The difference is, crypto makes irreversibility a fundamental part of the system, making it impossible for any party to unilaterally reverse a payment without having to first take over the entire chain. With regular fiat money and banks, such reversals are perfectly possible on a technical level. The banks are usually unwilling to do them, and an individual may not be able to force them to in practice, but it's still possible in a way it's not possible with crypto.
This seems like the correct way to go though.. if you want reversibility, then introduce escrow into the situation, the foundational building block should be irreversible.. as there's no way to make a means of transfer _more_ irreversible if you're inherently giving control to a 3rd party with no choice.
Why?
Irreversible transactions are not desired by anyone in payment networks. Consumers don't want to get scammed out of money. Merchants want customers to feel like transactions are low risk so they are more willing to make them. That's a big reason why merchants put up with the outright hostile to them system of chargebacks. Sure, you will lose some money to chargebacks you might think were not valid, but you have made much more than that back from liberalized spending habits.
Nobody benefits from irreversible transactions except fraudsters and other bad actors. And they benefit soooo much from transactions being irreversible. Why would you build and advocate for a system that explicitly empowers bad actors over anyone else?
An escrow is not a solution. The escrow itself could be a bad actor.
I've intentionally used irreversible crypto payments to a merchant that is an an industry with high chargebacks. It is highly useful in transactions where the merchant is highly trusted but the buyers tend to be weasels. Such merchants tend to charge high premiums for reversible payment methods.
In such cases it is win-win for both the merchant and customer, the customer doesn't have to foot the reversibility overhead and the merchant is able to offer goods at the same profit margins but lower price which should yield more sales.
The existence of wire transfers, cashier's checks, and, you know, CASH undermine your claim that people in payment networks don't desire irreversible transactions.
Basically everybody who's ever sold something in person wants to know they get to keep the money when the other person walks away with their stuff. It's the fraudsters in those everyday transactions who want reversibility.
I am much more likely to buy something if I can pay with a credit card. Making a wire transfer is stressful; I'm worried that I got the wire instructions wrong, and my money will go to the wrong place and be gone forever. Paying with a cashier's check is stressful; I worry that I will get mugged between the bank and wherever I'm spending it, or that I'll just lose it on the way. Cash isn't quite as bad, and I almost always have some cash on me.
But given the choice of paying with cash or credit card, I will almost always choose the credit card. I like the idea that if I walk away from that transaction and then later realize that the merchant sold me something defective or outright fraudulent, I will have some recourse in getting that money back.
I get that a merchant will prefer an irreversible transaction, all else being equal. But I don't think all else is equal; I absolutely buy the GP's argument that purchasers will be more liberal with their spending if they don't have to worry so much about the merchant being a scammer. And regardless, there are many many more purchasers than merchants, and most (if not all) purchasers would at least have a slight preference toward a reversible transaction.
That just kicks the can of trust to the entity performing the escrow, and there have been many, many cases of fly by night escrow companies (or companies pretending to be escrow companies) who just take the money and run.
So introducing another third party to trust makes it more complicated than the alternative of allowing transactions to be reversable.
Banking reversibility is also kicking the can to a trusted third party.
Several years ago my credit card was stolen. I contacted my bank, who then accused my wife of cheating on me in another state (I know this didn't happen because there is no way she left 1000 miles away for several days multiple times between me seeing her, unless she has a hidden personal jet). By 'lying' about it being a fraudster instead of my wife who 'had cheated on me' the bank then accused me of bank fraud.
The bank then obtained fraudulent invoices, which were used to 'prove' I owed the money. They just buried me in false paperwork to the point I could never win. When the bank was done with all that, they closed my regular checking account too, because they had now flagged me as a criminal.
I will take anyday, an 'irreversible' crypto account over a banking system where they just close my other accounts because they think one was fraudulent because I was defrauded.
Bank of America decided I really had been in rural France buying tires when I had proof I was at work, at my desk, in Boston at the times of the purchases, and the card was in my hand. It's been 20 years and I still won't ever do business with them again.
It was much more fun, at least, when Amazon tried to tell me one of my children must have taken my card and made the purchases. I took it to mean the children I have not conceived yet will have access to time travel, in which case I'm not even mad. Pranking me in the past deserves whatever trinket they bought!
I agree. Smart contracts or other functionality integrated into wallets could also improve usability e.g. regarding irreversibility and user mistakes. Base layer doesn't have to be the final way to use cryptocurrencies and it isn't.
This just bring in new problems like people thinking they got paid but there being a refund trick.. This happens in the traditional system too, but at least when it exhibits total indifference to an account serving no purpose besides refund scams it is violating KYC principles instead of running as expected.
The point is that trade-offs are a fact of life. Some problems get solved, other problems appear. I'm not saying the new problems shouldn't be addressed, I'm just talking in general and I believe there are many kinds of solutions that can mitigate many kinds of problems. Just like in traditional banking. I just think it's pointless to try to invent and flesh them out here.
You could still decide what kind of use suits you the best. Regular people wouldn't (and shouldn't) need to know all the technicalities. A trusted party, maybe a bank, could provide their own integrated solution with whatever features they want to offer.
There are plenty of options in bank settlement protocols. I think the point under discussion is not banking improvement but bankless user sovereignty via technical means.
The smart contract writers sometimes fool themselves when working on the problem full time.. That's a bigger problem if the code is the contract instead of code attempts to honor the contract and a system with judgement can undo things that obviously fall bellow our ethical expectations like account ID swaps, supply chain attacks, kidnapping/intimidation and so on.
The thing is, crypto IS reversible, and has been reversed in the past. The people affected just need to be rich and/or powerful enough. And you and I are not in that club.
> The banks are usually unwilling to do them, and an individual may not be able to force them to in practice, but it's still possible in a way it's not possible with crypto.
Generally they're unwilling to do that because it involves losing money for them.
Transfers work in a multi-step process to ensure money isn't created.
You tell Bank A to transfer money to person X at Bank B.
Bank A tells an intermediary bank C to move funds from Bank A's account to Bank B's account. (This step is unnecessary if either A or B are large enough to be an intermediary)
Bank C lets Bank B know that it's gained funds
Bank B moves funds internally from Bank C to customer X.
If you want your money back and Bank C says it's already been withdrawn then somebody in A,B,C is going to take a loss. Personally I think we should have an easy way to pay in a 7d settlement or something. Who really cares if somebody sends a 7d settlement when buying a house as long as its done 7d before closing.
Right. Still, the whole thing is plugged into society at large, including court system, so ultimately the courts have the power to force anyone in the chain to give money back and eat the loss or argue to take it from elsewhere.
To the unending dismay of crypto fans, the same is true about cryptocurrency - but its design fundamentally gives the law less leverage and actual points an intervention could be made. That, plus the whole thing is very new. But that's just a transient state; this kind of immutability is not compatible with society or real life, so the only cryptocurrency-based systems that'll survive long term will be the ones that give up on the whole cryptoanarchy thing.
If Bank C is forced to take the loss, it'll be more careful in opening accounts for scammers to withdraw money. If Bank C is in a country that doesn't care to enforce such losses, then Bank B (or A if A is big enough) will think twice about deciding to do business with Bank B. Moving the cost of the scams onto the banks will strongly incentivize them to prevent the scams.
There's some kind of circular reasoning going on here.
Banks are more careful, and that's why they don't deal with certain kinds of transactions. And that's where crypto comes in to "disrupt banks" and "democratize finance".
Long term, crypto will be no different than regular currency and finance because people don't like getting ripped off and defrauded. We'll have a period of time with people pulling old scams but with crypto, and eventually it'll be regulated just like normal finance.
The problem is that crypto is designed to evade regulation. You can put lipstick on a pig and regulate the centralized intermediaries (which, remember, crypto aimed to disintermediate): exchanges, custodians, ETF providers, ...
The dilemma is that you can either escape those regulations by going to unhosted wallets (self-custody) and transacting on the blockchain, or you keep everything (by regulation) entirely within the regulated intermediaries, but then there's no need to waste 1% of world electricity on some slow "decentralized" database.
How is it designed so? You pass a law that puts anyone running a node 10 years in prison and anyone accepting or paying through it as well. You see, easy.
For this to not be possible it would have to be widely in use and government-backed.
> Moving the cost of the scams onto the banks will strongly incentivize them to prevent the scams.
And then less people have bank accounts.
The scammer isn't necessarily the person with the final bank account. Its often somebody who was told they're managing payroll for some made-up company and they're going to get a 2k transfer and to keep 500 of it and withdrawal 1.5k of it as cash to do payroll.
While you may think that now only people who aren't scammers won't get bank accounts what actually is happening is that anybody that can be fooled doesn't get one.
https://www.bitsaboutmoney.com/archive/optimal-amount-of-fra...
Doesn't that already happen? I've read stories from people in the US who are fooled, and as such, are marked as high risk and have their accounts closed. The rate it happens might be greater, but the total increase in harm from fewer people having bank accounts due to risk of scams might be less than the harm reduced by fewer people getting scammed. If scams are reduced enough, the number of people having bank accounts might go up because less people are losing them after being scammed.
But you know who customer X is and if he obtained the money fraudulently then the bank (or police, courts, etc) can go after him to recover it. It might not happen but it's possible.
Same statement could be said about you no?
You're the one that was defrauded. The bank processed the transfer exactly as you told them to. So therefore, if person X isn't providing the service you expected then you should have to go to the courts to get it back?
The general problem is that it takes a lot of leg work. Often Customer X was being defrauded through some payroll scam (they take out ~500 and forward the remaining 1500). So now you have to recover $500 from them and then trace the 1500 again. Possibly through multiple countries and their courts (who may see this as beneficial for their country; jury nullification goes both ways).
Correct, but there are possibilities and established processes (however unlikely or inconvenient) to get the money back.
This was mostly true of v.1 cryptocurrencies, but it's not like it's inherent to the system. It's just as easy to design cryptocurrencies where there are control mechanisms, governed however you'd like them to be. USDC, for example, can be frozen in any wallet at any time, and has still become hugely popular.
IF reversibility is a desired feature of digital currencies, the market will bear that out. People can and will choose those currencies.
As with any "feature," there are tradeoffs, and it might well be that people en masse decide they would rather everyone control their own money than have central powers supervising, just as it might well be that people opt back into a system very much like the one that exists today, but with new efficiencies.
Adding programmability to money in the digital age was necessary. I don't know why anybody is surprised it hasn't reached some sort of final, settled state this early in the digital age. It basically only came into practical existence after the launch of smartphones and ubiquitous internet access. Give it a minute.
USDC is only popular because it can be easily used to evade taxes while retaining its value
This comment just isn't even remotely connected to U.S. reality. Transactions into and out of USDC are taxable just like transactions into and out of USD, and the IRS can every bit as easily find the owners of these accounts as they can offshore bank accounts or anything else someone might use to try to evade taxes.
I'm confident that any other country who cares to (i.e., anywhere people bother to try to evade taxes) can also do so.
Reversing stolen crypto transactions in practice is done the same way you reverse stolen cash transactions.
You find the criminal, and the cash and give back the cash to the wronged party. With cash, the criminal can hide the cash in some random location, and nobody can say if they spent it or they lost it. With crypto, everyone knows where the money is. You just have to figure out the passwords to the wallet in some way.
Right, my mistake for using too broad terms. I meant specifically electronic payments, which have this reversibility aspect that neither cash nor crypto have.
Stellar XLM has reversibility but no one seemed interested in that
How do you reverse yourself mailing $1000 USD cash to some scam outfit?
I meant electronic payments specifically; my error in using terms that implied cash also counts.
Obviously, you can't just reverse a cash transaction. It's one of the reasons people try to avoid using it in many situations.
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