[wsxcde]

How much of the 2.5% credit card fees goes towards combating fraud and enabling reversibility of transactions? I assume it's a significant fraction because you get a better rate if you use services like "verified by visa", no? Is there any reason to believe that fraud rates will be lower with bitcoin?

And as far the programmable money idea goes, I'd like to see more compelling applications than M of N transactions or escrow. The examples I've seen so far seem rather unexciting.

ed: Maybe cdixon's real point is that the technology behind bitcoin is disruptive to the financial industry? I can get behind this, and I'm waiting to see how the government-backed bitcoin clones fare.

[drcode]

> Is there any reason to believe that fraud rates will be lower with bitcoin?

Yes, the risk of fraudulent creation of bitcoins or of double spending of a well-confirmed bitcoin are essentially zero (assuming no major flaw in the current science of cryptography.)

Also, the odds of stolen identities (name/address/birthdate/ssn) would be zero, since those are not needed for sending bitcoins.

So yes, fraud will be a lot lower with bitcoin.

[wsxcde]

> Yes, the risk of fraudulent creation of bitcoins or of double spending of a well-confirmed bitcoin are essentially zero (assuming no major flaw in the current science of cryptography.)

This is a pretty narrow definition of fraud. Credit card fraud isn't caused by double-spending or counterfeit currency. It's caused by people stealing your credit card information. This is akin to people stealing your bitcoin wallet, as has happened many times already and will probably become even more commonplace if bitcoin takes hold.

And while cryptography seems to be strong mathematically, side channels aren't. What are the odds that if you have a mobile bitcoin wallet app, it would be resistant to all the myriad side channel attacks we know of today and so many more that are going to get invented in the future?

> Also, the odds of stolen identities (name/address/birthdate/ssn) would be zero, since those are not needed for sending bitcoins.

On the other hand, due to anonymity and irreversibility, there is nothing you can do about fraudulent transactions involving bitcoins. You probably don't even even know who took your money. So color me unconvinced me again.

tbh, I can't tell if you guys are deceiving yourselves or trying to deceive me in an attempt to keep the bubble going.

[drcode]

> This is akin to people stealing your bitcoin wallet

No it isn't. If I buy something on amazon, I need to enter my credit card information. If I buy something with bitcoins from cointagion.com, I don't need to upload my bitcoin wallet.

> Credit card fraud isn't caused by double-spending

If I buy some socks on Amazon with my credit card info intended only for buying those socks and a hacker steals this info and then uses it to buy a plasma TV at Best Buy, this exactly meets the definition of double spending, and this is exactly what credit card thieves do (and what you can't do with bitcoins.)

> There is nothing you can do about fraudulent transactions involving bitcoins.

Again, if someone hacks Target and steal all the credit card numbers you have fraud. Since you can't hack a bitcoin merchant to steal my payment information, you can't have this kind of fraud, so this isn't a meaningful question.

wsxcde, I think you're confusing "fraud" and "theft". Yes, it's possible to steal bitcoins. But this is not fraud.

[andrewfong]

> If I buy some socks on Amazon with my credit card info intended only for buying those socks and a hacker steals this info and then uses it to buy a plasma TV at Best Buy, this exactly meets the definition of double spending, and this is exactly what credit card thieves do (and what you can't do with bitcoins.)

That's not double spending. The same "dollar" isn't being spent twice. Credit card theft basically means using someone else's credentials (in this case, a credit card number) to purchase goods. If you get the private key for someone's wallet, you can do the same thing (although it should, in theory, be much harder to do this since there's never any need to share your private key, unlike with credit card numbers).

[drcode]

Agreed, the comparison I made to double spending wasn't very good.

[wsxcde]

Cheers, those are some good points and I am indeed conflating fraud and theft.

So the key point you're making about the Amazon/Target scenario is that a criminal who breaks into one of these systems has the ability to launch transactions on my behalf, which s/he wouldn't be able to do with Bitcoin. Which is fair but not universally true. Some international vendors and cards require you to go through the equivalent of the verified by visa system for all transactions. The way this works is that you give the vendor-site your credit card info, they pass this on to visa/mastercard and redirect you to visa's page where you can (1) see who you are paying and how much and (2) need to type in a password that only you and visa know in order to authorize this transaction. I suspect usability is the only reason this system isn't universally prevalent.

I think the Bitcoin scenario is worth thinking about a little more. Fred Schneider, the Cornell professor, likes to say that you can't reduce the amount of trust a system needs to work, you can only move trust around. What Bitcoin seems to have done here is now instead of trusting Amazon/Target etc. we now trust the applications which announce our transactions to the Bitcoin network. If this application is another website, like Coinbase, I don't think we've made any progress. If it's a local program that runs on your computer, it's not clear to me that is necessarily more secure. But if this is the hypothesis being made - that locally run bitcoin wallets have a reduced attack surface in comparison to the websites that store your credit card information - then I would say this is a hypothesis that is worth investigating. But we do need to acknowledge that we don't have enough data to determine whether this is actually true at this point in time.

[drcode]

I am in full agreement with what you've written. Distinguishing between fraud and theft was a bit pedantic on my part.