Bitrated: adding consumer protection to bitcoin transaction
Friday 27 February 2015
Bitcoin is the ideal currency for online merchants. It transcends borders – in fact, it doesn’t even realise they exist – making it perfect for reaching an international customer base. It’s fast; unlike traditional banking alternatives, transfers don’t take three or more working days to complete. It’s cheap – a transaction typically costs 0.0001 BTC (currently $0.02), rather than the 3-5 percent you’ll often experience for international purchases – on a good day.
But for merchants, one of the real advantages is that bitcoin transactions are irreversible. Whilst a credit card or PayPal provides a certain amount of convenience when shopping online, those transactions can be cancelled at a later date if the customer successfully appeals to the payment processor. This can and does happen all the time, and it’s a real problem for small businesses. Once the goods have been dispatched, there’s no way to return them. Unscrupulous customers can buy something, wait until it’s in the post and then complain that they never made the purchase in the first place, or that the merchant sent the wrong goods. Since payment processors are rather disposed to favour customers and generally take a guilty-until-proven-innocent approach, this can leave merchants out of pocket.
Bitcoin transactions are ‘push’ transactions. It’s possible to send bitcoins, but it isn’t possible to take them back unless you have the private key that gives you control of the recipient’s address. This single feature flips on its head the traditional fiat way of doing business. It places control in the hands of the recipient, not of a central, intermediate authority – which may or may not have the full facts of the situation – and the sender it represents.
Whilst this is a boon for merchants, it is also one of the major hurdles bitcoin must overcome to gain greater consumer adoption. Merchant protection must come with consumer protection – and to date, having both at the same time hasn’t always been easy to arrange.
Trust ratings are one way of approaching this problem. The idea is not new; BitScan has been developing its own BitTrust system that rewards honest participation in the bitcoin economy, within the BitScan platform – something we’ll be rolling out on a larger scale in the coming months. Now, a new trust platform, Bitrated, aims to address this problem of consumer adoption by using a variety of cues to form a trust score as part of a robust reputation management system.
Every Bitrated user receives a bitrating score based on their online presence – including metrics taken from Facebook, Twitter, Reddit, LinkedIn and so on – as well as their trust relationship with friends on the Bitrated platform, and a rating based on past transactions. The idea is that all of this information can enable customers to decide who is trustworthy enough to do business with.
Multi-sig and trust agents
As a second line of protection, Bitrated’s secure payment system uses multi-signature transactions. A three-way transaction with a trusted third party, nominated by the customer, enables the reversal of transactions if necessary. The buyer makes the payment to a multi-sig deposit address, and this is locked until two of the three parties (buyer, seller and trust agent) agree to release it.
If the transaction goes ahead as it should, buyer and seller agree and payment is released. If there is a dispute, the trust agent can intervene. Their decision is binding and, so goes the intention, unbiased. They are not able to take possession of the funds, only arbitrate as to where they end up – that is, whether they transaction goes through or is reversed.
There’s no question that reputation management plays a big part in building confidence between customers and merchants. Consider eBay, which has its own feedback system. Customers naturally gravitate towards the most reliable merchants, with the most consistently positive feedback. Those who do not treat their customers well are penalised, sink down the rankings are ultimately do less business. Honest and reliable merchants are rewarded with more custom in the future: the system creates a virtuous circle. It works.
Bitrated hopes to do something similar for the bitcoin ecosystem, thereby prompting millions more customers to use the virtual currency regularly.
Bitrated is currently free of charge – though this may change in the future as the platform gains traction and requires both further development and protection against fraudsters. ‘By attaching a cost to ratings and verified identity creation, we can make it costly to attain fake ratings and manipulate the reputation engine – making for an overall more trustworthy platform.’ It also preserves users’ anonymity, if they so wish: another important consideration for many who use cryptocurrency to make online transactions.
The new Bitrated system launches on February 19. See https://www.bitrated.com for more information.
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