Comment by Taek | Hacker News Reader

Comment by Taek | Hacker News Reader

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The appeal for irreversibility is the complete removal of counterparty risk. It's a sharp edge and you need to be structured/careful, but for certain types of transactions, the cost of being careful is 100x cheaper than the cost of finding and using a trustworthy counterparty.

A strong example of where the irreversibility of crypto is very useful is in the online sale of expensive electronic goods. Especially for things like speakers, TVs, and projectors, fraud rates are extremely high and boutique shops struggle to effectively support online customers, because such a large percentage of their sales get chargebacks after they've shipped the goods.

If you accept crypto, you have a 100% guarantee that when the money has hit your wallet, the money is good and will stay in your wallet. You don't need to deal with an anti-fraud firm, you don't need to check whether this person is trying to have the goods shipped to a sketchy country, and you don't need to fear that your $6,000 item is going to sail away from you without payment.

Yes, this means that the consumer has to fully trust the merchant, but in the case of online sales, the merchant is the known quantity with a reputation. Every consumer is a random, unknown person to the merchant and so it's much harder (and therefore more expensive) for the merchant to establish trustworthyness.

> in the case of online sales, the merchant is the known quantity with a reputation

This is absolutely not true. There’s plenty of risk buying expensive goods online, lots of problematic merchants. I don’t understand why merchants are inherently more trustworthy than customers?

It's not that merchants are inherently more trustworthy, it's that the buyer has ample opportunity to research the merchant and establish credibility. If there's a merchant that only accepts crypto and the buyer can't get comfortable that the merchant is trustworthy, the buyer can walk away instead of making a purchase.

The merchant has much less to go on. There aren't review websites detailing the reputation and history of every random buyer that enters a credit card onto your website.

I don't quite buy that. The ability to claw back credit card payments to fraudulent merchants enables commerce before credibility is established. This is in the merchant's interest too, especially when they're starting out.

It's only in the interest of the merchant if they are selling items that have a low enough chargeback rate. Credit cards and clawbacks work great in-person and for low value online merchandise but it's non-viable for online high resale value merchandise.

>it's non-viable for online high resale value merchandise.

What does that mean?

The phrase "high resale value merchandise" sounds like it refers to the stuff that, in physical stores, is kept in a locked case so you have to ask someone to open it.

But that stuff is readily available online, isn't it?

This just moves the risk from the vendor to the consumer.

I assume that most chargebacks happen for purchases made with stolen credit cards. So the chargeback just returns the money to the rightful owner.

If the consumer used bitcoin, and someone stole their credentials to buy something, then they would have no way to get their money back.

The chargeback returning the money to the rightful owner doesn't help the merchant who shipped $6,000 of hardware to some stranger. Certain types of electronic sales simply can't be done online because of the high rates of fraud. When you add crypto, these sales become possible.

Yes, they become possible at the cost of putting the counterparty risk onto the consumer, but that's better than the sale being entirely non-viable.

I don’t understand your line of reasoning at all. Like the others have said, moving risk from sellers to customers is not a solution.

Especially when the risk of customers committing fraud is incredibly low. Why would you start with an assumption that this is something so rampant it needs to be solved in a way that harms literally all honest customers?

I operated an online store selling $2,000 pieces of computer hardware, and both credit card companies and banks alike refused to service us because fraud rates were extremely high.

If you think fraud rates are extremely low, you've never tried to sell $2,000 electronics online as a boutique electronics store.

Bitcoin was the only option.

It’s not that I don’t believe there is fraud, I’m saying the vast majority of customers are well-intentioned. If this is not the case, could you point me to some sources and not just your anecdote?

Regardless, how does Bitcoin solve this? There’s a lot of illegitimate users of crypto, how are you solving fraud with irreversible transactions?

> If this is not the case, could you point me to some sources and not just your anecdote?

It's difficult to find sources, but generally speaking you are going to go 'on warning' at around 1.5% and if you go too much over 2% chargeback rate you just get dropped by the credit card company as a customer. Credit card companies don't like dealing with high fraud customers and won't support you.

https://chargeback.com/average-chargeback-rates-how-does-you... https://chargebacks911.com/chargeback-rate/

Bitcoin helps in two ways. The first is that it gives you a way to accept money at all. As stated above, if your chargeback rate is above 2% for any extended period of time, all of your payment processors - including your banks - are going to drop you as a customer. You may be willing to pay 5% overheads for a higher chargeback rate, but your credit card company doesn't want that as a statistic and they just won't support you.

The other way Bitcoin helps is that once your wallet (use BTCPay) says "2 confirmations" you've got a 99.97% guarantee that the money is yours and won't be reverted. And that's true whether you are receiving $2,000 or $2,000,000. Regardless of whether that money came from "an illegitimate user", you as the merchant can be confident shipping hardware out because you know that the payment is not going to be clawed back.

Fraud is a cost of business. Prices can be raised to take it into account; different markets have different rates of fraud, but fundamentally it can be priced in.

Merchants are in a much better position to price this in than consumers. Merchants structurally execute a lot more transactions within a market vertical than consumers ever do.

If the merchant can't do that, because deals are simply too high value or aren't frequent enough, then insurance companies or intermediaries (e.g. payment processors) can pool risk across merchants, using actuarial techniques to assign a price to the insurance. For example, professional indemnity insurance for property transactions.

If you raise your prices, you drive away legitimate customers but don't drive away fraudsters, since the fraudsters aren't actually paying with real money. So raising your price increases the percentage of fraud you see, which means you probably need to raise your prices further, which further increases the relative amount of fraud.

To counteract this negative feedback loop, assuming the increased prices don't drive away all of your real customers, you can spend the increase on transaction analysis, and turn away customers based on their likelihood of fraud, so you've added inefficiency into the system to help deal with a criminal element, and also likely turned away real sales due to false positives in your analysis.

It's no surprise that these types of merchants are looking for a disruptive technology to remove this inefficiency. Doing so would allow them to charge less and outcompete as well as capture the entire market of people marked as false positives by other merchants.

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