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"Stop Saying Bitcoin Transactions Aren't Reversible" http://elidourado.com/blog/bitcoin-arbitration/ http://elidourado.com/blog/bitcoin-arbitration/ Other comm

by sigil 13y ago

"Stop Saying Bitcoin Transactions Aren't Reversible" http://elidourado.com/blog/bitcoin-arbitration/ http://elidourado.com/blog/bitcoin-arbitration/ Other commenters here have mentioned n-of-m multisignature transactions. This article describes how multisig works, and how it can be used to implement better arbitration than what's been possible with traditional payment systems. Unfortunately we're in the early days of Bitcoin here: support for multisig isn't common, and neither is the awareness of just how important it is for large transactions. We'll get there though.

hft_throwaway 13y ago
You're still at a point where you require someone's reputation to be worth more than they'd gain from fraud. Say A buys from B with C as arbitrator. A can pay C to claim B never sent the goods and both A and C will be better off (A gets goods for a fraction of what he would have paid B, C gets fees from both parties plus a bribe).
- sigil 13y ago
  Sure, arbitration requires a trusted third party. Look though, the situation is a huge improvement over what we currently have: 1. Arbitration services can be decoupled from payment services. With multisig, buyer and seller get to choose an arbiter they trust based on reputation, jurisdiction, experience arbitrating similar kinds of transactions, etc. This is an unbundling of what credit card companies do today and opens up an entirely new and competitive market. As your scenario shows, reputation will be everything for these new companies. Evidence of foul play will be disastrous. However, in the less-than-competitive market of bundled payment and arbitration services we have today, evidence of foul play in arbitration doesn't even seem to make a dent (consider PayPal). 2. Which brings up another point: arbitration with multisig is safer for buyer and seller. In their dual role as arbiter, PayPal can and does freeze funds in transit indefinitely. A Bitcoin 2-of-3 multisig arbiter cannot do this if both buyer and seller agree there was no problem. The arbiter is simply outvoted. 3. The flip side of that is: arbiters don't have to get involved at all in the vast majority of transactions that aren't disputed. They don't have to process payments. They don't have to transfer money. They don't need all that infrastructure. They only get involved in settling disputes, in which case they cast their vote by signing the transaction to the buyer or seller. This should make arbitration services cheaper and more efficient on the whole. 4. Finally, unlike current payment systems, Bitcoin makes arbitration services optional. Whole classes of transactions suddenly become cheaper because of this. In the current system we're paying for arbitration services we don't even need. I'm not going to dispute that $3 charge for a cup of coffee. If you're friends and family making a larger payment to me, I don't need arbitration either. Like Eli Dourado, I also think we're on the verge of some very interesting things happening in arbitration: "What excites me most about the decentralized arbitration afforded by multisignature transactions is that it could be the beginnings of a Common Law for the Internet. The plain, ordinary Common Law developed as the result of competing courts that issued opinions basically as advertisements of how fair and impartial they were. We could see something similar with Bitcoin arbitration. If arbitrators sign their transactions with links to and a cryptographic hash of a PDF that explains why they ruled as they did, we could see real competition in the articulation of rules." http://elidourado.com/blog/bitcoin-arbitration/ http://elidourado.com/blog/bitcoin-arbitration/
yetfeo 13y ago
Wouldn't multisig on an exchange prevent the use of cold wallets? It wouldn't be possible to move funds to/from hot and cold without a signature from the depositor. It would also make trades a little more difficult in that users that are slow in signing off a transaction slows the trade down. The buyer has to wait until the seller has performed an action. Could you DoS an exchange with multiple buy/sells that you don't release?
- sigil 13y ago
  I was mostly responding to the claim that Bitcoin transactions aren't reversible. To your point: I suspect multisig doesn't help solve the problems we keep seeing with exchanges. An exchange converts between currencies, and wants to make transactions easy. A bank keeps your money safe, and wants to make transactions more difficult to that end. Unless you're a currency day trader, I don't see a reason to conflate the two. Personally, I'm appalled by the fact that we've built a system that makes it easy for individuals to secure their own funds, and yet we're using it to entrust funds to third parties who don't have a clue. All in good time I suppose.

by sigil 13y ago

hft_throwaway 13y ago

You're still at a point where you require someone's reputation to be worth more than they'd gain from fraud. Say A buys from B with C as arbitrator. A can pay C to claim B never sent the goods and both A and C will be better off (A gets goods for a fraction of what he would have paid B, C gets fees from both parties plus a bribe).

sigil 13y ago
Sure, arbitration requires a trusted third party. Look though, the situation is a huge improvement over what we currently have: 1. Arbitration services can be decoupled from payment services. With multisig, buyer and seller get to choose an arbiter they trust based on reputation, jurisdiction, experience arbitrating similar kinds of transactions, etc. This is an unbundling of what credit card companies do today and opens up an entirely new and competitive market. As your scenario shows, reputation will be everything for these new companies. Evidence of foul play will be disastrous. However, in the less-than-competitive market of bundled payment and arbitration services we have today, evidence of foul play in arbitration doesn't even seem to make a dent (consider PayPal). 2. Which brings up another point: arbitration with multisig is safer for buyer and seller. In their dual role as arbiter, PayPal can and does freeze funds in transit indefinitely. A Bitcoin 2-of-3 multisig arbiter cannot do this if both buyer and seller agree there was no problem. The arbiter is simply outvoted. 3. The flip side of that is: arbiters don't have to get involved at all in the vast majority of transactions that aren't disputed. They don't have to process payments. They don't have to transfer money. They don't need all that infrastructure. They only get involved in settling disputes, in which case they cast their vote by signing the transaction to the buyer or seller. This should make arbitration services cheaper and more efficient on the whole. 4. Finally, unlike current payment systems, Bitcoin makes arbitration services optional. Whole classes of transactions suddenly become cheaper because of this. In the current system we're paying for arbitration services we don't even need. I'm not going to dispute that $3 charge for a cup of coffee. If you're friends and family making a larger payment to me, I don't need arbitration either. Like Eli Dourado, I also think we're on the verge of some very interesting things happening in arbitration: "What excites me most about the decentralized arbitration afforded by multisignature transactions is that it could be the beginnings of a Common Law for the Internet. The plain, ordinary Common Law developed as the result of competing courts that issued opinions basically as advertisements of how fair and impartial they were. We could see something similar with Bitcoin arbitration. If arbitrators sign their transactions with links to and a cryptographic hash of a PDF that explains why they ruled as they did, we could see real competition in the articulation of rules." http://elidourado.com/blog/bitcoin-arbitration/ http://elidourado.com/blog/bitcoin-arbitration/

yetfeo 13y ago

Wouldn't multisig on an exchange prevent the use of cold wallets? It wouldn't be possible to move funds to/from hot and cold without a signature from the depositor. It would also make trades a little more difficult in that users that are slow in signing off a transaction slows the trade down. The buyer has to wait until the seller has performed an action. Could you DoS an exchange with multiple buy/sells that you don't release?

sigil 13y ago
I was mostly responding to the claim that Bitcoin transactions aren't reversible. To your point: I suspect multisig doesn't help solve the problems we keep seeing with exchanges. An exchange converts between currencies, and wants to make transactions easy. A bank keeps your money safe, and wants to make transactions more difficult to that end. Unless you're a currency day trader, I don't see a reason to conflate the two. Personally, I'm appalled by the fact that we've built a system that makes it easy for individuals to secure their own funds, and yet we're using it to entrust funds to third parties who don't have a clue. All in good time I suppose.