We make all sorts of purchases from smaller merchants because we know they can't just take the money and run when we pay via credit card. I do it all the time. That way I don't have to just buy from Overstock.com or Amazon.com, but all kinds of merchants. I don't have to implicitly trust that a merchant will deliver the goods to me on time and in the fashion they say they will. I know they will or I can initiate a chargeback. And as far as "Presumably Overstock.com is a reputable company, and they would honor their guarantees"... I don't have to presume anything. I know I can get my money back if they fail to deliver.

I had to do this recently with a site that I expected would be reliable. One that I'd enjoyed the free services of for the past 5 years and had no problem placing a $40 order to download some premium content from. They never bothered to deliver it and wouldn't respond to email, voicemail or twitter. So, I initiated a dispute via PayPal and got my money back. If I'd paid with bitcoin, I couldn't get my money back.

I run my own small business, have worked with many other small businesses, and have friends running all kinds of other small businesses. I don't know of ANY legitimate business that "cannot take credit card purchases because of possible chargebacks".

I think you're overstating how often chargebacks are necessary (or you have terrible luck / judgement), I've never had to dispute a charge. Ever. I suspect the vast majority of chargebacks are related to cc fraud/theft.

Chargeback fraud is also a problem, especially for businesses selling digital goods who cannot present a tracking # or proof of delivery to Paypal.

That is missing the point. Arrests are not that common either, but the mere possibility of them does change behaviour. The chargeback is an important part of credit card transactions - it makes the card-holder more likely to spend, and it makes it more likely that the payment recipient is going to deliver.

I have both issued chargebacks for non delivered goods, and had chargebacks raised against me as a merchant. Generally fraudulent chargebacks are easy to defeat if you run your business well. Generally chargebacks are easy to win if you are a sensible consumer. The costs of chargebacks on consumers and vendors alike are vastly outweighed by their benefits.

Going to a commerce system where that layer of trust is removed is going to be more difficult to do.

Who's to say coinbase won't add n-of-m escrow transactions in the future?

Certainly not me, perhaps they will - I'm merely observing that the presence of the chargeback system can be felt even if no chargebacks have been issued.

The OP was posting that chargebacks can't be that important because they had never done one. That's not the right way to look at it.

True. My point is that chargebacks are kind of a moot point, once someone implements a bitcoin payment processor that includes the option of n-of-m escrow transactions :)

You'd be surprised how often chargebacks are necessary when you're dealing with smaller businesses as a consumer. If you only ever deal with Amazon, Overstock.com, etc... then you, as a consumer, won't have much need for chargebacks. These are well-established public companies that care about their reputations. But when dealing with smaller businesses... the exact segment that bitcoin advocates keep saying that bitcoin is best for... you wind up with a much more frequent situation of people being unable or unwilling to deliver the goods you paid for. True, this was the only time I've ever had to do a PayPal dispute, but it was damned nice that it was there since I could get my $40 back. And, as I said, this is a company I'd been enjoying the freemium content of for for 5 years (actually, 7 I just looked it up) and I trusted to place an order from.

Bitcoin has solutions to these issues, which will continue to grow and develop as the ecosystem matures. There is a built-in system for escrow that works will for this kind of transaction with a merchant of unknown repute.

For that, you pay a small surcharge to the escrow provider, and you are then protected against fraud:

https://www.bitrated.com/

But for all those transactions where you trust the merchant (ie, overstock.com), you don't have to pay for a service that you don't need.

One note about fees - because of the way this works with Bitcoin's multi-signature transactions, arbitrators don't have to intervene at all when there's no dispute so a lot of them choose to charge fees only for disputed transactions, meaning that most transactions should be free of charge.

That being said, I do see the rational behind charging for every transaction and think that its going to be a popular choice too. I wrote some of the reasons for that here: http://www.reddit.com/r/BitcoinSerious/comments/1sqibz/bitra... (near the end, in the "Edit:")

(full disclosure: I'm Bitrated's creator)

I absolutely think the only feasible business model for arbitrators is to charge a fee for each transaction. Otherwise, how can they afford to spend the time and money to investigate a dispute properly?

People are not going to want to pay for more than the cost of an item when there is a dispute, yet it could cost many more times the value of the disputed item to conduct a proper investigation and produce a fair arbitration.

Great project, by the way. Thanks for releasing it open source!

Does this automatically work with all bitcoin accepters? Or do they have to option / decide if they want to accept it?

They have the option to accept it. Technically, if you figure out the merchant's public key, you could "force" them into being a part of the "escrow" [1], but unless they agreed to it (and agreed to the arbitrator being used) they won't consider the product paid until the payment is under their control.

[1] I'm using quotes because the way it works with multi-signature isn't an escrow, but escrow is commonly used when talking about something like this. There's some explanation about how multi-signature transactions works and why its not an escrow in Bitrated's FAQ, under "How does Bitcoin arbitration work?" and "Is this an escrow?" (https://www.bitrated.com/faq.html)

Sure, and there's no reason this kind of consumer protection can't be worked into Bitcoin in the future.

This is just the first step... far from perfect but 99% of people will be happy to use Overstock and their purchases will most likely go well.

> I don't know of ANY legitimate business that "cannot take credit card purchases because of possible chargebacks".

But a random person trying to sell something on their own cannot take paypal because of possible chargebacks. And we're all paying a premium on the prices because businesses have to cover chargebacks in their pricing.

It's a huge problem for example in trading online game items; the current solution is to have reputation threads, where you have your previous trading partners vouch that you did not chargeback your paypal transaction / did provide the item as promised. Taking paypal from an unknown party is a huge risk.

So, instead of having the possible risk to the seller that a buyer could do a chargeback (which the seller can fight on PayPal with proof of delivery, though I'm not claiming how well this works), bitcoin shifts all that risk to the buyer (with no recourse at all). It's as risky as sending a money order through the mail. How does this make bitcoin better than PayPal for the overall transaction (for BOTH buyer and seller)?

It gives them flexibility. (Additionally, multisig transactions cancel all the risk as long as they can find a 3rd party trusted to make the decision)

The seller can still go first, if he's prepared to shoulder the risk. Then the buyer can send the money once they receive the item. This is the same as using paypal.

If neither party is willing to go first, they have to either use a trusted middleman (seller gives item to middleman, buyer sends money, seller confirms to middleman, middleman releases item), or multisig transactions (the same, except the middleman can't run away with the money/item)

Isn't trusting your credit card number to small business you consider unreliable just as bad or worse than the alternative?