How eBay Could Rescue Bitcoin From the Feds
wired.com
wired.com
This can be done - bitcoin itself doesn't provide these features technically, but it can be done by paypal; the question is why would they - it probably is less profitable than their current transactions.
Is this strictly true? What do foreign currency exchanges and Western Union do?
Only two things are irreversible for real:
1. When you take a tangible thing in your own hands and go away. This can only be "reversed" by another party running after you.
2. Bitcoin transaction.
See also: http://www.quora.com/Wire-Transfers/Can-wire-transfers-be-re...
To reverse some old transaction would require enormous amount of computing power and some serious motive. It's not even close to two banks disputing a wire transfer between each other.
I've worked in banking on international payments; they aren't reversible in the sense that (a) it's not always possible to do so; (b) there's no well-agreed way to do it, (c) the administrative fees of everyone involved can be quite large and (d) you can't guarantee anything; but in practice we could reverse most of international transactions if a day or two has passed (while money is "in transit", so to speak), and occasionally even long after it's been credited to beneficiary. Of course, there have to be valid reasons, but it can be done.
As to fraud. No, a licensed money transmitter doesn't have to allow charge backs (as far as I know western union doesn't), it's just that it's a competitive advantage for customers if they do.
Plus you'd need a reasonable (externally audited) process to identify which of your customers are lying about their IDs or the beneficiary names and stop dealing with such customers - so you can't just put some small print and ignore violations.
Western Union doesn't have to allow chargebacks in the creditcard meaning (where USA laws allow chargeback for even ridiculous reasons IMHO); but if, say, credentials of some EU citizen are stolen and fraudulent payments made, then Western Union would need to return most of the money even if they can't reverse it.
No it isn't. The bitcoin seller transfers the bitcoins to a bitcoin address controlled by Paypal. Paypal sends USD from the buyer's Paypal balance to the seller's Paypal balance, and BTC from the Paypal-controlled bitcoin address to the buyer's bitcoin address.
Paypal knows the dollars and the bitcoins both exist, and can deliver them to the right party itself, so the parties don't have to trust each other to complete the transaction; they just have to trust Paypal.
There is a problem, I guess, if the USD comes from a source like a credit card that may eventually be reversed, or if the buyer claims a hacked account. But you could get around that with some waiting period, requiring a Paypal balance/bank transfer for Bitcoin transactions (credit cards can't fund Bitcoin purchases), and/or requiring 2-factor auth for large transactions / Bitcoin transactions.
Processing an eBay transaction is actually harder to prevent fraud, because it's hard for Paypal to tell that physical goods were as described, and delivered to the right party. (AFAIK eBay basically has humans reading what both parties wrote and using their judgment to deal with disputes about product delivery.)
But, luckily, once you buy yourself some bitcoins, you may do whatever you want with them. Buy stuff, gamble, donate, pay freelancers, or anonymize as much as you want.
There are only two ways eBay can possibly "embrace" Bitcoin:
1. By promising non-reversible transfers of USD when exchanged for Bitcoin. This may be problematic if there are some "customer protection" regulations that demand possibility to return funds.
2. By separating USD payments from BTC payments completely. E.g. you can sell/buy stuff on eBay for BTC without converting it to USD on eBay, but elsewhere. This is much more doable without triggering FinCEN regulations or chargebacks.
People like the protections afforded them by credit cards, and by financial regulation. Many financial regulations exist to stop the public being screwed over by the unscrupulous. If they increase costs a little, well that's the insurance cover for when we inevitably run into people who want to take us for a ride.
Reversible transactions must be reversed by a human intermediary. An insurance company, a financial institution, someone who you must trust this way or another. In addition to obvious value (that you described), this also creates all sorts of issues we all know about: fraud, regulatory hassle, spying, freezing of accounts etc.
Bitcoin as a protocol (or any alternative money-moving protocol for that matter) itself cannot reverse anything. It's just a protocol. Anyone can set up their own BitcoinPayPal and mediate Bitcoin transactions and reverse them as they like.
The value of Bitcoin is that you can opt in insured reversible transactions based on trust if you want to. But that's not necessary. USD is limited precisely because you have no other way to move it across the internet without trusting intermediaries that might reverse the transaction. Bitcoin simply gives you all possibilities, USD gives you less.
There's nothing impossible in having eBay to act as an escrow for BTC transactions just like with USD. But the power of BTC is that you can ultimately own it, while USD must be always stored in someone else's hands.
As for 'owning' BTC, the concept is entertaining. BTC is an entry in a public ledger, you own the private key to access it, but it's very hard to say where exactly a BTC is at any given time.
Note that nothing about irreversible transactions stops you from verifying the identity of the other party and suing over failure to perform on a contract. I accept that this is tedious and difficult over multiple jurisdictions. In society we seem to prefer giving the money sender arbitrary control instead. But this just makes it difficult for money receivers who do not deal with bulk volumes, and allows money senders to abuse money receivers. I think it's important not to conflate reversible transactions with other forms of contract enforcement, such as the courts.
But I'd still like the option of executing an irreversible transaction when I choose to do so. In the physical world, I use cash for this, and it works well. I'd like an online equivalent.
Otherwise, the increased cost just becomes a tax on online transactions. There are many transactions which aren't tied to a contract where performance can be measured. Take crowdfunding, for example. What does a reversible transaction even mean? Paypal's stance is just to ban or freeze accounts performing these kinds of activities.
So by banning irreversible transactions, you stop certain activities from taking place, since there exist legitimate transactions which do not correspond to contracts that can be measured. I think we harm society as a result.
Reversible transactions: good. No option of irreversible transactions: bad.
If we unbundle reversible transactions we get money transmission and satisfaction guarantee through complex legal system. What happens if we technology will allow same level of protection but on top of instant, irreversible transactions. Many sources of government inefficiencies would be eliminated. It may be a complex thing to do, but we should think of the components of reversible transactions and how to innovate on each of it.
As a side effect of irreversibility, anyone may build their own "PayPal" or "eBay" on Bitcoin in any jurisdiction and compete freely. Customers will have much more options than with traditional highly controlled and restricted banking system.
I'd much rather deal with a new company, like coinbase, who can jump through the necessary hoops.
And almost everyplace else in the world.
Since Bitcoin is at very least is just an asset, any money business that exists today can use Bitcoin and enjoy lower costs of handling it. Then, there are special properties that make possible entirely new business models. Of course, Bitcoin itself is not without risks of crypto failure or miners' attack, but so is any other asset: gold can be stolen, govt money can be inflated or confiscated, milk can be spoiled etc.