Will the risk presented by crypto always be greater than the risk of involving trusted third parties? Maybe. Maybe not.
Moving to irrevocable online payments is basically the equivalent of handing a wad of cash to some stranger in a parking lot selling "new, sealed!" ipads out of the trunk of a car.
One of the very real problems that cryptocurrency enthusiasts are concerned about (but IMO totally failing to actually solve) is that it seems like a really bad idea to leave such basic functions of state in the hands of difficult-or-impossible-to-regulate transnational enterprises. When will these players realize that they've got more "state-iness" than most actual states, and how will they use it?
In the neoliberal world order, government exists to ease the flow of international capital ("These regulations make it hard for us to scale our sales beyond the {US,China,Germany}. Please Mr. President, we need common-sense solutions!"). It has jettisoned its role of solving real problems for ordinary people ("Lord Fontleroy, Biff's dog killed two of my pigs.") as it once did.
If you don't need the extra safety, you don't.
Let me rephrase consumer safety in crypto. Food safety regulations is kinda cool and we feel safe eating out. Now crypto food comes. It's cheaper, but seller now follows it's own understanding of food safety. Or not.
In the brave new decentralized "free market" crypto world you are even more fucked if you have a problem. Who do you appeal to? Who decides if your edge case is worthy of rolling back the all mighty blockchain. The DAO folk got the "hack" stuff rolled back so the "thief" no longer had their money. But what about you and your Atari that never arrived? You think the top of the crypto pyramid is gonna roll back the blockchain for you? It can literally become mob rule!
And sure, you can say "build a better smart contract", but I would say that is impossible because then you have to encode every edge case you can imagine and all the ones you can't imagine. And worse, you still need that smart contract to interface with things outside the "trusted" sandbox the smart contract lives in (i.e. meatspace)--which means you need to trust not only whatever is providing that interface but everything beyond it.
Governments exist for a reason. One of those reasons is to be where the buck stops. A society that scales to billions of people needs somebody to say "this is right / this is wrong". It needs a final authority on conflict resolution.
Smart contracts are seriously one of the stupidest things to come out of the crypto space. It really highlights how some engineers think "I am good with computer stuff, so therefore I am also good at economics, government, politics, finance, monetary policy, contract law, etc". The whole idea is really arrogant.
Simple, if you need the extra safety you pay for the service of an intermediary, like PayPal or eBay or (in cryptoland) Purse.io.
If you don't need the extra safety, you don't.
Escrows can be even better with Bitcoin because of multi-signature transactions, the escrow can hold the payment without holding your money, so all they can do is approve the payment or not, they can't change the destination.
Rolling back the blockchain is like going to the government to reverse your $50 transaction, it doesn't make sense.
This is a basic insurance market. You can still buy the insurance separately if you want it -- sites like eBay would undoubtedly offer it with nothing more than a checkbox for about the same fee as the credit card companies currently charge for implicitly the same thing.
The problem with the existing system is that it requires you to buy that insurance, even when it isn't necessary. If you order something from Newegg, they're ultimately going to send it or give you a refund, because they're a stable business and it's cheaper for them to make good to begin with than have a small claims court order them to. So you lose 3% in processing fees for nothing -- Newegg is no more likely to not make good than the payment processor is to not reverse the transaction.
The existing system also basically makes micropayments impossible because the transaction costs are too high, but it's not actually all that serious of a problem if you get ripped off to the tune of $0.10 from time to time. The amount is small enough that it doesn't need to be insured, and that allows you to get a good feel for what kind of purchases are scams without actually losing any significant amount of money. It also creates an opportunity for curation services to vouch for verified sellers at a lower cost than insurance would have to be to cover the losses from less savvy individual buyers not knowing who to trust (or not caring when the insurance is mandatory).
It's not the same thing. With chargebacks, in the case of fraud the payment processor almost always extracts the money from the seller, acting both as a deterrent and reducing the cost of the protection. If it was just insurance, it would be more expensive (because there would be less deterrent to (seller-side) fraud and it would cost more to recoup the costs).
It's still possible to do that by having the insurer escrow the payment in cases where you want the insurance, if that's actually more efficient.
But sometimes it isn't. Doing it that way subjects you to buyer fraud where the buyer actually receives the item, claims not to have and has their money refunded. The cost of that has to be paid by honest sellers, which then have to charge higher prices to honest buyers.
And an insurer who can't recover their costs from the seller has more incentive to vet the sellers (and buyers) so that they aren't insuring fraudulent transactions to begin with, which could plausibly have lower overhead than sellers eating the entire cost of buyer fraud.
Different choices may be more efficient for different transactions. A transaction between a reputable buyer and a reputable seller will have low insurance costs even without escrow. A seller with less reputation would have higher insurance costs, but can mitigate the cost by offering to accept escrowed payments but only from more reputable buyers. A buyer with less reputation could do the opposite, buying from a more reputable seller at low insurance cost by waiving the ability to easily reverse the transaction.
Forcing everyone into the same box only creates inefficiency.
The cost isn't due to chargebacks. It is due to the risk of fraud. Criminal behaviour like fraud extracts a toll on society at large and we all get to pay. The overhead added from chargebacks make both the buyer and seller internalize the potential risk of fraud. Without chargebacks, yeah prices might be slightly lower but society at large would get to foot the bill for fraud.
If other people want other payment methods, that is their choice.
I'm not even really sure what all these posts are arguing for. Someone asked what problem cryptocurrency is supposed to solve, and the GP answered it with a good and succinct answer:
>It's trying to solve the problem of having to involve a 3rd party in on-line transactions.
And credit card transactions are also expensive, between 1.5% and 3% and even higher[1]. It's just that the cost is hidden from the consumer by accounting for it in a higher product price. (Some merchants like gas stations may offer a cash discount, which can be used as a rough estimate of that hidden cost.)
On top of this, merchants get charged a hefty fee (on the order of $50) for each chargeback that they receive.
[1] https://www.creditdonkey.com/credit-card-processing-fees.htm...
Only applies to consumer cards and only the interchange (ie. the part that the bank of your card gets). MasterCard and Visa fees are still quite substantial.
A regular merchant would now pay < 1%, so quite a bit cheaper than before.
https://www.europeanpaymentscouncil.eu/news-insights/insight...
The outcome was that they cut back on lots of loyalty programs, and not many businesses passed on the cost savings to the consumers.
So sounds like limiting the fees had an adverse effect on the consumer.
The type I'm discussing, something like the Lightning Channel and Plasma operators, these are roles that have cryptoeconomic properties that don't allow them to take over your wallet or refuse your service.
edit: The base premise of having a smart-contract being itself the escrow is perfectly achievable. This doesn't mean that such a setup is the best solution to every use case and I believe that we'll see plenty of developments in this area in the coming years.
For now the best approaches use game theory and computer science to reduce the amount of "trust" the parties must have in each other and the system itself but they are very much under active research & development.
Are these guys really add more value to the economy than chargebacks? I very much doubt it.
Take for instance the role of Plasma operator or Lightning Channel operator; The role allows for a third party to have the costs of setting up infrastructure for you to use, but at no point are your funds held by the operator and you are always able to exit a contract if you submit on-chain evidence of fraud.
In plasma for instance, the operator and seller could collude against the buyer but any "illegal" operation they do on-chain is enough for anyone to trigger a mass-exit and cause financial and reputational loss to the operator.
A common theme in all the on-chain payment technologies I mentioned is that they do not put any one party in "charge" but the volunteers who run staking channels of any sort (plasma, lightning, etc) can and will suffer financial damages (loss of deposit, etc) if proven to act maliciously.
Which is the silly part about "smart contracts" in the first place. Any smart contract dispute will just "devolve" back into the meatspace legal system. Anything that isn't a dispute because it is just "routine execution" (eg: moving money from account A to account B automatically) can simply be called "business automation" that consist of a bunch of "business rules"--basic terminology that has existed since the dawn of computers.
Smart contracts do nothing but add overhead to any transaction.
Writing smart-contracts isn't easy (and I author and audit them for a living...) but it's doable.
Your trust on a new technology grows as you get used to it. Anecdotally, I remember how hard it was to get OS virtualisation accepted in corporate environments just a decade ago and my last enterprise customers where already using all form of virtualisation (net, storage, os, etc)..
And the results the code produces is constantly audited, both internally and externally.
There are live businesses using them today, and I'm not just talking of UNICEF and Axa...
Example: Renting a car. The rental companies want a way to recoup costs from any damage you do by, e.g., smoking in the car. They give you two options for how this can work: You can either pay with a credit card, which has a way for htem to do that built-in. Or, if you don't want to pay with a credit card, you can give them a bunch of extra money to hold in escrow.
Guess which option people basically never choose, when both options are available to them.
I would assume that merchants feel similarly about chargebacks vs escrow, and for similar reasons.
The way cyrptocurrencies work, in order for there to be an interface that allows third parties from charging your account, you would need a smart-contract for counterfactual transactions instatiation.
Right now, I can't think of a "problem" that would require chargeback or dispute resolution and couldn't be solved this way.
If so, and if you believe the seller isn't trustworthy, I'd recommend the use of a smart-contract that only releases the coins if both parties sign a message.
If the evil buyer convinces the naive seller to ship products without a payment being executed or a smart-contract based bond, then the situation is exactly the same with or without cryptocurrencies.... the seller must report the buyer to the police and either hire a collection agency or take some other action to recover the goods.
edit: on a second look, I think I misread your comment... are you asking about the mechanics of conterfactual transactions?
If so, the idea is that the contract is entered with the buyer signing a transaction with some form of conditional operation. One the seller ships the product, the shipping code could very well be the condition that allows releasing the funds.
There's plenty to talk about here around game theory and mechanism design, but if you are interested in the topic I can recommend some cool state-channel and plasma contracts we can go over and discuss.
You mean like another lock? But what is stopping the seller from holding buyer's money hostage and force him to release the lock just to get some money back even when he did not receive the goods?
An example of evil buyer would be something like: 1. The buyer buys goods from seller with smart-contract
2. The money in buyer's wallet gets locked.
3. The seller ships the goods.
4. The buyer receives the goods, but never signs the smart-contract.
That way the buyer gets what he paid for, but the seller never receives the money.
No matter how i think about it, smart-contract idea looks abusable.
1) the contract is initiated by the seller (sets amount, payable accounts, etc)
2) the contract is signed by the buyer, moving (or locking) an amount of money in the contract pending one of two situations:
2.1) the seller signs a message that the product has been shipped and the buyer signs a message the product has been received
2.2) the seller signs a message that the product has been shipped and after 30 days of no further message from the buyer's side the contract releases the funds
In this case, the solution is to have a commitment from the buyer that unless they take action (sign a special message to denounce the transaction / pull out of the contract) the seller gets paid. To address the scenario where the seller is malicious, the buyer can use the on-chain commitments from both parties as evidence of malpractice and report the situation.
(edit: formatting)
On-chain, the solution is to have an oracle provide a third vote somehow. Off-chain, the solution is for the seller to report the buyer and its address to the authorities.
I can make a contract that relies on one single third party and in that case you are correct that there is some existing trust relationship. However, the protocols are designed such that the trust you need to have on the service provider is minimised with trusted computing systems and the contract's mechanism design.
Conversely, I can also write a contract that trusts a pool of oracles, or a prediction market (here the trust would be in the prediction market protocol and not on its operator), or a token curated registry where individuals are paid to give accurate information.
The "oracle problem" is what I think you are referring to but I have a strong view that the problem of low quality data can be solved with existing mechanisms and tools.
My favourite method to dealing with information quality is by providing incentives to good quality sources and having a method that allows a third-party (anyone with an account...) to submit a fraud proof.
We just have to design systems around it.
Customer protection is great to give small businesses a chance.
In many cases the entrenched players in the market already have good prices. Upstarts who can't use economy-of-scale try to make their way by providing superb customer service or providing a better service in another way. But it's hard to give it a try when you don't have the protection of chargeback.
One of the most important values one can provide is trust. A known bad option is many times better than the unknown nothing. An upstart would have to provide much much more value to make up for that.
I lose the item, the money and a fee - bitcoin, like cash solves the fraudulent chargeback problem - but the buyer is unprotected.
Trusted Escrow solves both problems.
The chargeback system isn't good for small retailers. The banks have no incentive to check the system or secure the card as the onus is on the merchant.
If (!Supported by blockchain):
Print("Useless tech and I dont use it")
Print("HODL")Fraud and theft are fairly general problems. I would direct your attention to /r/sorryforyourloss
> In other words, are merchants eating all the costs of fraudulent credit card transactions?
If the goods cannot be recovered, then yes, the merchant eats the costs.
> I guess either way the cost really gets passed on to us consumers in the end.
Someone will always be left holding the short end of the stick when fraud occurs. The alternative to shifting the liability to the merchant is the consumer being directly accountable (rather than vicariously as you're suggesting).
1) When a budget airline went bankrupt, leaving me stranded in a country most people can't place on the map (i.e. limited flights out of it.) The full ticket price was refunded.
2) When a music festival I had a ticket for went bankrupt. Full ticket price refunded.
3) When a concert was cancelled, and I'd bought the ticket on a dodgy reselling website which refused to refund (ViaGoGo), saying they'd not been informed of the cancellation. It was widely reported in the music press, and there was an apology on the band's homepage. The bank refunded the money.
It's also not possible in fiat currency without a third-party. But Bitcoin not only gives you the option but also provides better solutions on how to involve the third-party. A Bitcoin escrow doesn't need to control your funds, only the permission to approve or deny a transaction, using multi-signature.
Bitcoin is piss poor cash, given the wild exchange rate swings and the ability for it to be stolen online. It literally has no property that I desire.
Agree, but I'm not promoting Bitcoin, I think it's poorly designed by someone who doesn't understand the properties of good money. Another crytpo with better properties will supersede it. It's the idea of crypto that's great, not the particular implementation of that idea called Bitcoin.
Once you know an trust a vendor, paying with cash will eventually be a few percent cheaper just as it often is as brick and mortar places sometimes when they offer cash discounts because they too don't like the fees the cards companies force on them.
It's not an either or scenario, it's a both scenario; you should have the option of cash or credit online, just like you do in the real world.
Largeness is relative. The counter to your argument is that widespread use of existing payment methods means the market prefers them.
That's not a valid argument. The market always prefers what "is" until a critical mass understands benefits of a new technology. The existing credit system was not designed for today's world, is pull based, and is rife with fraud on both the merchant and the consumer side. Merchants absolutely despise credit cards, we can't wait for something better to be invented.
The market preferred horses when cars were first invented; it takes time for new technology to penetrate. Internet cash will be a thing, Bitcoin might not be the successful implementation of that thing, but that thing's time will come.
Credit card companies are despised by merchants.
It of course doesn’t mean that things will remain this way forever. Credit cards have risen to prominence within living memory, there’s no reason why this has to remain. But it also means that if you expect something to replace credit cards, it must overcome both consumer preference and comfort, as well as all the advantages that the incumbents have.
As an aside, we have internet money. They’re called credit cards and debit cards, and we all use them daily to purchase ludicrous amounts of goods and services online and offline. What I have yet to see is an actual explanation for how any proposed “internet money” is superior to my Visa without relying on any ideological claims.
But, that doesn't really solve the problem, it merely pushes things around a bit. It's insufficient to say "credit cards aren't universally loved", because that does not imply that Bitcoin is the correct choice anywhere. It's perfectly possible that the local alternatives to CCs in other nations would still be preferred to Bitcoin. If one wants to sell the idea that BTC is a better choice than X, one must produce compelling reasons why this is so, preferably without relying on ideological statements that don't have universal appeal; I'm sure the goldbugs love BTCs anti-inflation nature, but that argument only carries the day with a very small group of people.
It absolutely is not when you're discussing a new technology most consumers don't understand yet or have never used.
> unless if you’re going to allege fraud or assert that everyone is dumb.
False dichotomy, it's a new technology, most people simply haven't had the chance to use it yet and don't understand it yet.
> As an aside, we have internet money. They’re called credit cards and debit cards
Those aren't the money I'm referring to, those are 3rd party verified trust you'll get paid systems, money is cash, and doesn't require a 3rd party to be trusted to pay you.
> What I have yet to see is an actual explanation for how any proposed “internet money” is superior to my Visa without relying on any ideological claims.
It's pretty simple, the same reasons you might want to use cash in the real world rather than credit. When you pay for something with cash, you're not at risk of that vendor taking more than you give him, you don't have to trust him. When you give a vendor a credit card, you're always at risk of fraud, a debit card... you might lose all your cash and you can't dispute those charges, it's not a credit card. Both of those also require the 3rd party to profit, so they charge extra fees. Cash typically has no extra fees (internet cash will, but they should be way lower than cc fees).
Beyond that, you need to step outside yourself a bit and be aware of your privilege, much of the world doesn't have access to credit cards and debit cards or even banks. Internet cash is a way for them to join the online world. If you can't get past your first world privilege, you'll never understand.
There's no ideology here, I don't think Bitcoin is the right mix of features for a good Internet cash, but Internet cash will come.
What those high fees really come from is the need to cover the cost of all those rewards programs that are so ubiquitous in some countries such as the USA. Those would probably disappear pretty quickly in the presence of a law allowing merchants to add any processing fees (perhaps above some nominal baseline cost) on to the bill. 1% cash back doesn't seem like nearly so great a deal when you have to reckon with the fact that what's really going on is that you pay 2% more, and then the issuing bank gives half of it back to you, along with a generous dose of smoke up the ass, and then pockets the other half.
This!! So much. The status quo amounts to price manipulation that harms the market and is utter B.S.
Item 8 from http://donellameadows.org/archives/leverage-points-places-to...
There was a time from 2013 to 2017 that merchants were permitted by processing agreement to do it, but Visa and Mastercard convinced an appeals court to throw it out. A few places in my state still do surcharges, but it's pretty rare.
You've swapped cause and effect here. It's the other way around.
High fees lead to rewards programs.
(This was back when non-rewards cards were the regular variety, so I'm assuming things have changed since then.)
Can you point me to any cheaper solutions?
I like the idea of having the processing fees displayed prominently on the receipt though (like VAT). If people had to actually pay more to use Amex (rather than the merchant absorbing the blow, or distributing the costs across their other customers), then they might quickly go out of business (and rightly so).
Obviously. They need to pay 0.2%-0.3% to the issuer (ie. the bank that gives you your card), but VISA/MasterCard and the processor want their cut as well.
> Can you point me to any cheaper solutions?
At least in Germany there are quite some cheap POS solutions:
0.69% for Visa/MasterCard:
https://translate.google.de/translate?hl=de&sl=de&tl=en&u=ht...
0.98% for Visa/MasterCard:
https://translate.google.de/translate?hl=de&sl=de&tl=en&u=ht...
Maybe in the world of the wealthy.
1) This is precisely what you get from EMV transactions. A cryptogram covering these details, signed by your hardware token (card). Online transactions don't do this, it's true, but that's why we have the verified-by-visa type stuff. It's imperfect, I agree.
2) Chargebacks are still necessary, because it's not just about merchant overcharging or unauthorised transactions, it's about what happens when someone fails to ship, or sends you broken goods etc
On the merchant not delivering, I think this is really wrong. If you have a conflict with a merchant, I appreciate that reversing the payment is a convenient way to apply pressure but I think is not the fair way to do it. It should be legal process really (if it ever gets that far).
With EMV transactions this is the case. I'd like to see the system of home card-readers spread, though it would add friction to online purchases.
> On the merchant not delivering, I think this is really wrong.
It's not only a perfectly fair way of doing it (if the merchant wishes to dispute it they can go to the courts), it's often the only way to do it, as merchants often disappear or make themselves uncontactable, or may feel no need to comply with legal process in the purchaser's country of origin.
We have thousands of years of history of merchants ripping off consumers - "Caveat Emptor" for example. This is a measure to prevent the worst of it, and it creates a much safer market. Without it many people would just not transact with new entrants to the market, if at all.
A significant number of sites also use stripe, which produces merchant specific revocable tokens. This doesn’t eliminate merchant fraud risk, but it does vastly reduce the risk of your CC details being leaked.
Your mobile could be stolen with your cryptowallet inside and you could do a remote wipe of the device. You can also use multi-signature protections for large transactions, etc.
So long as the cryptocurrency hasn't gone already. If it has.. well whoops, bye bye money.
Likewise, if you hold some bank notes in your wallet next to your credit card, an attack will deprive you or your money. The bank might cover any charges made on the card pending some admin and police work. For that service you pay a fee to the bank.
Nice diversionary tactic there.
This was the comment I replied to. It says money and I'm talking about money.
Bank cards represent account holdership, not money. Losing a card entitles you to get a new one for a small charge. Your bank held funds are protected by law, and you can expect somewhere between 75% and 100% of your assets being covered from fraud.
You said - "Your card being stolen has nothing to do with chargebacks. Your mobile could be stolen with your cryptowallet inside and you could do a remote wipe of the device."
You do this in order to try to establish cryptocurrency as being as secure in that situation as a credit card, i.e. theft resilient. I pointed out that if the cryptocurrency was already used, unlike with a credit card, you're unlikely ever to be able to recover the money. Then you started handwaving about cash. This appears to me to be a disingenuous move of the goalposts.
I'm comfortable with what I wrote though. Bank cards don't represent money and the management framework that allows for chargebacks is unrelated to the card itself, it's law.
I've clarified what I think is a consistent view, and no goalposts are being moved when I point out that cryptocurrencies == money but bank cards != money.
If bitcoin does not offer these features, I cannot imagine it ever taking off as a currency (as compared to a speculative instrument, which is what it is now).
The thing is, Bitcoin or Ethereum are technologies and the protections and guarantees the "masses" will look for are not provided at protocol level, this is where entrepreneurs step up and offer services based off these technologies.
Also importantly, there are functions a bank can provide that you don't need however there's no way of you avoiding paying for it somehow. A crypto based bank could very well be a legal custodian for key material, an identity provider and a lender... it could also be a mashup of several services/protocols that do each of those functions.
Backing banks in a different currency than you actually purchase goods in is like declaring that all transfers must be accomplished in Yen. Why should I expose my rent payment to an exchange rate?
One might argue that we’d just use bitcoin as our currency, but that’s just begging the question. Why should consumers want to switch away from their regular currency?
There’s also no compelling reason why identity providing should:
1. Be done by your bank.
2. Use the same technology as your currency.
Long story short: listing a bunch of things you can technically accomplish with bitcoin is emphatically not the same as providing reasons why bitcoin should take over. It’s a bit like hand stand walking; it’s an impressive trick, but just because you can do it doesn’t mean it should become your regular mode of locomotion.
The role of banks as identity providers exists today, you need a bank account to access certain services. Banks actually make for great KYC providers. I don't understand how you don't know this but still want to have a discussion on this topic...
I also have never seen anyone else verify my ID with my bank. I have seen them verify income, but that’s not surprising since that’s where I store my money. When someone demands to know who I am, they usually require my drivers license, passport, or SSN, none of which are bank issued.
And again, consumers send money all the time, using banks and other regular financial institutions. If they couldn’t send money, the economy would have ground to a halt.
So again: why should I want to switch to bitcoin, or have my bank built on bitcoin? It’s perfectly reasonable to say that banks are going to make protocol changes under the hood to make things smoother, that happens all the time. But to say we’re going to use a whole new currency needs justification to the end users who will notice the change.
What really gets to me is how uninformed you are and how strongly you manifest your opinions..
https://www.google.com/search?q=banks+as+identity+providers&...
Losing all the cash deposits I have would be so much worse, which is why I do business with a FDIC insured bank that will protect me against some contingencies, including account takeovers. Bitcoin offers me significantly less protection than my current setup, and would require far more mental effort to maintain my security.