<blockquote>
  <p>If I were to use bitcoins instead, I have no way to getting my money back, if the merchant turned out to be a fraud. As a result, I will have less trust on buying items off the internet, as a result, eCommerce wont work as a result bitcoins wont work.</p>
</blockquote>

<p>If you use a credit card, the merchant has no way to get their money if you turn out to be a fraud. But that doesn't make credit cards useless. Merchants just figure this into their agreements and prices.</p>

<p>Yes, a merchant would likely prefer that you pay with bitcoins because that means they don't have to worry about chargebacks. This will tend to lead them to incentivize you to pay with bitcoins. They could offer you lower prices. They could offer you insurance through a third party. And guess what -- lots of merchants that take bitcoins already do that.</p>

<p>It is true that it's probably a bad idea to send bitcoins to a merchant you don't have good reason to trust. So sure, keeping using credit cards to deal with fly-by-night companies and you can use bitcoin to pay Amazon, Google, Starbucks, your rent, get paid by your employer, and so on.</p>

<p>When you think about it that way, it doesn't seem like a very big problem.</p>

CC BY-SA 3.0
2017-01-04T17:00:37.943Z
As I understand it, the credit card serves as a escrow service. Credit cards have to preserve relationship between both the credit card owner as well as the merchant. The merchant sends me the product, only after I pay for it using the credit card, and they have the security, that the money is going to be provided to them.
alpha_989
CC BY-SA 3.0
2017-01-04T17:00:47.420Z
How do you think that can result in fraud from my side? Are you saying that I can just claim that I never received the item, and did a chargeback? Even, if I did that, how frequently do you think I can do that on credit cards? If I think, that oh I am just going to get another credit card, and buy an item and do a chargeback, it will affect my credit history, and soon I wont be able to get another credit card. Further, these chargebacks might remain on my credit history, if it were fradualent.
alpha_989
CC BY-SA 3.0
2017-01-04T17:00:49.703Z
All these restrictions are built into the credit system to reduce the risk of either party fraud from happening.
alpha_989
CC BY-SA 3.0
2017-01-04T17:01:08.390Z
I do agree, that moving to bitcoins might reduce the middleman in the short term, due to discounts provided by merchants. Further you mentioned that certain retailers are proving insurance for bitcoin transactions. Any insurance carries a premium. This premium is going to increase the cost of purchasing the product. If the retailer is reputed, such as amazon, they maynot provide a separate insurance provider, but will provide the insurance themselves.
alpha_989
CC BY-SA 3.0
2017-01-04T17:01:19.003Z
That is called vertical integration, but this will also increase the prices of the products. This will result in lots of small insurance companies and retailers leading to a fragmented bitcoin escrow service market.
alpha_989
CC BY-SA 3.0
2017-01-04T17:01:26.483Z
Intuitively I am guessing that the premium for any service provided by an insurance company is inversely proportional to the number of transactions processed by the company. This is because if there are larger number of transactions, the risk is lower. In a highly fragmented bitcoin market, the premium will be higher.
alpha_989
CC BY-SA 3.0
2017-01-04T17:01:41.333Z
Thus, even though we might see a discount in the purchase prices of the products, in the long term, I think the effective “fraud-protection” premium paid by the customer for purchasing any product, will be the same as that of credit cards.
alpha_989
CC BY-SA 3.0
2017-01-04T19:26:02.683Z
The cost of insurance is so low that well-known merchants often offer it [at no charge to the customer](https://support.google.com/trustedstores/answer/1669901?hl=en). I don't think the merchants pay for it either -- the benefit to the insurer of knowing that the sale happened and having contact with the customer exceeds the cost of the insurance. How often do you think Amazon or Newegg try to rip off a customer? The cost is high on credit cards because credit card numbers are easily stolen (or claimed to be stolen), not because so many merchants rip off customers.
David Schwartz
CC BY-SA 3.0
2017-01-05T01:21:06.467Z
The cost of insurance provided by major retailers could just be built into the cost of the product. When a retailer introduces a new product, they initially dont pass on the cost of the product, because they are testing the product itself, and want faster acquisition of customers. Think amazon prime and how the cost of amazon prime went up. Do you have any data that suggests that the primary cost of credit card transactions is due to stolen credit cards and not due to the fraud-protection premium?
alpha_989
CC BY-SA 3.0
2017-01-05T03:39:07.457Z
@alpha_989 I actually have a ton of data on the cost of credit cards as I'm in a closely related business. But it's really not worth going into here. The cost of insurance just for things like non-performance or product problems for an established vendor is near zero because they always fix these issues anyway.
David Schwartz
CC BY-SA 3.0
2016-12-30T23:16:02.390Z
2016-12-30T23:16:02.390Z
David Schwartz
<p>Bitcoin is a currency, one which has a payment method build in. Euro is a currency, too. It has a payment method build in, too: If you give someone a Euro banknote, you're using it. But that's it in regards to built-in payment methods. The one payment method fiat currencies have built in are completely useless, online.</p>

<p>However, as you have noted, there are credit card companies who allow you to use the Euro (or the Dollar or whatever fiat currency) without using its built-in payment method. Similarly, additional payment methods can be developed for Bitcoin, too.</p>

<p>With fiat currencies, you are <em>obligated</em> to use an intermediary (e.g. a credit card company) if you pay someone who's not physically right in front of you. With Bitcoin, you don't have to. You may still <em>choose</em> to use one.</p>

<p>Such intermediaries have in fact been created and <a href="http://www.coindesk.com/deutsche-bank-research-bitcoin-intermediaries/" rel="nofollow noreferrer">banks are really happy about it</a>.</p>

<p>For merchants, using intermediaries is particularly interesting because it means that they can accept payments in Bitcoin easily by delegating the handling of payments to a payment processor. <a href="https://toughnickel.com/personal-finance/Best-Payment-Processors-for-Bitcoin-Bitcoin-for-Merchants" rel="nofollow noreferrer">There already are quite a few of these.</a></p>

<p>Similarly, Bitcoin credit card companies can be created. However, using one of course reduces privacy because no one will give you a credit it you don't identify yourself. This means you lose your pseudonymity when using such a service.</p>

<p>However, using direct debit doesn't have to come at such cost. A payment provider can accept anonymous deposits to an account. This account can then be charged by webstores.</p>

<p>There really is a lot to be improved about direct debit. Banks used it for years without implementing improvements and I really hope we will see some with Bitcoin payment processors.</p>

<p>For example, I think you should be able to activate merchant's access to your account via direct debit. Currently, if you give someone your name, name of your bank, and your account number, they can get money from you. In most countries, you have a short period to notice an unauthorized withdrawal and can get your money back but if you don't notice it fast enough, you lost that money.</p>

<p>If you'd see a notice that some new merchant wants to retrieve 141 mBTC from your account and have 24 hours to accept that merchant only once or add it to your list of permanently trusted merchants or to decline it instantly (which would happen after those 24 hours, anyways), that'd be much better than it currently is with banks where basically everyone is a trusted merchant, no matter whether you ever even bought something from them.</p>

<p>Furthermore, you probably only use one bank account and give every merchant the same bank information to withdraw money from that account via direct debit. Any one of them can give your bank information to someone who withdraws money from it without your consent and you have no way of finding out which merchant you ever bought something from via direct debit is the culprit. You can't create a lot of different account numbers for the same account. However, if an ID different from the account number was used and you only ever use one ID per merchant, it'd be really easy to find the culprit. You would see in your payment processor's web interface that you gave the ID <code>coinbase.com:Rd3pG82U</code> to that weird shop you found 3 month ago and bought something from. Btw.: The ID <code>Rd3pG82U</code> is only 8 characters long, far shorter than account number + name of the account holder + bank code. In fact, it's shorter than any one of them. If IBAN + BIC it's used, it doesn't exactly look better for banks. But those 8 characters are <a href="https://en.wikipedia.org/wiki/Base58" rel="nofollow noreferrer">base 58</a>, enough for 128'063'081'718'016 IDs. Or 17'075 ID for every single of the 7.5 billion people currently alive, at a single payment processor alone. With 2 characters being used for redundancy so typing errors are caught, 38'068'692'544 IDs fit into the remaining 6 characters. And if those run out for a single payment processor, a digit can be added and you got 59 times as many IDs as before. Btw.: The 2 check digits are far better than what IBAN has and BIC doesn't have any.</p>

CC BY-SA 3.0
2016-12-30T20:58:42.103Z
I see. This might provide some protection from frauds. However, what I was getting to was about eCommerce websites or items bought on the internet. Typically, when I buy items from the internet, it takes anywhere from a few days to a week for the item to come to my door and for me to validate that this is the right item. If such chargebacks are only allowed for a day, even having chargebacks are meaningless.
alpha_989
CC BY-SA 3.0
2016-12-30T20:59:09.473Z
In my humble opinion, somebody has to carry the risk, that one of the two parties in a exchange is fraudualant. This is like a insurance provider, and if you have an insurance, you have to pay a premium. Without this premium, no party will be willing to carry this risk. What you are proposing is to transfer the risk to bank, so banks will now start charging extra amounts for debit cards. Even if the transaction is anonymous, there will be a transaction fee, which will perhaps be reflected in banks starting to charge the payee a certain fee for debit card transactions.
alpha_989
CC BY-SA 3.0
2016-12-30T20:59:41.587Z
So one of the key advantages of bitcoin: transaction-fee-less transactions is negated.
alpha_989
CC BY-SA 3.0
2016-12-30T20:59:55.197Z
Credit cards typically bear this risk, which is one of the reasons they have transaction costs. Further, using credit cards builds up your credit history, which helps when you need loans. If transactions are all anonymous, you will not be able to build a credit history. The credit card company typically bears the work of handling all your transcation records and sending it to the credit agencies. The credit card companies also probably have to pay the credit agencies somewhat, which is reflected in the transaction costs, which are charged by the credit card company when you purchase an item.
alpha_989
CC BY-SA 3.0
2016-12-30T20:59:58.080Z
All these probably means that credit cards and USD/Euros are not going away. While I know that bitcoins are supposed to provide anonymity, are people willing to go through all this amount of pain (having bitcoins and USD/Euro, having multiple credit cards (one for Fiat and one for bitcoins), having multiple debit cards, having escrow services for bitcoins)?
alpha_989
CC BY-SA 3.0
2016-12-30T21:11:54.360Z
I think you misunderstood what I meant where I used the example of 24 hours. Maybe read it again and tell me to clarify if you still don't understand it. || Of course. All those payment processors listed on the page my second link goes to will take a premium. Except for promotional purposes, maybe. || No one knows how high these fees will be in practice but they probably will be lower than for fiat currency payment processors as there will be more competition because competing is easier. || As I already said: No one will give you a credit if you stay anonymous.
UTF-8
CC BY-SA 3.0
2016-12-30T21:15:59.753Z
Bitcoin doesn't have to eliminate all fiat currencies to be an improvement. There will be competition between fiat currencies and cryptocurrencies. Competition is good. Most people having credit cards already have several ones. There are statistics on this and you can find them really easily. Most people have accounts at different banks, too. And no one says an BTC escrow service can't be a BTC credit card company at the same time. Maybe competition will cause there to be a service which is both and really good at being both. Then, that's a good thing (and one more advantage over fiat).
UTF-8
CC BY-SA 3.0
2016-12-30T23:56:03.080Z
I would expect that credit cards - if the functionality they offer is valuable - remains useful in a hypothetical Bitcoin-dominated world. Bitcoin is a currency, with certain properties that make it compete with the Euro for example. Bitcoin on itself is a terrible payment system.
Pieter Wuille
CC BY-SA 3.0
2016-12-31T00:23:00.423Z
The Euro is a far worse payment system. Right now, I had to physically move over 2 km to the next merchant where I can use the Euro's built-in payment system. What makes you think credit card companies can't simply use Bitcoin? This is where it matters least what currency is used. They could even implement their systems such that the merchant receives money in their currency and you pay in yours. That that's not already the case with at least the few major fiat currencies, even though those companies are very international, is a sign of a oligopolist system; too little competition.
UTF-8
CC BY-SA 3.0
2016-12-30T19:53:01.540Z
2016-12-30T20:27:13.440Z
2016-12-30T20:27:13.440Z
UTF-8
<p>The bitcoin page here (<a href="https://bitcoin.org/en/you-need-to-know" rel="nofollow noreferrer">https://bitcoin.org/en/you-need-to-know</a>) says that bitcoins don’t allow chargebacks.</p>

<p>In the current system, credit cards provide a system of checks and balances and provide arbitration when there are disputes. If I buy a item on the internet and find out that I didn’t receive the correct item, I can complain to the credit card company, and they will look at both sides and make a decision whether my dispute is correct or not. Further, when I buy an item off a eCommerce store (which is going to become more and more prevalent in the next few decades), I cant check that the item I am receiving is correct or according to what the merchant said.</p>

<p>If I were to use bitcoins instead, I have no way to getting my money back, if the merchant turned out to be a fraud. As a result, I will have less trust on buying items off the internet, as a result, eCommerce wont work as a result bitcoins wont work. eCommerce is definitely going to be here, so this leads me to the conclusion that bitcoins maynot work, unless there are other services that provide that arbitration service. Are there companies that are providing that arbitration (insurance against fraud) for bitcoin transactions?</p>

<transactions><chargeback>
Charge backs on bitcoins
alpha_989
# Charge backs on bitcoins

(Asked by: username_0 on 2016-12-30)

The bitcoin page here (<https://bitcoin.org/en/you-need-to-know>) says that bitcoins don’t allow chargebacks.

In the current system, credit cards provide a system of checks and balances and provide arbitration when there are disputes. If I buy a item on the internet and find out that I didn’t receive the correct item, I can complain to the credit card company, and they will look at both sides and make a decision whether my dispute is correct or not. Further, when I buy an item off a eCommerce store (which is going to become more and more prevalent in the next few decades), I cant check that the item I am receiving is correct or according to what the merchant said.

If I were to use bitcoins instead, I have no way to getting my money back, if the merchant turned out to be a fraud. As a result, I will have less trust on buying items off the internet, as a result, eCommerce wont work as a result bitcoins wont work. eCommerce is definitely going to be here, so this leads me to the conclusion that bitcoins maynot work, unless there are other services that provide that arbitration service. Are there companies that are providing that arbitration (insurance against fraud) for bitcoin transactions?

**Tags:** transactions, chargeback


---

## 2 answers

### Answer by username_1 on 2016-12-30. Score: 3

> If I were to use bitcoins instead, I have no way to getting my money back, if the merchant turned out to be a fraud. As a result, I will have less trust on buying items off the internet, as a result, eCommerce wont work as a result bitcoins wont work.

If you use a credit card, the merchant has no way to get their money if you turn out to be a fraud. But that doesn't make credit cards useless. Merchants just figure this into their agreements and prices.

Yes, a merchant would likely prefer that you pay with bitcoins because that means they don't have to worry about chargebacks. This will tend to lead them to incentivize you to pay with bitcoins. They could offer you lower prices. They could offer you insurance through a third party. And guess what -- lots of merchants that take bitcoins already do that.

It is true that it's probably a bad idea to send bitcoins to a merchant you don't have good reason to trust. So sure, keeping using credit cards to deal with fly-by-night companies and you can use bitcoin to pay Amazon, Google, Starbucks, your rent, get paid by your employer, and so on.

When you think about it that way, it doesn't seem like a very big problem.

> **Comments:**
> **username_0**: As I understand it, the credit card serves as a escrow service. Credit cards have to preserve relationship between both the credit card owner as well as the merchant. The merchant sends me the product, only after I pay for it using the credit card, and they have the security, that the money is going to be provided to them.  
> **username_0**: How do you think that can result in fraud from my side? Are you saying that I can just claim that I never received the item, and did a chargeback? Even, if I did that, how frequently do you think I can do that on credit cards? If I think, that oh I am just going to get another credit card, and buy an item and do a chargeback, it will affect my credit history, and soon I wont be able to get another credit card. Further, these chargebacks might remain on my credit history, if it were fradualent.  
> **username_0**: All these restrictions are built into the credit system to reduce the risk of either party fraud from happening.  
> **username_0**: I do agree, that moving to bitcoins might reduce the middleman in the short term, due to discounts provided by merchants. Further you mentioned that certain retailers are proving insurance for bitcoin transactions. Any insurance carries a premium. This premium is going to increase the cost of purchasing the product. If the retailer is reputed, such as amazon, they maynot provide a separate insurance provider, but will provide the insurance themselves.  
> **username_0**: That is called vertical integration, but this will also increase the prices of the products. This will result in lots of small insurance companies and retailers leading to a fragmented bitcoin escrow service market.  
> **username_0**: Intuitively I am guessing that the premium for any service provided by an insurance company is inversely proportional to the number of transactions processed by the company. This is because if there are larger number of transactions, the risk is lower. In a highly fragmented bitcoin market, the premium will be higher.  
> **username_0**: Thus, even though we might see a discount in the purchase prices of the products, in the long term, I think the effective “fraud-protection” premium paid by the customer for purchasing any product, will be the same as that of credit cards.  
> **username_1**: The cost of insurance is so low that well-known merchants often offer it [at no charge to the customer](https://support.google.com/trustedstores/answer/1669901?hl=en). I don't think the merchants pay for it either -- the benefit to the insurer of knowing that the sale happened and having contact with the customer exceeds the cost of the insurance. How often do you think Amazon or Newegg try to rip off a customer? The cost is high on credit cards because credit card numbers are easily stolen (or claimed to be stolen), not because so many merchants rip off customers.  
> **username_0**: The cost of insurance provided by major retailers could just be built into the cost of the product. When a retailer introduces a new product, they initially dont pass on the cost of the product, because they are testing the product itself, and want faster acquisition of customers. Think amazon prime and how the cost of amazon prime went up. Do you have any data that suggests that the primary cost of credit card transactions is due to stolen credit cards and not due to the fraud-protection premium?  
> **username_1**: @username_0 I actually have a ton of data on the cost of credit cards as I'm in a closely related business. But it's really not worth going into here. The cost of insurance just for things like non-performance or product problems for an established vendor is near zero because they always fix these issues anyway.  

---

### Answer by username_2 on 2016-12-30. Score: 3

Bitcoin is a currency, one which has a payment method build in. Euro is a currency, too. It has a payment method build in, too: If you give someone a Euro banknote, you're using it. But that's it in regards to built-in payment methods. The one payment method fiat currencies have built in are completely useless, online.

However, as you have noted, there are credit card companies who allow you to use the Euro (or the Dollar or whatever fiat currency) without using its built-in payment method. Similarly, additional payment methods can be developed for Bitcoin, too.

With fiat currencies, you are *obligated* to use an intermediary (e.g. a credit card company) if you pay someone who's not physically right in front of you. With Bitcoin, you don't have to. You may still *choose* to use one.

Such intermediaries have in fact been created and [banks are really happy about it](http://www.coindesk.com/deutsche-bank-research-bitcoin-intermediaries/).

For merchants, using intermediaries is particularly interesting because it means that they can accept payments in Bitcoin easily by delegating the handling of payments to a payment processor. [There already are quite a few of these.](https://toughnickel.com/personal-finance/Best-Payment-Processors-for-Bitcoin-Bitcoin-for-Merchants)

Similarly, Bitcoin credit card companies can be created. However, using one of course reduces privacy because no one will give you a credit it you don't identify yourself. This means you lose your pseudonymity when using such a service.

However, using direct debit doesn't have to come at such cost. A payment provider can accept anonymous deposits to an account. This account can then be charged by webstores.

There really is a lot to be improved about direct debit. Banks used it for years without implementing improvements and I really hope we will see some with Bitcoin payment processors.

For example, I think you should be able to activate merchant's access to your account via direct debit. Currently, if you give someone your name, name of your bank, and your account number, they can get money from you. In most countries, you have a short period to notice an unauthorized withdrawal and can get your money back but if you don't notice it fast enough, you lost that money.

If you'd see a notice that some new merchant wants to retrieve 141 mBTC from your account and have 24 hours to accept that merchant only once or add it to your list of permanently trusted merchants or to decline it instantly (which would happen after those 24 hours, anyways), that'd be much better than it currently is with banks where basically everyone is a trusted merchant, no matter whether you ever even bought something from them.

Furthermore, you probably only use one bank account and give every merchant the same bank information to withdraw money from that account via direct debit. Any one of them can give your bank information to someone who withdraws money from it without your consent and you have no way of finding out which merchant you ever bought something from via direct debit is the culprit. You can't create a lot of different account numbers for the same account. However, if an ID different from the account number was used and you only ever use one ID per merchant, it'd be really easy to find the culprit. You would see in your payment processor's web interface that you gave the ID `coinbase.com:Rd3pG82U` to that weird shop you found 3 month ago and bought something from. Btw.: The ID `Rd3pG82U` is only 8 characters long, far shorter than account number + name of the account holder + bank code. In fact, it's shorter than any one of them. If IBAN + BIC it's used, it doesn't exactly look better for banks. But those 8 characters are [base 58](https://en.wikipedia.org/wiki/Base58), enough for 128'063'081'718'016 IDs. Or 17'075 ID for every single of the 7.5 billion people currently alive, at a single payment processor alone. With 2 characters being used for redundancy so typing errors are caught, 38'068'692'544 IDs fit into the remaining 6 characters. And if those run out for a single payment processor, a digit can be added and you got 59 times as many IDs as before. Btw.: The 2 check digits are far better than what IBAN has and BIC doesn't have any.

> **Comments:**
> **username_0**: I see. This might provide some protection from frauds. However, what I was getting to was about eCommerce websites or items bought on the internet. Typically, when I buy items from the internet, it takes anywhere from a few days to a week for the item to come to my door and for me to validate that this is the right item. If such chargebacks are only allowed for a day, even having chargebacks are meaningless.  
> **username_0**: In my humble opinion, somebody has to carry the risk, that one of the two parties in a exchange is fraudualant. This is like a insurance provider, and if you have an insurance, you have to pay a premium. Without this premium, no party will be willing to carry this risk. What you are proposing is to transfer the risk to bank, so banks will now start charging extra amounts for debit cards. Even if the transaction is anonymous, there will be a transaction fee, which will perhaps be reflected in banks starting to charge the payee a certain fee for debit card transactions.  
> **username_0**: So one of the key advantages of bitcoin: transaction-fee-less transactions is negated.  
> **username_0**: Credit cards typically bear this risk, which is one of the reasons they have transaction costs. Further, using credit cards builds up your credit history, which helps when you need loans. If transactions are all anonymous, you will not be able to build a credit history. The credit card company typically bears the work of handling all your transcation records and sending it to the credit agencies. The credit card companies also probably have to pay the credit agencies somewhat, which is reflected in the transaction costs, which are charged by the credit card company when you purchase an item.  
> **username_0**: All these probably means that credit cards and USD/Euros are not going away. While I know that bitcoins are supposed to provide anonymity, are people willing to go through all this amount of pain (having bitcoins and USD/Euro, having multiple credit cards (one for Fiat and one for bitcoins), having multiple debit cards, having escrow services for bitcoins)?  
> **username_2**: I think you misunderstood what I meant where I used the example of 24 hours. Maybe read it again and tell me to clarify if you still don't understand it. || Of course. All those payment processors listed on the page my second link goes to will take a premium. Except for promotional purposes, maybe. || No one knows how high these fees will be in practice but they probably will be lower than for fiat currency payment processors as there will be more competition because competing is easier. || As I already said: No one will give you a credit if you stay anonymous.  
> **username_2**: Bitcoin doesn't have to eliminate all fiat currencies to be an improvement. There will be competition between fiat currencies and cryptocurrencies. Competition is good. Most people having credit cards already have several ones. There are statistics on this and you can find them really easily. Most people have accounts at different banks, too. And no one says an BTC escrow service can't be a BTC credit card company at the same time. Maybe competition will cause there to be a service which is both and really good at being both. Then, that's a good thing (and one more advantage over fiat).  
> **username_3**: I would expect that credit cards - if the functionality they offer is valuable - remains useful in a hypothetical Bitcoin-dominated world. Bitcoin is a currency, with certain properties that make it compete with the Euro for example. Bitcoin on itself is a terrible payment system.  
> **username_2**: The Euro is a far worse payment system. Right now, I had to physically move over 2 km to the next merchant where I can use the Euro's built-in payment system. What makes you think credit card companies can't simply use Bitcoin? This is where it matters least what currency is used. They could even implement their systems such that the merchant receives money in their currency and you pay in yours. That that's not already the case with at least the few major fiat currencies, even though those companies are very international, is a sign of a oligopolist system; too little competition.  

---

