There is no way of having charges "deducted from your account" with Bitcoin so there's no need for dispute or chargebacks.

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.

You buy a good online from a seller, seller doesn't ship the item and refuses to pay back. What then? With credit cards you can go to the bank and demand chargeback or whatever.

Do you buy the good directly from the seller?

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.

But how would you protect the seller from the "evil buyer"? The one who receives the goods, but never releases the lock? Sure, he is not getting his money back, but the seller is not getting that money also.

The buyer has to pay to make the order, that's usually the case in most e-commerce transactions I can think of.

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.

>The buyer has to pay to make the order

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.

How about this:

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)

You're adding pointless layers of complexity without acknowledging the core problem: there's no way for a smart contract to know the true state of the real world without having to trust someone to give it accurate information.

Also known as the oracle problem. Some platforms find solutions to this in a decentralized way, see Augur. The solutions to real world data being inputted into a blockchain is an economic one.

Not all transactions require the smart-contract to know about the off-chain world!

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.

The evil seller doesn't ship the item but signs the product shipped message anyway. Who's gonna stop them, it's not like the blockchain knows if they actually shipped it or not. Or maybe they shipped a fake or non working item. Then what?

The evil seller has a reputation to protect and the victim has an undeletable evidence of the "crime" on-chain for anyone to verify.

How could you tell who is the culprit in this event?

PKI.

Your caveat still renders the system vulnerable to malicious buyers. What if the buyer receives the product but "takes action" by denouncing the transaction or exiting the contract?

That is a good point.

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.

Both solutions rely on trusted 3rd parties then.

Not "trusted" ones per se.

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.

Isn't this very similar to what Escrow does?

Banks are not really necessary. Even by basic game theory, scamming your customers has long term negative value. Reputation is worth much more than money.

We just have to design systems around it.

No you just change your name and try again. And do you want to tell some one who has lost 100k+ to bank fraud when buying a house - a common and increasing type of fraud in the UK

But someone has to take the gamble. Or everybody uses only established reputable sellers. And newcomers can't break into the market.

Customer protection is great to give small businesses a chance.

Basic solution would be for seller with low reputation to lower the price. Even if not a lot of buyers take the risk, lower price should eventually attract enough people to allow a legitimate seller to build the reputation.

People already don't trust too low prices, because that's a sign of a scammer. And margins are already rather low. Would you take a gamble save €10 or loose €1000? Even with all the customers' protection in place, I already rather pay 1-2% more if that means buying for a more reputable seller. Without the protection, they'd have to be in scammers' price range to be considered...

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.

Well, it's hard to compete in the already established markets. But you have to, one way or another, usually by providing better value. Be it lower price, faster delivery or higher quality products. Otherwise, if there is no initiative for people to use your services, are you really necessary?

I'd argue that competition is mandatory in market economy. Having an easy way to get a basic level of customer trust lowers the entry barrier. Which is good to prevent monopolies and ensure market is functioning properly.

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.

Pretty sure the near-zero cost of creating a new "identity" to a scammer means they can remain competitive at any price...

If reputation were worth more than money, why is fraud still so prevalent after millennia of money-based transactions?

Unfortunately, a lot of people are too short-sighted to avoid acts that are only negative in the long term.

It's not your name that takes the reputation hit because you use a stolen identity.

Yes and there is a converse problem, the seller ships the item but the customer having received the item fraudulently requests chargeback - this is common, sadly.

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.

The chargeback system is the only reason I’m willing to patronize small retailers at all in many circumstances. If it were really a net negative for them, they wouldn’t accept cards at all.

You don't need bitcoin to operate an escrow service.

Blockchain based reputation system. Buy only from reputable sellers. First time seller, you just have to test your luck with those.

> That is a feature that just isn't possible in bitcoin without involving a third party.

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.

How many times in your life have you had to use a charge back? I never have.

Three that I can remember.

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.

Chargebacks are like seatbelts: ideally only a tiny percentage of users ever need to actually use them, but their presence increases the safety of the system for all users.

If you've ever had your credit card number stolen and used by a criminal for fraudulent purchases which you later disputed, you've used chargebacks.

Right, you need a remedy for the inherent insecurity of credit cards. Is it always a charge back though? In other words, are merchants eating all the costs of fraudulent credit card transactions? I guess either way the cost really gets passed on to us consumers in the end.

> you need a remedy for the inherent insecurity of credit cards

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).

Remember that you don't need to use it often precisely because every party knows that you have that option. So people don't try to scam you because they know it won't work. They know it is a solved problem, a means of security they can't breach. They know that if they misbehave, the other party won't be harmed (they'll get their money back, if harming them was their intention) and they themselves will be punished instead.

Just because you've never had to use it doesn't mean it's useless.

I personally feel crypto users will goto any lengths to glorify the shitty db blockchain is.

If (!Supported by blockchain):

    Print("Useless tech and I dont use it")

Else

    Print("HODL")

Both of those are what escrow is for. A trusted and publicly audited thing where a payment is held until the services are rendered.

Escrow is far more expensive than chargebacks. And if we're involving a third party either way, I'd rather have the regulated, battle-tested, already existing banking system.

Chargebacks essentially are escrow. The merchant can't stop them from happening because the money is taken from the merchant account reserve, i.e. a minimum balance that the merchant can't withdraw. Sounds similar to money held by an escrow agent doesn't it?

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...

The EU proposed limiting transaction fees to 0.2%. I don't know whether that is law already or not.

0.2% for debit cards, 0.3% for credit cards.

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.

Looks like it was 0.3%

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.

That system that you use, while international, is only available to a small fraction of internet users. Entire countries, and billions of potential customers, are cut off from transacting with you under that model.

There's the possibility to have escrow without a third party using smart-contracts.

Smart contracts are a bet on our ability to write code that is free from flaws. History suggests that the odds of that are not good. I'd rather trust a bank and the legal system.

> History suggests that the odds of that are not good. I'd rather trust a bank and the legal system

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.

The code that runs on your bank and "legal system" was written by people who make mistakes as well.

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)..

> The code that runs on your bank and "legal system" was written by people who make mistakes as well.

And the results the code produces is constantly audited, both internally and externally.

That is true of many cryptocurrency companies, platforms and libraries.

There are live businesses using them today, and I'm not just talking of UNICEF and Axa...

The problem is that there is no way for a smart contract to actually know if goods have been received or not, so it is still subject to abuse.

That's true but it can be made to work with oracles or a third-party arbitration (eg: check out Kleros, Truebit and Plasma) system.

But now you’re no longer “without a third party.”

There are nuances to the type of third parties we are talking about here.

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.

That isn't "trustless" anymore! You gotta trust a bunch of unknown crypto startups now.

Are these guys really add more value to the economy than chargebacks? I very much doubt it.

That's not correct. You can have a third party that is trustless, ie that cannot perform any action on its own that would favour or harm you.

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.

They could easily collude with the party you are making a contract with, and rule against you however.

That's not the case in many (most?) of the cases I mentioned.

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.

The problem there is, nobody likes using escrow for everyday things.

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.