Comment by pjc50 | Hacker News Reader

Comment by pjc50 | Hacker News Reader

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This is exactly it: dispute resolution is hard, and involves untangling real world facts from distant parties some of whom are motivated fraudsters. Credit cards push the work of verifying that the person making a purchase with an account is the person entitled to do so, onto the merchants. Paypal has followed this; its terrible dispute resolution is a big source of complaints.

Bitcoin has no dispute resolution at all. Once a transaction is confirmed, that's it; you have to use some mechanism outside the system to get your money back. People talk about escrow but it's hardly a magic solution.

A corollary of this is that all software handling bitcoin has to be extremely reliable. Not just the client, but anything built on it, such as the entirety of the exchange. Like a pressurised container full of money; if there is any crack or way a hole can be made, it bursts and the money is gone. Even if all the software you've built is fine, any operating system level 0day (cought Apple) will sink you.

This is mostly irrelevant. Bitcoin "has no" escrow arbitrator in the very same sense that cash (esp physical) has no escrow arbitrator. It's just something you have to layer on top if you want that service, the same way you would for a cash transaction. To the extent that it mimics cash's irreversibility, then of course it inherits the need for third parties when you actually want this kind of reversibility.

(Normally at this point I'm supposed to mention bitcoin's embedded programmable contract system that further facilitates escrow, but I'm worried that bringing it up at the same level would encourage the very same apples-to-oranges comparison I'm trying to get people to stop making!)

In a perfect world, all those problems are solvable with smart contracts, m-of-n transactions, better open-source software and accounting practices, etc.

Of course, we don't live in the perfect world, and all non-trivial software has bugs. Time will tell if "perfect enough" plumbing is achievable, and whether the Bitcoin experiment is sustainable. I think's a worthwhile gamble, on a micro and macro scale, but no one should get involved with Bitcoin without understanding the risks.

People keep saying smart contracts will help. How does this help "item not delivered" and "item not as described" etc?

Chargebacks can occur through m-of-n transactions. Arbitration becomes a service, with more competition and likely a lower a cost than a credit card's 3%. What's more, it can optionally be eliminated for trusted buyers/sellers (particularly vendors who earn good reputations for returns and customer service).

Smart contracts probably make more sense for pure digital transactions that don't involve tangible goods or services.

> Like a pressurised container full of money; if there is any crack or way a hole can be made, it bursts and the money is gone.

That is, far and away, the best description of the problem I've heard. Did you come up with it?

Yes, as I was writing that post.

I'd been considering rocketry analogies, where one software error (Ariane) or bad seal (Challenger) will blow the whole thing up, but I wanted to convey leakiness. Mtgox found a slow puncture and went down like a deflated bouncy castle.

It is also like a bubble. A tiny pin prick, and pop! Which is also doubly apt because some consider the market price of bitcoin a bubble.

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