source tablet software project? If it is someone both parties are likely to support anyway, they simply reduce their donation by the reneg amount and blacklist each other. With high-value supply-chain transactions, you probably want a lawyer-written contract in place and at least one face-to-face meeting. At the least, you know who the supplier is, and can go break his kneecaps with your lawyers. Or you pick an arbitrator and do 2-of-3. The bonded 2-of-2 is pretty much just to solve the problem of non-recurring or rarely-recurring consumer-level transactions. If you want to buy weed online and can't trust a third party, you can put up bonds. If the assumptions of bonded 2-of-2 don't hold, you don't use it. One such assumption is that the 2 parties are anonymous and cannot trust anyone or effectively retaliate. It could certainly be gamed. The FBI could take all of its Silk Road seizure coins and put up as many fake bonded 2-of-2s as possible. In the end, it would probably just end up funding a "legalize pot" PAC with a massive amount of coins, since it would still have to designate a credible reneg recipient, which must be clearly identifiable.

178 points by tlo 13y ago

hrjet 13y ago

This is nice; I hadn't heard about m-of-n txns earlier. But on the con side, unlimited, distributed arbitrators may not work out in practice. The more the number of arbitrators, the smaller the intersection set of arbitrators that are trusted by two unrelated parties.

eurleif 13y ago
Not with a reputation system. Perhaps the reputation system could even be based directly on the blockchain; just sum the total BTC the arbitrator has arbitrated in the past.
- davmre 13y ago
  The naive total-arbitrated-BTC solution wouldn't work, since someone can always arbitrate a bunch of 'transactions' between sockpuppet addresses they themselves control. But as long as there's some mechanism to pay arbitrators for their services, it seems reasonable to expect a small set of trusted arbitration services to spring up, analogous to CAs. Of course, once you're paying an arbitration fee on top of a bitcoin transaction fee, it's not clear that you're saving any money relative to a standard credit card transaction.
  - eurleif 13y ago
    How about max arbitrated transaction? It at least requires significant capital to be a scammer.

TheRubyist 13y ago

Seems like Bitcoin doesn't have lots of tools to be considered as reliable payment tool for every possible scnerio in which current currencies are being used without issues. I'm wondering how this and other informations could impact on bitcoin price in the future

maaku 13y ago

If I send coins to an M-of-N multisignature output, I can't economically back out once it's confirmed. In finance we have a special word for that kind of transaction: irrevocable. Stop Making Misleading Headlines That Aren't True.

aianus 13y ago
You can't single-handedly back out of a credit card transaction either. The credit card company has to agree with you and give you your money back. Most people would, however, consider a credit card payment reversible.
- bunderbunder 13y ago
  In the credit card situation, it's possible for the consumer to change their mind for up to 180 days. If so, then the credit card company gets involved and things move on from there. If I understand this BTC mechanism properly (and I've never used it, so disclaimer there), once the consumer says "yes" there's no going back as far as they're concerned. Since the merchant is going to always say "yes" right away, that means that the only way to approximate the level of consumer protection that credit cards offer using this protocol is if the consumer makes a habit of waiting up to 6 months to release funds to the merchant. Which is something I wouldn't blame merchants for not being willing to accept such a situation. Defaulting to "180 days, same as cash" sounds like a terrible business practice to me.
  - aianus 13y ago
    That's not how the mechanism works. The buyer sends the money to a special address which is like a staging area. The money cannot leave that staging area in any direction (including back to the buyer) until two of the buyer, seller, and arbiter agree on its destination.
    - ars_technician 13y ago
      i.e. not reversible. Once the buyer says they received the merchandise and signs off, the money goes to the merchant. If after two days the merchandise goes bad because it was fraudulent, the buyer is screwed. No 180 day waiting period.

jluxenberg 13y ago

The Bitcoin ledger doesn't provide credit. There's nothing stoping someone from offering a credit account (e.g. a consumer credit card) denominated in Bitcoin.

socialist_coder 13y ago
How is that relevant here?
- gabriel34 13y ago
  It's relevant because the article opens up comparing BC and CC. If there were a credit card denominated in BC, the credit provider would probably hold the BC for a while just like they do with money, therefore grating it's users the same warranties. A better, tough far from perfect, comparison would be to sending money through mail to later receive the goods, or a debit card sans the paper trail. The article starts from a fallacy, but that doesn't mean it's point is null.
  - socialist_coder 13y ago
    Understood, thanks for the now-obvious explanation =)
- DrStalker 13y ago
  Credit cards are a service that exists on top of traditional currency, so comparing the features of bitcoin to the features or a credit card is in some ways an unfair comparison; in other more pragmatic ways it reflects the way bitcoins and and traditional currency are used for online purchases today.
sehrope 13y ago
> There's nothing stoping someone from offering a credit account (e.g. a consumer credit card) denominated in Bitcoin. It's definitely possible to offer a credit card transacting in bitcoin though it would have a number of technical differences. One big one is that the settlement process would need to be immediate, otherwise the transaction would be rejected. With a normal credit card transaction the funds don't actually transfer till the end of the day (if you're lucky) or the next business day (most of the time). With a bitcoin backed card it'd need to be immediate and the credit card company would need to have the bitcoin "at hand" at the time of the transaction.

jseims 13y ago

I find this title misleading. What this post describes is a 2-of-3 multisig, which adds further encumbrances in constructing a valid transaction. But any transaction, once broadcast, is irreversible.

w-ll 13y ago
Not to be pedantic, but that's not necessarily true; we've had 1 major chain split before that killed ##'s of blocks containing thousands of transactions. And also transactions that don't make it into a block will just die if the original node doesn't rebroadcast it. So after 1 confirm it's mostly irreversible.
- fragsworth 13y ago
  That's pretty pedantic...
  - paulgb 13y ago
    I'm sure it isn't pedantic to the recipients of transactions in the orphaned block chain
    - wmf 13y ago
      If your transaction gets orphaned you can just broadcast it again.
      - jameshart 13y ago
        If the goods you purchased are already in your hands, and your bitcoin payment has been lost in a blockchain accident, what is your incentive to rebroadcast your bitcoin payment?
        ZoF 13y ago
        Honor my friend, honor. Unfortunately I find myself sorely lacking.

gesman 13y ago

Stop saying that someone should stop saying anything

socialist_coder 13y ago

This is great. I had read about the M of N multi-signature support before but from what I understood, it was half baked and not supported at all. I'm glad to hear that it's usable. Is there built in support for paying the mediator a percent or fixed fee from the transaction or is it expected the buyer or seller would just pay them in a separate transaction? I paid for an asic bitcoin miner using bitcoins and after 10 months of non-delivery I really wanted to just get my money back but then I realized I couldn't. I had been so accustomed to being protected by credit card chargebacks and bank reversals that I just didn't think about a bitcoin payment as being non reversible. It actually made me really cautious about paying for ANYTHING on the internet with bitcoin because it is so easy for the seller to rip you off.

deleted 13y ago
[deleted]
nadaviv 13y ago
Hey, I'm the author of Bitrated. Yes, currently you're expected to pay the arbitrator separately. I'm still thinking how to go about it exactly, and might improve that in the future.

pesenti 13y ago

What's the protection against double spending given that the transaction isn't yet broadcast? Imagine that I am the buyer and as soon as I receive the goods I double spend what was on my key. If the third party signs the transaction, wont it fail because the funds will already be spent?

givehimagun 13y ago
I think this is why most merchants who accept bitcoin won't consider the balance paid until it has been confirmed x times. I vaguely remember Humble Bundle having some verbiage about confirmations before completing the sale.
- w-ll 13y ago
  I wonder how many of their sales processed by Paypal get reversed.
- nanidin 13y ago
  The Humble Bundle uses Coinbase to accept bitcoin, so they'd be completely insulated from actually dealing with bitcoin. I did notice that I got the payment confirmation & game link email when the transaction I sent had 1 confirmation though.
- vertex-four 13y ago
  I've bought from the Humble Store twice recently, both transactions have been accepted instantly (i.e. before being included in the blockchain). I don't believe that anyone's heard of a successful Bitcoin double-spend attack against a competent merchant yet.
  - ars_technician 13y ago
    That's because protection was added (about a year ago I think) to rapidly broadcast detected double-spends through the network. Before the canary function, it actually used to be pretty easy to get a double-spend accepted into the network within 5 minutes of the first spend.

vacri 13y ago

This is not 'reversibility'. It's a go/no-go system, basically the same as an escrow. The article is wrong in saying it's not escrow - the justification used is "the independent party might sod off with the money"; that is a downside to current escrow services when they go wrong, not the actual escrow function itself. Multisig offers the same basic function as an escrow: an independent third party signs off on the payment or the cancelling of it. So, once a payment has been made, how does multisig reverse the payment, as the article title promises?

nadaviv 13y ago
> Multisig offers the same basic function as an escrow: an independent third party signs off on the payment or the cancelling of it. Multisig allows the escrow to do _just_ that, and nothing else with the money (at least, not without the buyer/seller agreeing to it). Regular escrow puts the funds under the full control of the escrow provider, where he _could_ do something else with the money, regardless of the buyer and seller wishes. I find this to be an important distinction. > So, once a payment has been made, how does multisig reverse the payment, as the article title promises? The payment is made to the multisig address and not released to the seller until the buyer is satisfied. If there are any problems with the sale, the buyer and the arbitrator could together send the money back from the multisig address to the buyer. You aren't exactly reversing the original transaction, you're creating another transaction that reverses the effect of the original one. Disclaimer: I'm the creator of Bitrated.
- DerpDerpDerp 13y ago
  > The payment is made to the multisig address and not released to the seller until the buyer is satisfied. If there are any problems with the sale, the buyer and the arbitrator could together send the money back from the multisig address to the buyer. You aren't exactly reversing the original transaction, you're creating another transaction that reverses the effect of the original one. So it's just more secure escrow?
  - nadaviv 13y ago

jczhang 13y ago

lol somebody listens to KCRW...

mmaunder 13y ago

The point the article is making is that: Saying "Bitcoin transactions aren't reversible" and then using that as a premise for a "well it's fucked before getting out the gate" argument is bullshit. Reversible transactions will emerge with very little friction because the currency has the m-of-n feature and there's a clear business model for service providers to be the trusted third party.

trekky1700 13y ago

A multisign service like this would be very difficult to make worthwhile. On small transaction, it would be hard to justify doing an investigation for a rate that would be worthwhile to the parties involved. It works well for Visa because Visa's already handling everything. Having these investigation services encourages people to use Visa, due to the peace of mind. It comes with it. With this type of service, you have to seek it out, pay for it separately and pay enough that this party will actually do an investigation. Obviously, it would have to work like insurance, were a majority of people aren't being scammed, but it's a difficult business model to comprehend.

ChuckMcM 13y ago

Sigh. The author misses the point. Amex can tell a Bank which is analgous to the BitCoin Wallet in this case, to move your money from it into some other Bank, whether you agree or not based on your agreement with Amex and the Bank's agreement with Amex. Nobody can 'force' a BitCoin wallet to transfer funds without the express permission and co-operation of the person who has the wallet's secret key. So in the example, seller and buyer agree on an escrow agent, seller sends merch, buyer says they got it, transaction completes, but if the buy then discovers that the transaction was fraudulent [1] then there is no way for them to "force" the seller to give them back their money or, in the parlance of payments markets, "reverse" the transaction. Can't do it unless the seller initiates a new transaction to send you the funds back, and if they don't or won't, you are out of luck. [1] (say only the top layer of kilos were cocaine and the layers below that were just corn starch)

conductr 13y ago
I feel it should be that way. Buyer flip flopping on whether the merch is acceptable opens up another type of fraud.
- ChuckMcM 13y ago
  The fraud works both ways, seller to buyer, buyer to seller. But in the payments market it seems to be stacked in the buyer's favor.
olalonde 13y ago
> So in the example, seller and buyer agree on an escrow agent, seller sends merch, buyer says they got it, transaction completes, but if the buy then discovers that the transaction was fraudulent [1] then there is no way for them to "force" the seller to give them back their money or, in the parlance of payments markets, "reverse" the transaction. I think you are missing the point since the same is true of credit cards. Credit cards typically freeze the merchant's money until a given chargeback period is over or they require the merchant to always have a minimal amount of money in their bank account. Even a credit card company can't reverse a transaction if the merchant's bank account is empty. At best, they can refund the buyer out of their own pocket. With Bitcoin "escrowed" transactions, all those schemes are possible. If a buyer wants to be able to reverse a transaction after X days, "chargeback period", he can simply wait X days before he signs the transaction. If he doesn't file a complaint within X days, the escrow is authorized to sign the transaction. Obviously, the "chargeback period" should be agreed upon beforehand between the seller, buyer and escrow.

whitcrrd 13y ago

bitcoin transactions aren't reversible.

dzshx 13y ago

it's called escrow service

SilasX 13y ago

Dourado is right -- but only in the same sense that physical cash transactions "aren't reversible". Which is to say that: a) Once the transfer is made (of physical cash or bitcoins), then only a big show of force against the right people can reverse it. b) But you can still layer an escrow particle on top of bitcoins and physical cash to extend the window of (non-forced) reversibilility. It's still meaningful to say that bitcoin transactions in themselves, per the protocol, are irreversible. (And it's still stupid to promote Bitcoin on the false, flaky grounds that somehow makes chargebacks impossible, even if the parties agree to enable them.)

sfjailbird 13y ago

Not technically related, but wouldn't any bitcoin transaction be covered by consumer protection rules anyway? Like if I had paid cash in a shop? I pay a certain amount into a seller's publicized bitcoin wallet and I have a receipt from the seller explaining what I bought, the agreed amount, terms, etc. Same as a cash transaction?

pbreit 13y ago
Yes, but on far worse terms than when using a credit card which also entail Visa/MC rules which are specifically designed for transacting parties.
aestra 13y ago
Yes. Or same if you agreed to pay in diamonds or gold or jewelry. If the original item can't be recovered (it was sold) I am guessing the worth in USD would be substituted.

tlrobinson 13y ago

I agree, though he's using a different meaning of "transaction" than is normally used in Bitcoin. I'd call it "payment" or something. It's kind of like saying IP isn't a reliable transport protocol, which is true, but a reliable transport like TCP can be built on top of it. Bitcoin transactions aren't reversible, but payments can be.

logfromblammo 13y ago

Even a 2-of-2 transaction would work, without any arbitrator, if both buyer and seller place additional funds at risk and specify a verifiably neutral means to sacrifice funds in a non-destructive way. This could be as funding the jackpot of an automatic lottery, giving to the EFF, or as a prize added to the next block mined--any transaction that is verifiably not controllable by either party. The seller commits the sale price in bitcoins. The buyer commits double the sale price. If both agree the sale was good, the seller gets what the buyer committed, and the buyer gets what the seller committed. If both do not agree, the entire amount goes to the verifiably neutral address, or becomes a windfall for the next block miner. If the buyer cheats by accepting the goods and rejecting the transaction, he pays double the sale price for it. The seller is twice as screwed as usual. If the seller cheats by failing to deliver, he loses the cost of the item, and the buyer is twice as screwed as usual. Normal transaction: There is a Nash equilibrium for both parties reneging. You cannot buy or sell with confidence unless you have a retaliation strategy, like chargebacks and blacklists. Bonded transaction: The only Nash equilibrium is at both parties being honest.

genericuser 13y ago
The bonded 2 of 2 having a Nash equilibrium only when both parties are honest makes some assumptions that leave some opportunity for abuse regarding comparative advantage. For instance if I the seller benefit from having the purchaser lose money. I can remove twice as much money from the other party as from myself. Extremely Hypothetical Example: Party 1: Rich Grape grower Party 2: Upstart Raisin maker Party 1 sells grapes to party 2 which sells raisins, party 1 decides to enter the Raisin market off party 2 demonstrating its profitability. The next order for N bit coins worth of grapes Party 2 places never arrives, party 2 is now out 2N bitcoins which to them as a small bussiness is huge and may delay or reduce their next order from an alternate supplier, Party 1 is out only N bitcoins which to them as an established business is minor and they have hurt the existing player in the market they are about to enter.
- logfromblammo 13y ago
  Your hypothetical example shows that you know nothing of raisin farming. The grapes are laid out on paper next to the grapevine, and don't move a centimeter until they are dried. Moving grapes that are mostly water to be dried at a second location is a waste of cargo capacity--you would be moving water just for it to be evaporated somewhere else. But let's fix it by changing the grapes to ARM CPUs and the raisins to tablet computers. The chip fab decides to stiff the customer intentionally. You still didn't say who the known reneg recipient is. Perhaps an open-source tablet software project? If it is someone both parties are likely to support anyway, they simply reduce their donation by the reneg amount and blacklist each other. With high-value supply-chain transactions, you probably want a lawyer-written contract in place and at least one face-to-face meeting. At the least, you know who the supplier is, and can go break his kneecaps with your lawyers. Or you pick an arbitrator and do 2-of-3. The bonded 2-of-2 is pretty much just to solve the problem of non-recurring or rarely-recurring consumer-level transactions. If you want to buy weed online and can't trust a third party, you can put up bonds. If the assumptions of bonded 2-of-2 don't hold, you don't use it. One such assumption is that the 2 parties are anonymous and cannot trust anyone or effectively retaliate. It could certainly be gamed. The FBI could take all of its Silk Road seizure coins and put up as many fake bonded 2-of-2s as possible. In the end, it would probably just end up funding a "legalize pot" PAC with a massive amount of coins, since it would still have to designate a credible reneg recipient, which must be clearly identifiable.