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> The blockchain allows two strangers to interact without needing to trust eachother[sic], and without needing to bring in a trusted third party

...

> For example [...] Using the blockchain's native currency, we can ensure that all payments are guaranteed, that no unfair chargebacks can happen

How do you do that while still ensuring that fair chargebacks do happen, without bringing in trusted third parties?

One method is to transfer the money if any two of three people agree: buyer, seller, and trusted third party.

If there's no dispute, buyer and seller agree and they have a nice cheap transfer just between themselves, without paying a percentage to the third party.

If buyer and seller disagree, then you bring in the third party, who makes a decision and takes a percentage.

I don't think there's any way to have fair chargebacks without bringing in third parties at all, but you can at least restrict their role to the transactions where they're actually needed. (This means they'll charge more for those transactions, but that's arguably more fair than charging buyers who've used reputable sellers, and/or sellers who've treated their customers well.)

For digital services like cloud storage, you can use cryptography. Have the storage provider give a cryptograpic proof that they are still in possession of the data that is under contract, and you don't need a third party. Either they are online and can build the proof, or they are going to get hit with a penalty for dropping their end of the contract.

> The blockchain allows two strangers to interact without needing to trust eachother

This is false. It would only be true if said strangers were very skilled programmers having the time and know-how to audit smart contracts.

In practice, cryptocurrencies rely on users trusting the operators and intermediaries and ultimately the state to prevent or at least strongly punish fraud.

Blockchains don't so much remove trust as distribute it. Instead of trusting one entity that holds my money, I can trust open source code, multiple independent auditors, a bug bounty process, a contract's history of successful use by lots of people, etc. It takes relatively little skill to check for the existence of these things.

(It just occurred to me that we probably need independent rating services that do these checks for popular contracts. That could have warned people away from Parity's multisig wallet.)

The theory of blockchains might entail a distribution of trust amongst well-audited third parties.

In practice, crypto rely so heavily on centralised intermediaries of dubious quality that at one point 70% of BTC trades went through MtGox, a closed-source platform with well-documented problems with security, payment processors and regulators even before it lost 7% of all Bitcoins.

That's a function of an early industry, and increasingly the trend has been towards decentralization. There are more large exchanges, more small exchanges, and increasingly large parts of the cryptocurrency stack are being further decentralized and open-sourced (a great example is the BTCPay project, which replaced a closed source SAAS API with an open source wrapper around the open source bitcoin client).

Sure, but if the theory that what people really needed and wanted was the ability to choose and audit providers was true and this alone was sufficient to protect most people, MtGox would never have become the dominant crypto platform. Particularly not at a point when ample evidence that it was utterly terrible already existed, and in an era of early adopters including the small minority of the public actually capable of auditing smart contracts.

Since then we've seen more exchanges, but again the largest exchange - Bitfinex - is a project with a history of hacks and auditors walking away, before we even start getting into the "is Tether fraud on a massive scale" debate. If "more large exchanges, more small exchanges" were the solution to the dodgy exchange problem, that wouldn't be the case. It's almost like the distribution of trust isn't remotely close to an adequate substitute for a legal system for the average person

> Blockchains don't so much remove trust as distribute it.

That's true about govt issued currency too.

I don't trust any conventional online broker in itself, I trust the regulatory framework that keeps them under control. I'm having increasing anxiety that what I see as the cryptocurrency mental virus, as well as the current US Presidential administration's anti-regulatory tendencies, will undermine conventional finance in some unforeseen way. Especially when I read about Vanguard getting into "blockchain".

From articles I've read about Tether,[1] I've become extremely doubtful that the cryptocurrency community has any understanding of what audits really are, and suspect they are completely off in cargo (or other) cult land when it comes to validating "trust".

The more "independent rating services" we have, the more we need rating services for the rating services. I feel like the popularity of cryptocurrencies is a harbinger of the financial system unraveling much more than in 2008, and people cheering it on won't benefit like they expect.

[1]https://www.reuters.com/article/us-cryptocurrencies-tether/c...

The rating services I'm imagining would provide links to everything: public audits, unit tests, verified source code, bug bounties, contract transaction history, etc. It could write a summary and give a rating, but since everything is public, it'd be more of a convenient time saver than someone you have to trust. It'd focus on public smart contracts, rather than centralized, private, commercial situations like Tether.

> That is an incredibly valuable service, and one that adds a lot of consumer protection to services that are able to leverage it well.

From my perspective, the blockchain significantly reduces consumer protection.

If I buy a product online, to be shipped to my house, how does the blockchain provide consumer protection? It doesn't. If the seller absconds with my money, and fails to ship the product or ships a counterfeit product, then there's absolutely nothing that I can do about it. With a credit card, I can report that fraud to the credit card bureau, who will reverse the transaction by default, then investigate and require the merchant to provide proof that the transaction was authorized and legitimate. I can take a photo of an obviously counterfeit product and send that to the credit card company as evidence of the fraud. Or if the product never arrived, it's on the merchant to prove that they shipped something to my address, and they'll need to provide a tracking number. As a consumer, this is a significant protection for me, and it's a significant fraud deterrent.

Merchants who are bad actors and engage in fraud will be cut off from the network. Furthermore, buyers who are bad actors and issue an unreasonable number of chargebacks will also be cut off. There is no similar oversight of blockchains.

If my credit card is stolen and used by a thief, then that's no problem for me. All of the fraudulent transactions are reversed, and the only real inconvenience is waiting for the replacement card to arrive. That's another important consumer protection: my money can't be stolen. With blockchain technology, thieves can steal anyone's money in an irreversible way if they get access to it.

Chargebacks are one of the most valuable and most important consumer protection capabilities of the traditional banking system. Removing chargebacks significantly reduces consumer protection.

Blockchain-based payment systems that do not involve a trusted central party will have worse consumer protection, not better. The only circumstance in which they'll be better is if the entire transaction, and delivery of goods and services, can be validated by a smart contract. That will only be possible for a small number of real-world transactions. It will not apply to the majority of day-to-day commerce.

I am not claiming that the blockchain has no redeeming qualities. It has a bunch of valuable characteristics and benefits that I'm not mentioning here. However, consumer protection is not one of them.

Regarding charge backs, why can validation node not simply make a transaction back from the fraudulent vendor to the consumer.

Obviously, there would need to be adequate proof that the nodes then review, but once that is given, what's the problem.

Furthermore, the fraudulent vendor would be investigated for fraud and facing a fine or jailtime.

This could be a dapp on the blockchain.

I don't see why this can't be done by a team of trained lawyers and judges that review these fraudulent transactions.

The service we provide is not a physical one that gets shipped, it's a digital one where we can use the blockchain to escrow payments until there is a cryptographic proof that the digital service has been provided according to the contract created between the consumer and the storage provider.

Blockchains are most powerful when dealing with purely digital transactions, such as data hosting, information trading, prediction markets, digital currency exchange, non-fungible tokens, digital gambling, micropayments for digital services (like CDNs, viewing web articles, etc.).

How can I cryptographically prove that the seller shipped me a brick, instead of an iPhone?

You can't, but that doesn't mean you can't do the same for fully digital services like cloud storage.

This can't be proven in a traditional market either. The reverse is also true: as a seller, you can't prove they shipped the iPhone and not the brick the user claimed to receive (or that it wasn't tampered with by someone in between). The big difference in the existing marketplaces is that the marketplace is usually both the service provider and the escrow, where Bitcoin allows these two services to be separated.

In the case of Paypal, they will side with the buyer in most disputes, which puts you at a big disadvantage as a merchant. You're basically relying on the majority to be honest, and take into account that small scale fraud is not going to be a major risk to your business.

There's also the disaster that is buying digital goods with Paypal, where the seller has virtually no comeback in the case of fraud, and is one of the means people use to empty hacked accounts, since it leaves no physical trail. The seller of the digital service almost always takes the hit. This is the real biggest use-case for Bitcoin, as cryptography can be used to prove the sale of the digital goods.

In the traditional market, I send a photo of the brick to PayPal or my Visa issuer, and they refund me.

You've explained how transferring all this risk to the customer is great for the merchant, but how is it great for the customer?

There's nothing stopping you from receiving an iPhone, taking a photo of a brick, and getting a refund either. The payment provider will most likely side with you and refund your money, unless you do it repeatedly, in which case they'll investigate before just refunding.

The difference with a third-party escrow is that they should not have a bias towards either the buyer or the seller. The traditional markets are clearly biased towards the buyers because they don't want to lose buyers from their platforms. They don't want to lose sellers either, but the risk is smaller, because it's more difficult for a seller to switch to using another platform, and a certain amount of fraud is kind of expected from sellers.

The use of one or more independent escrows can prevent the marketplace from unilaterally taking money from the seller and refunding the buyer without performing their due diligence (which PayPal frequently do not)

In theory, theory and practice are the same thing. In practice, not so much.

http://money.cnn.com/2018/01/29/technology/coincheck-cryptoc...

https://en.wikipedia.org/wiki/Mt._Gox?wprov=sfla1

Is there a huge amount of fraud in the online storage industry now? You can put as much as you want on s3 or whatever for almost nothing right now.