Stop Saying Bitcoin Transactions Aren’t Reversible

The fraud works both ways, seller to buyer, buyer to seller. But in the payments market it seems to be stacked in the buyer's favor.

I can only speak for the experience in US banks, your statement "Even a credit card company can't reverse a transaction if the merchant's bank account is empty or if they do, they do so at their own cost." is not true. Bank accounts can, and do have negative balances[1]. Both the banks and the credit card companies, are in a position to attach liens, refer to collections, and generally destroy the credit worthiness of an individual or a merchant as a result of a dispute between the merchant and a customer, as a result of a chargeback. The bank may be left with an unfunded liability, but they are equipped with a number of legal ways to collect on that from the individual who opened the account. The entire banking industry is built upon the singular question of when and how liability is transferred. Further that structure is backed by the enforcement arms of the government which has licensed the bank. This is underneath the level of what the typical retail banking customer sees or experiences.

You pay someone in cash, and they rip you off, there is no way for you to get your money back except to sue them, send some enforcers around to threaten them, or to steal something of theirs of equal value and sell it. This is exactly the same way BitCoin works. It was designed that way, and it is the very definition of 'irreversible.'

Once a transaction is complete there is no way for it to be reversed without both parties participating in the process. And this is fundamentally different than a banking/payments system which is reversible.

Now it would be possible to create a structure using BitCoin that would have the property of being reversible, which is you bring a third party into the mix, a Bank, and create a series of regulations and rules about how and when transactions are voided and those institutions cause the reversals to actualize in the respective accounts of holders. But that is not how it works today. The current BitCoin payments system is equivalent to a bunch of people walking around with suitcases full of cash.

You can argue it is a 'strength' or you can argue it is a 'weakness' of BitCoin that completed transactions are not reversible, but it is a matter of fact that this is a fundamental difference between BitCoin as a payment mechanism and currency as a payment mechanism.

[1] I once participated in a long running conversation with Bank of America about this when the account in question was mine. Remember, just because you or I might not have any money in our account, it doesn't mean the Bank doesn't have any money it can give to the Credit Card company.

Chargebacks happen after the transaction settled.

Yes I expect it could. If someone wants a throw away 'startup' idea, consider a baby sitting co-op using BitCoin. The notion of a babysitting co-op is not new, and a number of people you know will probably behaving babies soon, and there is the whole complex thing of trading hours for hours which as spawned such co-ops again and again. Often these things have token systems where you 'buy in' with some number of tokens/tickets and you 'cash out' by trading your tokens back in for cash. Do the whole thing with BitCoin and you've got yourself a very durable little system for what has historically been a cash only system.

> The payment is made to the multisig address and not released to the seller until the buyer is satisfied. If there are any problems with the sale, the buyer and the arbitrator could together send the money back from the multisig address to the buyer. You aren't exactly reversing the original transaction, you're creating another transaction that reverses the effect of the original one.

So it's just more secure escrow?

People complain that PayPal freezes merchants accounts. But PayPal only does that if the number of unsettled goods is too high. In this particular case it would always happen because parties would not acknowledge a transaction for a long time.

Chargebacks allow a merchant to get the money right away and still give the customer the option to reverse the charge a month (or more later) in case something happens.

That's pretty pedantic...

To be truly pedantic, those transactions were never Bitcoin transactions to begin with since they were never on the Bitcoin blockchain :)

That's right. You have to keep broadcasting it though, the transaction won't be retained in the nodes storage for a long period of time.

Every domain has domain terms: specialized knowledge and vocabulary.

Within payments, "transactions," "reversibility," "revocability," and "escrow" have definitions. Since BitCoin is in this space, I'd expect an article to use the domain terms from this space.

Yes, if you re-define these terms to mean something more colloquial, it may look like that. If you squint. But that doesn't make it not look amateurish.

In the credit card situation, it's possible for the consumer to change their mind for up to 180 days. If so, then the credit card company gets involved and things move on from there.

If I understand this BTC mechanism properly (and I've never used it, so disclaimer there), once the consumer says "yes" there's no going back as far as they're concerned. Since the merchant is going to always say "yes" right away, that means that the only way to approximate the level of consumer protection that credit cards offer using this protocol is if the consumer makes a habit of waiting up to 6 months to release funds to the merchant. Which is something I wouldn't blame merchants for not being willing to accept such a situation. Defaulting to "180 days, same as cash" sounds like a terrible business practice to me.

I wonder how many of their sales processed by Paypal get reversed.

The Humble Bundle uses Coinbase to accept bitcoin, so they'd be completely insulated from actually dealing with bitcoin. I did notice that I got the payment confirmation & game link email when the transaction I sent had 1 confirmation though.

I've bought from the Humble Store twice recently, both transactions have been accepted instantly (i.e. before being included in the blockchain).

I don't believe that anyone's heard of a successful Bitcoin double-spend attack against a competent merchant yet.

Does that create another way for money to just disappear? What happens if 2 people disagree and the other takes a flight to Conventry for whatever reason?

The naive total-arbitrated-BTC solution wouldn't work, since someone can always arbitrate a bunch of 'transactions' between sockpuppet addresses they themselves control. But as long as there's some mechanism to pay arbitrators for their services, it seems reasonable to expect a small set of trusted arbitration services to spring up, analogous to CAs. Of course, once you're paying an arbitration fee on top of a bitcoin transaction fee, it's not clear that you're saving any money relative to a standard credit card transaction.

It's relevant because the article opens up comparing BC and CC. If there were a credit card denominated in BC, the credit provider would probably hold the BC for a while just like they do with money, therefore grating it's users the same warranties.

A better, tough far from perfect, comparison would be to sending money through mail to later receive the goods, or a debit card sans the paper trail.

The article starts from a fallacy, but that doesn't mean it's point is null.

Credit cards are a service that exists on top of traditional currency, so comparing the features of bitcoin to the features or a credit card is in some ways an unfair comparison; in other more pragmatic ways it reflects the way bitcoins and and traditional currency are used for online purchases today.

Your hypothetical example shows that you know nothing of raisin farming. The grapes are laid out on paper next to the grapevine, and don't move a centimeter until they are dried. Moving grapes that are mostly water to be dried at a second location is a waste of cargo capacity--you would be moving water just for it to be evaporated somewhere else.

But let's fix it by changing the grapes to ARM CPUs and the raisins to tablet computers. The chip fab decides to stiff the customer intentionally. You still didn't say who the known reneg recipient is. Perhaps an open-source tablet software project? If it is someone both parties are likely to support anyway, they simply reduce their donation by the reneg amount and blacklist each other.

With high-value supply-chain transactions, you probably want a lawyer-written contract in place and at least one face-to-face meeting. At the least, you know who the supplier is, and can go break his kneecaps with your lawyers. Or you pick an arbitrator and do 2-of-3.

The bonded 2-of-2 is pretty much just to solve the problem of non-recurring or rarely-recurring consumer-level transactions. If you want to buy weed online and can't trust a third party, you can put up bonds. If the assumptions of bonded 2-of-2 don't hold, you don't use it. One such assumption is that the 2 parties are anonymous and cannot trust anyone or effectively retaliate.

It could certainly be gamed. The FBI could take all of its Silk Road seizure coins and put up as many fake bonded 2-of-2s as possible. In the end, it would probably just end up funding a "legalize pot" PAC with a massive amount of coins, since it would still have to designate a credible reneg recipient, which must be clearly identifiable.