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#4738 Position C.1 - Selectively mediated transactions are good for consumer protec...

Posted Mike Hearn on 20 September 2013 - 07:27 PM

Some regulators in the USA have apparently expressed concern that irreversible transactions undermine consumer protection.

In this position I will argue that Bitcoin allows consumers to choose between irreversible and dispute mediated transactions. Furthermore I will argue that this flexibility is a significant win for consumers, resulting in cheaper and more reliable transactions, higher quality protection and superior results for the economy.




Definition. Consumer protection mechanisms have over time become widely adopted across many jurisdictions and payment networks. They are the mechanism by which consumers are insulated against non-delivery by a merchant (whether malicious or accidental), as well as hacking and outright fraud. Additionally, they protect honest merchants by preventing competitors gaining an unfair market advantage via dishonest or other deemed unacceptable behaviours.

Chargebacks. A chargeback is a common form of dispute mediation implemented in credit card networks. Chargebacks allow consumers to dispute a charge on their account and if successful, get it reversed. Typically this results in the merchant having the money taken back out of their account, and possibly fined or being ejected from the card network. Chargebacks can occur for a variety of reasons, such as non delivery of goods, being billed for a service that was not wanted, resolution of administrative errors and unacceptably low quality. However the most common reason is use of stolen credit card details. Merchants are allowed to fight chargebacks and win the dispute in approximately 40% of cases.

Identity theft. Because credit cards can be charged only with details that must be given to online merchants to make a purchase, theft of these details is extremely common. Although ultimately caused by the "pull" design of credit card systems, merchants end up paying the price - transactions caused by theft of credentials result in an automatic win by the consumer.

Friendly fraud. The combination of chargebacks and lax card security can result in serious abuse. So called "friendly fraud" is where ordinary consumers initiate fraudulent or grossly unfair chargebacks. Because card networks compete harder to obtain users than merchants, they have little incentive to resolve this problem. An example would be that the porn industry has much higher chargeback rates (and thus fees) than normal, due to consumers legitimately purchasing pornography and then claiming it wasn't them when caught by their partners.

Professional fraud. Some payment providers have inadequate dispute mediation procedures in place. For example, PayPal requires proof of postage from a seller or else the buyer automatically wins any dispute. This leads to a common scam in which a fraudster purchases an item from a seller online, pays via PayPal and then picks it up in person from the victims front door. Hours after the fraudster has left, the payment is reversed and because no postage was involved, the victim loses both the goods and the money.

Financing of terrorism. The chargeback structure combined with the dominance of a handful of payment networks yields little incentive to create better security or dispute mediation procedures. Criminals know this and exploit that fact. Stolen credit card details can cost as little as $3.50 on the black market. Once obtained by "carders" they can be pumped for money. Because the identity details are all stolen anti-money laundering requirements do not help with finding the perpetrators. This was used to great effect by an al-Qaeda cell investigated as part of Operation MAZHAR. Over $3 million was raised for the Iraqi insurgency via carding.

Additional costs. One reason that credit card transactions are so expensive is the cost of dealing with fraudulent chargebacks. Many businesses implement their own risk analysis systems and review procedures above and beyond those provided by banks and card networks, because they find it to be the only way of controlling fraud rates. Even so, large losses are inevitable, and those losses are passed on via price rises and fees.




Bitcoin and consumer protection. Bitcoin was explicitly designed to learn from the mistakes of existing payment networks. Bitcoin does not implement chargebacks. By default, transactions are irreversible, but if buyer and seller agree they can include a third party dispute mediator into a suspended transaction. This mediator is not an escrow agency and does not hold the money at any point. Rather, in the case of dispute they can select a winner. If there is no dispute, they need do nothing at all and the payment will be cleared as normal. The use of this technique is rare in 2013 due to the lack of easy to use graphical interfaces for it, however simplicity will likely improve in due course.

Flexibility and specialisation. By separating the act of settling a dispute from the act of processing a payment, Bitcoin allows buyers and sellers to agree on any mutually satisfying choice of mediator. By avoiding the need to trust the mediator to hold the money, the market for mediation services becomes more competitive and fluid. Specialised trades can be mediated by individual domain experts or small businesses. Ordinary every day trades, like selling some second hand goods in person, can be handled by larger companies that may be able to have agents on the ground. Over time, mediators will arise that draft their own quality standards, and they will compete on the fairness and justice of their procedures.

Incentives to develop security. Bitcoin is already significantly more secure than existing card networks because you do not hand out any credentials or steal-able identity details to make payments. But by preventing users from pushing the costs of hacking onto merchants (who can do nothing about it), Bitcoin also incentivises the creation of a market for innovative security products that explore the balance between convenience and protection. For example, users may prefer to keep a small amount of money on their smartphone with no password or PIN at all, for quick access. They may place larger sums into specialised hardware devices that are specifically hardened against viruses and hackers. They may choose to deposit their bitcoins with a third party that handles security and indemnifies them against loss. Whatever the consumers preference, there can and will be a product that satisfies them.

Efficiency and low cost. Many transactions in practice do not need a third party mediator because the business itself is capable of satisfactorily resolving disputes. Major supermarket chains, for instance, will typically choose to please all but the most unreasonable customers rather than take the hit to their reputation. By avoiding the often inappropriate and expensive chargeback mechanism these businesses can reduce their overheads and pass those savings on to consumers. The website bitcoinstore.com is a successful example of this - they manage to undercut even Amazon by accepting payments only in Bitcoin thus saving money on fraud management, yet it is difficult to find an unhappy customer.

Conclusion. By using sophisticated cryptographic technology, Bitcoin separates the act of clearing a payment from the act of mediating disputes. This is a superior approach that will create entirely new ecosystems of entrepreneurial mediation firms that compete on the quality not only of their consumer protection, but also their merchant protection. Innovative security mechanisms will protect users from hacking and theft. Indeed, many examples of such products already exist.


#5780 Deep concern about the foundation's chairman of Law and Policy (Mike Hear...

Posted Gavin Andresen on 15 November 2013 - 04:09 AM

In my head, I picture people sticking their fingers in their ears and going "LALALALALAL DON'T TALK ABOUT COINTAINT LALALALAL"

Or maybe somebody in a funny hat pointing their finger at Mike and shouting "BLASPHEMY!"

It is fine if y'all want to pretend that coin-tracking won't happen if the Foundation ignores it, and maybe it is such a hot-button issue that the Foundation should ignore it right now.

But it will happen anyway, because the technology to make it happen is pretty straightforward, and any victim of CryptoLocker will be VERY sympathetic to law enforcement tracking "dirty" coins. More than sympathetic, I think we should expect a lot of pressure on law enforcement to DO SOMETHING.


#5763 Deep concern about the foundation's chairman of Law and Policy (Mike Hear...

Posted Michael Toomim on 15 November 2013 - 01:29 AM

This disturbs me. Nobody is implementing anything. This is just a theoretical discussion.

You really want to censor a discussion on technical possibilities?
Since when is the bitcoin community into censorship?

Mike Hearn is one of our best assets. He works fucking hard! Who is going to step up for this job if you all threaten to recall people who hold conversations on tough topics?


#9382 Jim Harper: Bitcoin Foundation Global Policy Counsel

Posted Jim Harper on 11 March 2014 - 02:58 PM

Hello, everyone. I thought I'd prime the pump on discussion of the foundation hiring this Jim Harper guy. That is, er, me.  ;-)

Here is the blog post announcing it.

I've been lurking on the forums for a while and have only popped my head up once or twice. I hope to be a good citizen here, though, available to answer your questions and field your constructive criticisms.

Your first question is probably, "So what are you going to do, Jim?"

My answer is actually a little "meta" - there is so much to do that I am going to be rather methodical and rigorous about prioritizing. With the foundation's leadership, I plan to choose my areas of focus based on how important each is for removing impediments to Bitcoin's success. There's no end of things to do. What matters is doing the things that matter.

I plan to work on issues at a high enough level of generality that the thinking and strategizing I produce can be applied wherever necessary. For example, "privacy/anonymity vs. the needs of law enforcement" is a generic issue that will have application in countries around the world. I'll try to articulate the scope and dimensions of the issue, if indeed it is a priority, then distribute the thinking to foundation affiliates and beyond.

I'll ask your forgiveness in advance because I'm already swamped with media requests today, but I'll try to spend some time doing a little open thread on me today, if you care to ask questions.

Thanks for welcoming me! If indeed you do...


#8835 Bitcoin ban proposed by U.S. Senator Joe Manchin

Posted Marco Santori on 27 February 2014 - 01:01 AM

The Foundation has been working closely with senators, congressman and regulatory agencies on the Federal level for some time.  Most, like Senator Carper on the Hill, FinCen, HSGAAC, and GAO have worked hard to understand Bitcoin technology and its Industry.  These people have avoided knee-jerk responses and have instead taken the time to meet with the industry so they could Get It Right.  Whether it means more regulation or less regulation, true public servants like these have worked to balance protections for American innovators and American consumers. Their decisions to do so have not come without a price.

Senator Manchin's letter is a slap in the face to these people and their efforts.  It devalues the late nights and early mornings that they have spent picking up the telephone and calling industry leaders to understand esoteric technological points and opaque business relationships. It denigrates the battle that they have fought to take a sane, studied approach to a difficult problem.

Senator Manchin's comments themselves are shockingly uninformed.  His pseudo-arguments are, by and large, internally inconsistent and seem to demonstrate an embarrassing ignorance of the industry and the technology.  Anyone with even a cursory understanding of either would be able to give a point-by-point rebuttal, so I won't attempt that today.

Instead, I will say that Senator Manchin is, for now, in the minority.  He has not always been in the minority.  When the Foundation's membership first approached Washington, we were not met with uniform acceptance and have fought hard for the progress we've made.  Critically, though, he may not always be in the minority.  The best way to ensure that his comments don't sway others in power is to continue to engage policy makers and regulators.  This can only be accomplished effectively by presenting a united front.

Unfortunately, as someone once said, one of the challenges facing a decentralized industry is that is has no PR department.  If you are a Foundation member, reading this, then do your part to get involved on a committee and be that PR department.  If you are not a member, then stop reading, head to the homepage and join.  Put your hands to the wheels and the ropes of this organization and help us to steer this country in the right direction.

This letter should remind us all that this is a battle that can be lost.  The protocol will not save us.  Only our hard work will save us.  So let's get to it.

...You guys didn't think this would be easy, did you?


#5614 Senate HSGAC Hearings

Posted Gavin Andresen on 12 November 2013 - 12:45 AM

RE: testifying before the Senate:  if I was in Amherst, I'd definitely volunteer. But flying back and forth from here means almost a week of lost productivity. And, actually, I think Patrick's training makes him a better choice to testify, he's less likely to say something really stupid or politically incorrect than I am.

I'll be back in the US in January, and something tells me these won't be the last congressional hearings on Bitcoin, so maybe I'll get another chance to tick the  "testify before Congress" box on my bucket list.

PS: I'm incredibly impressed with the hard work Patrick has done to build the right relationships and get smart, knowledgeable, experienced people working together to help keep Bitcoin flourishing. And I've never been happier that we decided to create a Foundation than today.


#9209 Financial Crypto 2014 Conference Impressions

Posted Gavin Andresen on 07 March 2014 - 11:58 PM

In the spirit of more member communication...

I'm decompressing in my hotel room after the Financial Crypto 2014 conference (18'th annual; they've been doing this for a while, always in someplace sunny during the winter).

It was a small (150? 200? people) 5-day academic conference; 4 days of talks (really less than that, a couple of afternoons were reserved for enjoying the nice Carribean weather) and then workshops. All the talks are at the conference website: http://fc14.ifca.ai/

The Foundation was a sponsor this year, and will very likely be a sponsor next year; the running joke was for any talk NOT about Bitcoin to find some way to tie it to Bitcoin...

The last day there were two workshops, one on homomorphic encryption and another on Dogecoin (KIDDING :)  ). See the workshop schedule for links to those papers: http://fc14.ifca.ai/...in/program.html

Surprisingly, nobody talked about Dorian Nakamoto at all (ALSO KIDDING... poor Jinyoung was working almost non-stop while she was here).

Seriously, I knew the conference was absolutely the right place to be when I spoke with Gabriel Abed (see http://www.nationnew...-to-the-region/ ) about his struggles to open a Bitcoin exchange on his home island of Barbados. He said he was so happy to see serious academic attention to Bitcoin, and the fact that world-renowned cryptographers are paying serious attention to it gives so much credibility when answering the typical "It is a Ponzi Scheme" or "It is not real money" arguments we all hear.

So, if I know the Internet, trolls will come out with "Foundation Boondoggle in the Carribean" stories. I think this was exactly the right place for us to be, and exactly the right conference to sponsor.

I'll be seeing a lot of people who attended this conference again in a couple weeks at the Bitcoin and Cryptocurrency Conference in Princeton: https://citp.princet.../event/bitcoin/


#6830 FTC meeting

Posted Mike Hearn on 12 December 2013 - 11:35 PM

This afternoon Patrick and Jinyoung went to the FTC to give them a Bitcoin tutorial and answer any questions they had. A lot of FTC staff turned up, probably between 60 and 70. I dialed in via conference line and gave a presentation on consumer protection techniques, specifically I talked about:
  • Hardware wallets
  • Dispute mediated transactions
  • The payment protocol
  • Micropayments
It seemed to go down OK and the questions were all pretty reasonable.


#3193 Individual Candidate: Ben Davenport

Posted Lindsay Holland on 31 July 2013 - 06:44 PM

Please use this thread to communicate with and about this candidate.

Candidate name: Ben Davenport
Forum handle: bpd
Running for: Individual Seat

Statement of Qualifications:

My background is in computer science, and I have been working as a software engineer for over 16 years, at Microsoft, Google and elsewhere.  I co-founded Beluga, a mobile group messaging app, which in 2011 we sold to Facebook, where I currently work.  When I discovered Bitcoin in May 2011, I was immediately obsessed.  Since then I have connected with many amazing members of the community.  I actively work to keep meeting great people, spreading great ideas, investing in great entrepreneurs and generally doing all I can to help Bitcoin succeed.  I would be honored to serve the interests of the Bitcoin community as a board member of the Foundation.


#5372 Bitcoin Dark Wallet

Posted Gavin Andresen on 31 October 2013 - 09:43 PM

In my humble opinion, that group is terrible for Bitcoin public relations.

"Dark" is a terrible phrase for privacy; it implies crime, corruption, scariness.

I'm particularly annoyed that almost as soon as we lost one PR disaster (the Silk Road) we seem to be getting another.

All of that is completely independent of my personal feelings on drugs (I think we should be allowed to put whatever the hell we want into our own bodies) or wallet privacy (I think financial transactions should be 100% private between the people transacting).

I think the schism is between people who think the way to change the system is Radical Change!  Get The People To Wake Up And See Reality And Overthrow The Powers That Be!

And the people who think that the path to change is to get mainstream adoption. In the Trojan Horse analogy, there is no jumping out of the horse at night and hacking off everybody's head; instead, why not make friends with the Trojans?  Have some Trojan/Greek babies who will wonder what the heck their parents were so fired up about....


#486 Download your member badge!

Posted Lindsay Holland on 18 December 2012 - 05:07 PM

Hey everyone,

The new member badges are ready for download!  Thanks to everyone who voted in the forum last week to choose this design.  Feel free to use these badges in forum signatures profiles, email signatures, or anywhere else you want.  To download, click on one of the files below, then hit "save" in the bottom right corner.  

I've only included the annual member and lifetime member versions here, as I will send the other files to corporate members and donors as appropriate.  If for some reason you need a different file type or resolution, send me a message, and I'll try to help.  As always, thanks for your membership!

Lindsay

Attached Thumbnails

  • Final-Lifetime-Member-Badge.jpg
  • Final-Member-Badge.jpg



#8970 Foundation moving to the UK?

Posted Brad Wheeler on 03 March 2014 - 05:40 AM

I'll take this opportunity to clarify - I'm the (volunteer) forum moderator around here. I'm not paid and I rarely know information about the Foundation outside of the discussions here in this forum. I only chimed in on the discussion because I had a simple question to contribute to this thread.

These forums are visited by board members and executive staff who have the most information and make the decisions that matter. I will ask around, but trust that anything important will be disclosed through official channels (blog / board meeting minutes / newsletter).

I will say that it is disheartening when members regularly feel like they are the last to know about important decisions within their organization, particularly with transparency becoming an organizational tenet. While this may be unintentional, it resonates throughout the community. More of a focus on "member relations" should be a priority for the leadership and I'm happy to brainstorm ways to make this more achievable.


#5766 Deep concern about the foundation's chairman of Law and Policy (Mike Hear...

Posted Peter Todd on 15 November 2013 - 01:35 AM

Adam Back, as usual, has an excellent response:

Quote

This is not about crime, nor identifying perpetrators, its about fungibility; they are (perhaps surprisingly) orthogonal payment system properties.

An electronic cash system, must have irrevocability, which as we discussed here is how bitcoin can achieve low cost and efficiency relative to credit cards & paypal.   Coin anonymity is necessary for fungibility, but that is strictly about fungibility, identity level privacy is separate.
-https://bitcointalk.org/index.php?topic=333882.msg3585877#msg3585877

Irreversibility of transactions is a key attribute of Bitcoin, and a key reason why Bitcoins have value. The reality is any type of blacklist, redlist, whatever you want to call it, marks coins as "different" Even worse, this can and will happen after the fact. Adam's point about costs is also apt:

Quote

Destroy [Bitcoin's] fungibility and the costs float up to meet credit cards and paypal.
-https://bitcointalk.org/index.php?topic=333882.msg3582302#msg3582302

While people see Bitcoin as representing a variety of things, one of the most common beliefs in the community is that Bitcoin should be a low-cost and irrevocable method of payment. I think what's interesting about this recent flare up, is from the sounds of it perhaps what Coin Validator is planning to do is simply a technically misguided way for businesses to verify the identities of those they transact with. Sure the technical details are all wrong - from what they've said it's based on trusted addresses, a major privacy concern - but the basic concept of making it easier to determine the legal identities of who you choose to transact with is reasonable in some circumstances.

On the other hand what Mike Hearn is bringing up, yet again after a thorough discussion and heavy criticism the last time, is about the coins themselves. Now ask yourself: Do we want a world where it was common for normal, average, businesses to find out that the cash money they received in good faith is suddenly suspect because apparently someone multiple steps back did something illegal in some jurisdiction to get it? No sane business would choose to accept such cash if they had an alternative, and when considering whether or not to accept Bitcoin, businesses do have alternatives already like PayPal and credit cards.

The fact that Bitcoin transactions can be traced using publicly available data, broadcast to the whole world, is a flaw, end of story. It's a flaw bad enough that regulators are beginning to take notice, warning about the privacy dangers of Bitcoin! The flaw is a consequence of the underlying technology, but we can and should fix it to the best of our abilities. Embedding this flaw even deeper into the way we use Bitcoin would be a serious mistake and the Foundation should make it absolutely clear to the community that they will not make that mistake.


#5709 Coin tracking

Posted Jeff Garzik on 14 November 2013 - 12:22 AM

View PostDan Plante, on 11 November 2013 - 08:59 PM, said:

Applying centralized / political / technical solutions to what are essentially behavioural problems has a rather dismal track record. Wasted effort and unintended consequences are the usual hallmarks.

Indeed.  See this blog post for a discussion of issues related to stolen coins, blacklists, and fungibility: http://garzikrants.b...ransaction.html


#5353 USA - 50 State Money Transmitter Licensing Requirement Breakdown

Posted Charlie Shrem on 30 October 2013 - 07:50 PM

Hey All,

This is an excellent PDF provided to me by a friend who runs the National Money Transmitter Association in the USA.

Background:
Briefly for those who don't know, with few exceptions, each money services business (MSB) must register with the Department of the Treasury and follow certain KYC and AML guidelines and requirements. Note that failure to register when required to do so or obtain necessary state licensed, can lead to jail time. Most states require money services businesses operating within their territory to be licensed with the state banking department. Note that many states also require registration of foreign MSBs that transact with their residents. For example, money transmitters with no physical presence in New York that transact with residents of New York must be licensed in the State of New York

This is one of the largest obstacles Bitcoin companies are currently facing to legally operate in the USA.

It's extremely difficult for MSB's and MTB's to get bank accounts as well.

The National Money Transmitter Association put together the following amazing document which outlines it state by state.

The second attachment is a white paper on Government Oversight of Non-Bank Financial institutions In the United States and Why Change is Urgently Needed. A White Paper Prepared by The National Money Transmitters Association David Landsman, Executive Director Originally Published September 12, 2012.

I've done extensive research and have experience in this field, feel free to ask any questions!

- Charlie

Attached Files




#5273 Board Meeting Minutes

Posted Mike Gogulski on 26 October 2013 - 10:38 PM

With, erm, "all due respect", this is complete fucking bullshit.

I can conceive of only five reasons why the board can't publish the minutes of every meeting, in FAR greater detail, within 48 hours of each meeting:

1: "We are incompetent to take proper meeting minutes, redact the things and only the things which MUST be confidential, and duly and promptly publish them."

2: "We cannot afford to take proper meeting minutes, redact the things and only the things which MUST be confidential, and duly and promptly publish them."

3: "We think that we might have something to hide." (or: "We know that we have something to hide.")

4: "When we say 'transparency', what we mean is a flash of ankle, but we have HONOR! Nobody sees our privates until six months later."

5: "We're irredeemably dense people who have no business representing the interests of the vast bulk of the individual humans who have donated to us."

Exactly zero of these are acceptable.

Did I miss any?


#4903 Silk Road is falling, now what?

Posted Elizabeth Ploshay on 02 October 2013 - 08:03 PM

Another opportunity for Bitcoin to stand out in a position of strength and legitimacy.


#4198 Non US candidates

Posted Jon Matonis on 02 September 2013 - 02:43 PM

International representation is beneficial for the foundation since it has a global membership, but it is secondary to the candidate's philosophy on maintaining bitcoin fungibility, transaction irreversibility, and user-defined privacy.


#3095 Law and Policy Steering Committee

Posted Marco Santori on 25 July 2013 - 01:53 PM

I can tell you that, from a regulator's perspective, I am much, much more comfortable explaining it as:

a shared ledger


We are never going to escape our own definition of BTC as "money", especially since FinCEN has reinforced it, and the media finds it easier to communicate to the mainstream.  Defining it as money lays out a welcome mat for over-regulation.  But Bitcoin is better than money and its more than money.  It's the first successful implementation of a shared ledger system: In a bitcoin transaction, no "money" transfer ever occurs. What is really happening is a distributed, cryptographically-protected update to a shared, worldwide ledger.

At risk of trying to "educate" some of the developers here (I could never, ever pretend to do that), it seems to me that the core of the technology is not Bitcoin.  It's the Blockchain.  The Blockchain actually actually exists in a way that a bitcoin does not exist.  Regulators get hung up on the reality that there is no such physical thing as a "coin" in Bitcoin, and it spooks the heck out of them.  How do we track it?  How do we know where it comes from?  I can't photograph it!  How do I use it as evidence in an enforcement action?!  However, they are readily able to grasp the concept of a computer file, and that everyone on the network has a copy of that file, that is updated as more transactions occur: a shared ledger.  It is one of the rare cases out there where the reality (the Blockchain) is easier to grasp than the abstraction (the Bitcoin).

Had we defined it as a shared ledger from the start, we may have avoided some of the regulatory issues we're dealing with today.  I am, of course, a relative newbie compared to many in the Foundation, so I don't mean to apply too much 20/20 hindsight.  My sense, though, is that regulators will be more responsive to a description if we start with what the technology really is, rather than an abstraction of one of its features.


#12189 Best wishes to Jon Matonis and Patrick Murck!

Posted Bruce Fenton on 30 October 2014 - 11:51 PM

Best wishes to Jon who did a great deal for the Foundation as he moves to a new chapter in life and Bitcoin and best wishes to Patrick as he moves forward in the role.