Chargebacks from the business side. Rip-off protection from the consumer side. I personally will not be quick to give up the ability to dispute charges. That is a feature that just isn't possible in bitcoin without involving a third party.
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.
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.
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.
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.