How multisig can alleviate Bitcoin consumer protection concerns

The current credit card system is “broken by design” when it comes to protecting consumers, according to technologist and Bitcoin enthusiast Andreas Antonopoulos

There is a persistent myth that Bitcoin exposes consumers to fraud because of the irreversible nature of transactions, whereas credit and debit card transactions offer protections such as chargebacks, according to technologist and Bitcoin enthusiast Andreas Antonopoulos.

Antonopoulos said at an event organised by the CoinJar that credit card chargebacks only provide protection in cases of obvious fraud.

“I’ll give you an example: I was travelling to Chicago and I took a taxi from the airport. I got into the taxi and I wasn’t paying attention as I was busy. I was running on the tariff level 3, which apparently is only for suburbs after mid night. It was the middle of the day in central Chicago and I was paying three times the going rate," Antonopoulos told attendees, who were mostly programmers.

“The driver should have charged me $20, but charged me $65. I didn’t know any better, I didn’t know what the cost was there, and I was in a hurry, so I paid. I found out later I’ve been thoroughly defrauded. I asked Visa for a chargeback and they said ‘no, there’s your signature’.”

Antonopoulos pointed out that the credit card system was designed in the 1950s, so it wasn’t designed for the online, digital world.

“The idea of sharing stored keys and masses of numbers in database and then guarding that is ridiculous; it’s broken by design. That will always fail. And there’s nothing you can do to fix that system because the very nature of a transaction that is based on the ‘pull’, where the credit card pulls money from your account and the access token is the thing you share. Any programmer knows that is a stupid security model.”

Merchants also suffer under this system, Antonopoulos said, because they are out of pocket when money needs to be returned due to suspected fraud.

“What a great way to shift the entire problem of fraud onto the merchants by the credit card companies, because that way they don’t have to pay for any of this fraud,” Antonopoulos said.

“If there is identify theft, and [the merchant] gets presented a fake card, they pay for that mistake even though it’s not their mistake, even though they have no way of controlling fraud under those circumstances, even though the fraud is caused by fundamental broken design of credit cards.

“Each time you do a transaction, you give the access keys to the merchant and every intermediary in the chain so they can be stolen or unmasked from companies like Target, Home Depot and every other company out there.”

Not only do merchants face the financial burden of chargebacks but they also get charged around 3 per cent on every transaction with a credit provider, he added.

That’s where multisig (multiple signatures) for Bitcoin comes in, Antonopoulos said. The ‘M’ of ‘N’ scheme of multi-sig means a certain number of signatories out of a total number need to verify a transaction or authorise payment.

Multisig allows Bitcoin transactions to be wrapped in conditional statements that authorise payment only if certain conditions are met.

“For example, I can have a script that redeems a transaction only if DHL has provided a delivery receipt confirmation for a specific tracking number. I buy a flat screen plasma TV and then make sure that the merchant only gets paid if the third signature from DHL comes in that says the package was actually delivered.”

The ‘N-locktime’ feature, which specifies a time condition for money to be redeemed on or before a certain date, can also offer protection to consumers.

“I can do a transaction where I put the money in escrow, and I sign my part of the transaction but it has an N-lock on it. Now that transaction is valid and the merchant can cash it in by signing their part of the transaction but only after say 30 days have elapsed.

“That gives me 30 days to do arbitration. If in those 30 days the product fails, it doesn’t get delivered or I have a dispute, I go to the third part and say ‘this deal isn’t working, I need you to ensure transaction with your signature and my signature that undoes this spend’. And they give me a refund transaction.

“I just introduced 30-day chargeback in the Bitcoin system in a programmable way. I did it with a completely open market for arbitration providers, in a completely neutralised way where no one has custodial control over the money.”

Making Bitcoin mainstream

Bitcoin still needs to make some improvements if it’s going to hit mass adoption in future, Antonopoulos said.

The biggest area for improvement, he said, is in user experience and design. Bitcoin can be notoriously difficult for the everyday user to wrap their head around and understand how to use it.

“It’s a wallet, but it’s not really a wallet because it doesn’t hold coins, it holds keys. And the coins are on a ledger that really isn’t a ledger, it’s a scriptable transaction timestamp database.

“And we [have] all these coins but they are invisible to 100 million units, and the smallest one is called satoshi and you have to do a lot of math just to figure it out.

“We have private keys and public keys and addresses, but addresses are not the same as public keys. And they are all stored on the phone, which did I mention has no coins on it?”

He said that Bitcoin was built by engineers (and “god does it show”), the user experience is sub-par. The right metaphors and analogies need to be developed around Bitcoin to help the broader public understand it. For example, it may not be easy to shift people’s deep ingrained understanding of the traditional wallet to a Bitcoin wallet that can be moved between phones, with backup keys.

User experience designers need to articulate Bitcoin to users in a way that doesn’t confuse them by correlating new technology with traditional tools that have been around for many decades, he said.

Making Bitcoin easily scalable is also key to ensure it can reach mass adoption. Invertible bloom filters, which Gavin Andresen, chief scientist at the Bitcoin Foundation, is working on, are one way to do this.

Instead of transmitting an entire block of transactions, it just transmits the difference between the known state and the next state. An analogy would be instead of storing the entire updated document (blocks), it just stores the updates (differences) to the initial document to reduce the amount of megabytes of disk space and also reduce network bandwidth.

Australia’s role in the Bitcoin currency

Bitcoin in Australia is at a critical turning point, Antonopoulos said.

He laid out two possible future scenarios: One is Australia being an innovation hub for Bitcoin and crypto-currencies for Asia Pacific and South East Asia. Two is continuing to apply GST to Bitcoin exchanges, which will encourage them to go offshore and take jobs with them.

Read: ATO’s Bitcoin 'double tax' could drive business offshore

“There’s a very large 'unbanked' population, who are unbanked because of the lack of infrastructure, who need to be connected to a currency that can work over text messaging,” he said.

“You could be the hub that builds all of that, and becomes a regional power house for financial services to the common people all around South East Asia.

“There are 6 billion people in this world today who have either no banking facilities at all, about 2.5 billion them are classified as unbanked… and there’s another probably 3.5 billion people heavily restricted, heavily controlled bank accounts with very limited capabilities, and they are essentially little islands with pockets of financial activity, disconnected from the rest of the world.

“Bitcoin technology is very geographically versatile and GST is not very geographically versatile. People will follow the path of least resistance.”

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