Building Trust in Bitcoin: Is Multi-signature Enough?
Sunday 23 March 2014
Trust between trading counterparties is a central component to commerce. History tells us that where trust is absent, trade is non-existent.
If we accept the assumption that commerce will drive adoption of bitcoin then we must also accept the fact that promotion of trust is a pre-requisite for growth in bitcoin commerce. And this presents us with a challenge because online bitcoin commerce flips the conventional trust model from the merchant to the consumer. Put another way, when bitcoin is sent in payment for a good or service, there is no consumer protection apparatus by which a consumer can secure refund beyond the goodwill of the merchant, in the event of dissatisfaction with the good or service provided. This introduces the phenomenon of ‘counter-party risk’.
Thus far two mechanisms have been devised within bitcoin, to ameliorate counter-party risk. The first is Escrow and the second is Multi-signature.
An Escrow service allows a consumer to deposit their bitcoin funds with a third party until the terms of their transaction have been met to their satisfaction. The fundamental weakness of this concept is that both consumer and merchant have to trust the Escrow provider; another counter-party.
Multi-signature is far more promising in that while the elected third party controls fund release they have no access to the funds themselves. However, while Multi-signature is undoubtedly a palliative that will, once widely implemented, go a long way to ameliorating counter-party risk, it still adds a layer of friction and it fails to address the fundamental issue of trust promotion between counterparties. Instead, it simply provides a mechanism for people to trade on-line in bitcoin, without absence of trust being a deal-breaker.
And this leads us back to the central question, which is; ‘are human beings comfortable trading absent of trust?’ I would posit that the answer to this question is an emphatic ‘No’. This isn’t to say that we aren’t prepared to do so, only that when and where we do – and particularly when it involves big ticket items – we tend to engage lawyers.
Where this involves on-line commerce I offer as evidence the fact that 93% of US consumers need to see visual evidence of a merchants' trustworthiness, before they are prepared to spend with them.
So in pursuing growth in commerce, the bitcoin community need to be careful of placing all our eggs in the basket of trustless commerce, because even the briefest consideration of the human condition generally – and commerce specifically – reveals that reputation plays a huge role in our decisions; specifically our purchase decisions and particularly those we make online. And this is why the online world places such huge emphasis on reputation (and reputation building) in everything from social networks, through specialist forums, to online stores. What this tells us is that when interacting with people that we do not know and cannot see, their demonstrable reputation – be it through Likes, Followers, Karma points or Feedback score – is a huge factor informing how we regard them. And where online commerce is concerned, how we regard them equates to how much we trust them.
Of note, even in the fiat world of multiple consumer safety nets, huge emphasis is placed on reputation and reputation building, particularly on-line.
This ought to be a sobering thought for the digital currency community for if we accept that commerce is our adoption vehicle and that our means of exchange flips the trust model, we have also to accept that trust-less mechanisms like Multi-signature will not be enough, on their own, to trigger the growth in commerce that we seek. We need also to get at the issue of reputational trust – and currently we do not.
It is the challenge of reputational trust generation that BitScan seeks to address through a project we have named BitTrust. For if we can provide our merchants with a means of demonstrating and building their reputational trust – and consumers with a means of viewing and auditing the trustworthiness of merchants, we will be providing both with a vehicle that promotes bitcoin commerce.
So What is BitTrust?
The first component in the building of reputational trust is accountability. Simply put, consumers are more likely to trade with merchants who can be reached if a transaction goes wrong. The foundation of BitTrust, therefore, aims to incentivize a merchant to lodge and verify their contact details with BitScan. The more information they lodge, the more social capital ‘points’ they accumulate, which can then be displayed in numerical form on a badge that can be displayed in our merchant directory, their business profile and against any products that they offer for sale in BitScan’s online marketplace. This badge can also be displayed as a clickable link on their own website, linking back to their BitScan profile.
The next component is the facility for other BitScan account holders to up or down-vote that merchant’s business, with the associated impact on their numerical BitTrust score. A down-vote will automatically trigger a notification to the merchant, which includes the voter’s contact details, facilitating dialogue between the two that (hopefully) results in a decision on the part of the voter to reverse their vote. To further protect a merchant’s reputation from malicious intent, BitScan account holders will only be able to vote once on any business and only on one business in any 24 hour period. We will further insist on phone verification for any voter, which introduces a degree of accountability and reflection on the part of the voter.
The final component of BitTrust will be the ability to track transaction volume (number not $ value) as an additional component of participating merchants’ BitTrust scores moving forward. This component demands that a merchant lodge the API key of their merchant service provider with BitScan and that BitScan has a means of collecting transaction volume data from that merchant service provider, for the API keys lodged, on a near real-time basis.
Will BitTrust Add Value?
Great question and ultimately, of course, the market will decide. Right now, a merchant account holder can login and verify their details to generate a 'BitTrust Verified' badge, that can be displayed on their native website. In short order this badge will also display on their BitScan business profile and any classifieds they post in the Marketplace. It will be publically viewable in BitScan's directory, online and across our iOS and Android Apps. While all our reseach suggests that evidence of trust certification boosts consumer confidence, it is too early to gauge how many will choose to do so.
In the meantime, our position is that while bitcoin should always promote privacy, anonymity is something a merchant should be prepared to sacrifice as soon as the bitcoin of others is solicited, in exchange for a promised good or service.
Further, when voting on the trustworthiness of a merchant becomes possible, the voter needs similarly to understand that the right to vote on - and potentially damage - the reputation of a merchant, comes with its own accountability overhead. While the standard is a lesser one, voting in anonymity will not be possible through BitScan.
I would close by saying that neither BitScan, nor the BitTrust project, has any intention whatsoever of challenging Multi-signature, when it is introduced commercially. On the contrary, BitTrust aims to sit alongside Multi-signature, as an additional trigger to action. The message it sends to consumers is that bitcoin is serious about self-regulation. That the community cares sufficiently about promoting trust to reward the good and hold the less good to account.
In sum, Bitcoin adoption is synonimous with growth in commerce. Growth in commerce requires promotion of trust. BitTrust aims to promote that trust. It is something BitScan can do right now for the bitcoin economy and we are going to give it our best shot.
Rob Wilson, CEO BitScan.
comments powered by Disqus