Basically every crypto enthusiast out there touts the non-reversibility of crypto transactions as its primary feature, not a bug, and that is why I see crypto as generally useless for your average person.
Right, so it's important to understand the context in which cash is used.
The vast majority of cash transactions take place in exchange for goods/services rendered immediately. Like I go to a grocery store, buy a pound of bread and pay cash. So disputes are settled right there and then, merchant and customer talk it out. Also, about 90% of cases ticket size is ~20$ so even if a dispute isn't settled in spender's favour it's no big deal. The spender will not transact at the merchant again so in fact more often than not merchants are willing to settle in favour of customers.
Now for larger ticket items I'd hypothesise that 99% of them are done through online through credit-card, bank transfer and what not. Due to safety reasons customer as well as merchant wouldn't want to deal with big sums of physical cash.
That leaves us with suitcase piles of cash being paid; and it's not hard to guess it's mostly being done to avoid authorities. Note that there is a legitimate use case for moving large piles of cash, say casino depositing daily earnings at their local bank. That is not a transaction in a meaningful sense.
I mean, think of all the movie plot points that center around having a drop point for ransom payments. Remember that scene from Mission Impossible - Ghost Protocol in 2011 where they are doing an exchange and the best form of illicit payment is a bag of diamonds.
Not only does crypto make giant illicit ransom payments feasible on a previously unimaginable scale, it's going to make our movies more boring ;)
This is actually a major problem in the U.S. where the fourth amendment is supposed to protect against unreasonable seizure. It is not illegal to carry cash, but federal and local law enforcement agencies will by policy seize cash without charging anyone with a crime. The victim needs to sue to get their money back, and then the agencies use tax-payer dollars to fight it. This is a clear violation of the 4th amendment, but is absolutely rampant.
If we don't fix these problems with cash, you can bet they'll come for your crypto when it becomes popular enough.
At the end of the day, there is a fundamental judgement call when it comes to disputes: was the product "substantially not as described"? who has better evidence? etc. Once you put an arbiter in the middle, making this decision (which, again, I argue is an essential point of the modern financial system) the entire raison d'etre of crypto goes away.
As someone who uses crypto on both ends, I think no reversal is the fairest way. Both sides lie, but the customer lies quite a bit and is usually favored in CC reversals.
"... but but Drugs! Criminals!" is what common people say at this point, to which I answer that drugs and crime flourished long before Bitcoin came to exist.
One was what happened in Lebanon after the port explosion. An Australian who had married a Lebanese wife and moved to Lebanon reported the couple had decided the move was a bad idea, and were saving for a relocation back to Australia. Then the explosion happened, and the government literally ran out of money. The solution was apparently to raid the citizens savings accounts. From https://www.aa.com.tr/en/economy/lebanese-cannot-access-mone... :
> As a result of monetary policies implemented by central bank Governor Riad Salameh, people are currently unable to withdraw money even from local currency accounts, she added.
I don't know if their savings were permanently taken or merely "borrowed" for a while, but in any case the move to Australia was taken off the table when it looked most desirable.
In that scenario, the non-reversibility of Bitcoin transactions looks real attractive. I think it is fair to say crypto currencies look most attractive when the traditional trust networks we humans have crafted out of out of bankers, institutions and laws break down. While the crypto currencies have their weaknesses - the 51% attack is very real and the power consumption of Argentina can seem over the top, they provide a very concrete, measurable level of trustworthiness. You know what it will take to break it. The soft human trust networks can and do break in a myriad of ways, so often we given them a name - "black swan events".
How do we balance it so it can provide a net positive for humanity?
Legitimate democracy can't be undermined by an international currency not controlled be the government. In fact, it can be reinforced by it.
This issue is very similar to free speech: the good it does by making the government unable to silence political opponents far outweights the harm done by extremists and lunatics of all sorts.
And no, it is not at all similar to free speech. Cryptocurrencies do massive harm - to the environment, to innocent people losing their money to scammers and frauds, and to the entire economy through enabling ransomware - and tiny, tiny amounts of good, which dwindle in comparison to the harm.
If you provide numbers, we can compare this massive harm with some other types of massive harms.
As for tiny amount of good - reclaiming control over storage of value from The Man is such a tremendous achievement that will help us fight tyranny everywhere. Bitcoin donations was the only type of funding russian government failed to stop when it started to clamp down the opposition. For me, this capability trumps your concerns about environment and crime any day.
If that is not massive harm I do not know what is.
A single home PC from 2004 could run the bitcoin network, but instead, it uses 0.1% of all the energy in the world.
It is by a wide margin the most ridiculously inefficient thing ever created. And it won't improve, because it is built that way by design.
As for "7 transactions per second", sure, 7 on-chain transactions with the current block size. You don't need them for things like buying a cup of coffee. So this FUD is somewhat outdated.
And that price is ridiculously, stupendously high. Much, much, much too high. It is in no way worth that price.
If it is not worth the price for you, nobody is forcing you to pay it.
Those that do, buy electric power from energy companies at the commercial rate. If you what to forbid people using bought power as they see fit, I suggest you start with yourself: do not use electricity, stop eating meat, stop traveling, stop using any items produced with electricity or burning trees.
Bitcoin is.
I see arguments of this form everywhere:
Law-abiding, tax-paying, responsible citizens use Tool X for legitimate purposes. Criminals also use Tool X for crimes. Therefore, we should ban Tool X.
Tool X = {cryptocurrency, encryption, firearms, drugs, etc.}
Tools that have legitimate uses should not be prohibited to law-abiding citizens.
Absolutely prosecute people who use the tool to hurt other people, but don't prohibit the tools that both bad people and good people use.
See also this piece by me on social recovery (a related but not quite the same concept): https://vitalik.ca/general/2021/01/11/recovery.html
But this is all not quite the same as reversal and makes different tradeoffs.
What about the stories of companies being scammed via wire transfer?
Hits me a little different now…
The net loss was in fact minuscule (in % terms) compared to the attempted amount. Summarising from the article you linked.
> ....illegally transfer close to US$1 billion
> ..The Federal Reserve Bank of New York blocked..US$850 million
> ..with US$20 million traced to Sri Lanka...recovered
> ..traced..US$81 million to the Philippines...out of which US$18 million has been recovered.
So the actual loss is ~US$60 million. I would say the system has worked as intended, for sure there's a scope for improvement which I'm sure are being worked upon. Also I imagine the 4 individuals, the final recipients of the money are being pursued.
If I do a thought exercise with bitcoin; what are the potential options to prevent such a heist? I would imagine within an hour or so $1B would get distributed to to thousands of wallets. Sure, you could trace all of that, but then what? Would you instruct the Blockchain network to not authorise any spends originating from those addresses? Kind of maintain a black list?
And be prepared to wait 24 - 72 hours for final confirmation!
Of course that's a downside if you are the one who would like law enforcement to happen (either because you are the victim of a theft or you want to enforce on others).
Also fraud can be done with reversible transactions as well, in particular the reversal can be fraudulent; in general, reversible transactions are only really effective if the conveyance of whatever was paid for is also reversible.
If I can reverse a transaction if I get ripped off, I might consider using a smaller or newer vendor. If I can’t then no chance, I’m sticking to the one I trust, even if they don’t have what I want.
Reversible payment methods are a huge boon to merchants, whether they realise it or not.
Obviously any payment method that is a layer over credit cards and US bank transactions is going to want to support reversal; otherwise, in cases like these, the payment processor gets left holding the bag. It's not "the result of decades of learnings and trial and error." It's the result of banking regulations which impose huge risks on anyone who receives money through the banking and credit card system, in order to avoid imposing risks on people who send money.
In many cases, those risks are not inherent to the transaction being conducted; they are introduced by outdated banking business practices that rely on detecting rare frauds after the fact and clearing transactions over the course of weeks or months. Instead of removing the risks, current banking regulations force them on anyone who receives a payment, so the banks don't have to fix them. Cryptocurrencies just remove those risks instead of externalizing them.
And that's why so many payment methods support reversal.
You’d have to be historically illiterate to want to throw this stuff away.
I’m sorry your friend got scammed, but there’s a host of damn good reasons we put the risk on the seller.
This is not a set of outdated practices resulting in ‘risk’ to sellers, it’s deliberate consumer protection.
But there are additional, unnecessary risks created by the banking system, and for many transactions (like when the thief stole my friend's laptop, or transactions that result in identity fraud) those risks are the vast majority of the total risk. In those cases, cryptocurrency solves the problem; it doesn't just shift the risk back to the buyer.
Your links to checks are fantastic. Who the hell uses checks any more? Wow.
Cryptocurrency precisely shifts the risk to the buyer, their recourse is gone if the goods they get are substandard. The imbalance of power between merchants and consumers is real, and consumer protections like reversibility are there to address this.
Perhaps PayPal is not the best choice for person to person transactions. I am sorry your friend got ripped off, but perhaps as a seller he should do his research about who he’s selling to. Without reversible mechanisms, every buyer has to research every purchase.
Your idea that cryptocurrency would solve your friend’s situation is just plain wrong. It might have solved it for one party, but it does push the fraud risk onto the buyer. If your friend had sold a laptop to an honest buyer, but the laptop died as soon as it left the house, or was of lower spec than advertised, the buyer would have been out of luck.
I’m not sure why you think pointing this out indicates that I’m upset, I can only presume this is tone trolling.
Cryptocurrencies unilaterally move the risk to the spender and I don't see how that is same as removing risk. A financial transaction is always risky for all the participating parties, there is a chain of liability. You can't make the risk disappear, someone has to bear it and/or underwrite it. Which is why you have all these payment processors that charge x% transaction fees for merchants in exchange for taking on that risk.
A larger point here is disputes will always arise in a business transaction. Which is why we have arbiters who hear both sides of a story and settle the matters. You can't say "Payment reversal is an open invitation to criminals to steal from sellers." and make payers unilaterally liable for every payment they make. That is a recipe for killing a market.
In your friend's case PayPal acted as an arbiter and given that the seller had no proof of sale PayPal made a judgement call to side with the payer. The harsh reality is your friend should have been more careful or said only-cash-accepted.
The entire plan of crypto is to not ever allow that. That's the big innovation.
You're right that a lot of folks don't want features like that, though I just had to point out that this isn't an "innovation" by any wild stretch of the imagination, but rather simply a policy in some implementations.
It's mutable, too, for both banks and crypto: either could allow/disallow such a policy if those involved cared to make it work that way.
Reversals would mean that there is some authority that can declare arbitrary transaction to be valid or not, and cryptocurrency is exercise in creation of payment system without such trusted party.
So no, would not call it simply a policy.
And cryptocurrency isn't really about lacking a trusted-party so much as decentralizing the trusted-party. Which might sound pedantic, but it's an important distinction: there can be an authority that makes decisions, just it'd be decentralized.
Future crypto-systems, e.g. probably a next generation that'll replace early systems like Bitcoin, would probably take a smart-contract approach. For example, a payment could be reversed under conditions encoded in a smart-contract.
A well-developed system would likely end up including a system of checks-and-balances, appeals, manners of collecting evidence, etc., where trust is decentralized.
For example, most folks would generally agree that a mature, well-developed system should allow someone to recover funds extracted from them under threat-of-violence if everyone agrees that that's what happened. That current systems are too limited to make such an obviously-desirable thing happen is an obvious non-ideality. Once someone makes a good system that fixes such problems, in a generally agreeable way that people can trust, it'll likely become a preferred system; it and its clones, etc., would displace older systems, and this whole no-reversible-transactions thing would become a minor footnote in early history.
It's also about minimizing amount of trust to that party. Only thing bitcoin miners are trusted, is determination of correct chronological order of transactions.
>smart-contract approach
Yes, and smart contract will just determine whenever transaction was made under threat of violence!
>end up including a system of checks-and-balances, appeals, manners of collecting evidence
So regular banking, under other name.
Also 'collecting evidence' is pretty much incompatible with anonymity, which is cryptocurrency distinguishing feature.
>trust is decentralized
How is that even supposed to work? Do you expect that every chargeback will be investigated by every mining pool? Or they will have some authority to do it (again, no difference with regular banking)
>most folks
Most folks are ok with current banking system. Cryptocurrency is a niche product, having completely different trade-offs.
One of the big innovations of cryptocurrency is allowing for electronic, cash-like payments. To solution to coercing a “reversal” of a transaction is use the legal system.
> To solution to coercing a “reversal” of a transaction is use the legal system.
Or, just maybe, we could have a system which doesn't need to involve the legal system every time, and protects consumers anyway.
Which we have.
You omitted the part where this solution requires a surcharge of ~3% on every single transaction we make with our credit cards.
In a civilized society, this is how transactions work:
You research the merchant and judge whether they are trustworthy. You decide they are, and purchase an item from them. If you have a problem with the item, you request a refund. They ask for the product back, and then they send you the refund.
Nothing in the above paragraph requires a credit card processor to enable a reversal of funds.
If they refuse to provide a refund, that is their choice, but relying upon a central god-like money authority to judge whether they made the "correct" one is bonkers. That's under jurisdiction of the law.
In your civilised society I will never, ever use a new merchant or a small merchant. One vendor that promises easy refunds would be the only place I would ever shop. Small vendors and new vendors can go hang. Hell, it might just kill internet shopping all together.
In your civilised society, small business is f*cked.
In your civilised society a person who has been ripped off by a merchant who refuses to deal with them or just plain disappears, has to spend time and more money dragging them through the courts, if they can even find them.
Your ‘civilised’ society is carte blanche for unscrupulous merchants to rip people off, something which humanity has been dealing with since the dawn of history.
We have these systems in place for a reason, and it’s to stop uncivilised merchants from doing what they’ve been doing as long as merchants have existed.
You don’t have to take credit cards, by the way, but don’t expect my business if you don’t.
What if that merchant was your friend? Or someone you knew personally? What if the merchant was recommended by someone you trust, like how small business has worked for millenia?
Otherwise, yes, you're right, you shouldn't buy things from people you don't know and/or don't trust, even with the ability to request a chargeback. That should never change.
> We have these systems in place for a reason, and it’s to stop uncivilised merchants from doing what they’ve been doing as long as merchants have existed.
No, that's not at all why these systems are in place. They would never have come to be had the U.S. Congress not passed the Fair Credit Billing Act in 1974 [1], which essentially outlined the mechanics of chargebacks, amongst other billing "errors".
To boot, consumers aren't a blameless party here. Fraud has existed on both sides of transactions since trading was a thing.
Well that’s rather the point, unscrupulous merchants have been a problem for millennia.
> Otherwise, yes, you're right, you shouldn't buy things from people you don't know and/or don't trust, even with the ability to request a chargeback
Goodbye internet shopping then, massive restraint of trade incoming.
Consumers are not blameless, but the power imbalance and the ability of merchants to take the money and run has echoed through time, it is disproportionate. The answer is not to kill trade by removing protections because that benefits neither party.
Your act may have been significant in the US, the UK had a consumer credit act in July of that same year which sets out the responsibilities of parties to a loan, which credit card providers are. However that is not the totality as such systems exist beyond credit arrangements and they exist explicitly for consumer protection from unscrupulous merchants.
(Edit - Tbh in your world I see a marketplace like Amazon emerging, that has clawback contracts with its sellers, and provides similar one-sided refund facilities to consumers as current cards. Little would practically change, except that there would be even less room for competition)
Strange, because from your comments you are based in India and there's simply no way to reverse a bank transfer there or in my own country, can you confirm this? What I've read over the years suggests the complete opposite of what you've said.
A brief internet search brings up:
> Adhil Shetty, CEO & co-founder, Bankbazaar.com, says, "The most important thing to understand is that if a transaction has been made, the bank cannot reverse it from its end without approval from the beneficiary. Bank can only act as a facilitator."
https://www.businesstoday.in/personal-finance/banking/story/...
> According to the Reserve bank of India, it is the senders responsibility to link and transfer money correctly by cross checking the account number and name of the beneficiary. Banks will not be held responsible.
https://www.allonmoney.com/banking/money-transferred-to-wron...
Bank transfer can be invoked within the context of a business transaction (e.g., buying on Amazon) or as a standalone payment with no context attached to it.
In the first case, the money goes through many intermediaries such as payment gateway, merchant, acquirer, etc. In this instance, a customer can dispute a payment at different levels beginning with the merchant (or marketplace), their issuer, and finally file a case in the consumer court. 90% of the disputes get settled by the merchant/marketplace. Issuers typically side with the consumer because their primary customers are consumers. Consumer courts take time to settle a dispute, but they do work.
It's possible for fly-by-night sellers to con a bunch of customers but it's rare. Because payment gateways and acquirers have gotten their act together in recent years and they do stricter KYB checks (Know Your Business).
The bulk of the theft happens through person-to-person bank transfer, i.e., devoid of any business context. Here, the fraudsters con a gullible person to reveal bank credentials and also second-factor auth. Social engineering attacks are also common. But the thing is you always know the destination bank account. So you can track the fraudster as the destination bank would have done a KYC. The key point to note here is that the money can always be physically traced. And there are laws that let victim claw back that money if they can provide sufficient evidence of fraud.
Anyway, there's no issue with building and using a service to handle that for you both on top of the currencies and as a smart contract on the blockchain itself. Most current crypto users just don't seem likely to use it as they prefer the control. This might change as the audience changes.
I'm vaguely aware that there are several checks at the different layers... but I'm puzzled, are there really options to reverse payments at all those layers?
I'm asking, because I've seen multiple times some surprising transactions/unapproved transaction/forgot to cancel a recurring payment...
and, each and every time... the e-money institution/bank/credit card provider, was unable to do anything, until the transaction actually posted.
i.e. while the transaction was still shown as "pending", I couldn't do anything (besides contacting the seller, which obviously wouldn't do anything). Each and every time (when I couldn't eventually get a refund from the seller), I had to wait for the transaction to be posted to be able to file a chargeback
No, transactions are irreversible by design.
If you want this, what you need is an escrow service. Escrow services can conduct transactions in bitcoin or other cryptocoins. I don't know of one, but I believe that they may exist.
I'm not sure I get your objection: Physical cash is exactly the use case for bitcoin.
There will be financial services and other layers built on top of bitcoin, just as it is done for the dollar, and we are seeing the nascent industry now. (Whoever provides insured services first is going to make a mint.)
If so the problem becomes, is your personal security up to defending attackers who want to take your pile of digital gold.
Physical cash is money, and serves the functions of money (see eg https://en.wikipedia.org/wiki/Money#Functions)
Bitcoin does the same.
In the nascent crypto world, different areas are using this new money in different ways: The US currently tends to store of value. Other areas (Venezuela, El Salvador) are tending toward medium of exchange.
In any case: OP's reversibility-of-transactions is a financial services function, not a "money" function.
This might actually be the first time for people to learn these lessons. They've been free-riding on the protections that banking regulations provide for all of their lives.
But yes, for me personally, I much prefer deterministically losing 3% to risking 100% (and incentivizing physical attacks).
Is CHAPS reversible? I don’t think it is. Or is it just not exposed as an option to institutions?
Maybe a smart contract could help here. If there are no transactions on a wallet for more than some time period, allow the wallet to be unlocked or transferred to a trusted party.
You've unfortunately done it repeatedly before (e.g. https://news.ycombinator.com/item?id=27207170) - this is definitely not cool, so please fix.
"Don't feed egregious comments by replying; flag them instead."
a.k.a. please don't feed the trolls
To begin with there are several layers of protection built in at acquirer, issuer, network and so on. Almost at each step there's an option to reverse the payment (or issue a compensating transaction) and finally the chargeback and legal recourse.
Bear in mind that each of the business process of the current payment systems exists for a reason. They are the result of decades of learnings and trial and error.
Are there plans to build equivalent features on Blockchain for crypto currencies? Or do their users have to go through the same painful failures?