[dropcap size=small]T[/dropcap]he topic of in-person or face-to-face Bitcoin trading came up in #bitcoin this morning:
<Reelax> … I will meet with the guy in a net cafe, amount is about 200 USD…
Channel mod, J. Corgan, correctly points out the relative risks assumed by parties in such transactions:
<@jcorgan> If you are buying BTC, almost all the risk is on the BTC seller’s side.
This holds true provided the buyer’s physical security is assured. Any public venue with milling rent-a-cops should satisfy this condition. At least for minor trades, it’s my opinion that a buyer’s risks are low, because:
<HeySteve> I expect there’s not much Bitcoin miner / stabby mugger overlap.
The risk imbalance justifies sellers charging a higher premium, which increases frictional costs across the Bitcoin economy. This imbalance exists as conventional electronic and even cash transfers can be recorded but there’s no way to prove bitcoins were sent to the buyer… Well, there is now – and I’m getting to that – but here’s an example scenario first:
<danielpbarron> Someone could theoretically have the trade go down in front of a video camera and then claim that since the only thing seen is one guy typing something on his phone and the other guy getting up to leave with the money he entered with, no fraud has taken place. That’s how the BTC holder is taking on more risk. He can’t unsend the transaction, but the cash guy still has his cash.
<@jcorgan> Or the cash could be counterfeit.
Face-to-face traders may agree to mitigate the “walk-out” risk by exchanging fractions of the total trade volume with mutual agreement at each step. Depending on their terms, the risk remains of a buyer’s betrayal on the final step. Certainly a staggered trade is more time-consuming and troublesome. The counterfeit risk mentioned can be dealt with if the trade venue possesses and grants access to a bill scanner. Hipster cafés that accept Bitcoin should be willing to lend their cams and scanners to the cause.
I was exploring GPG contracts for Bitcoin-denominated financial instruments as this conversation unfolded, which prompted the following idea to secure and simplify in-person trades:
<HeySteve> danielpbarron, there is still the blockchain record. If a contract is drawn up beforehand and signed… If the buyer GPG signs a contract stating his receiving address… All that can be done before meeting. LocalBitcoins should have this service already for F2F [face-to-face].
<danielpbarron> That would be smart and I insist on using PGP contracts now.
There is a snag however:
<danielpbarron> Unfortunately, the average BTC buyer on LocalBitcoins is not patient enough to learn GPG.
Which can be addressed in the following way:
<HeySteve> Well, sellers might insist on it if a lot of scams start happening… Sellers could offer buyers a discount if they jump through the hoops.
The conversation then jumped over to #bitcoin-assets, a channel unmatched for the criticism of new ideas or business plans. IMO, if a person or service hasn’t passed the smell test in #bitcoin-assets, the chances of a scam are significantly higher. Neither Karpeles nor Pirateat40 passed, for example. Anyway, you’ll find further discussion of this idea in the log, but here’s the takeaway:
<+mircea_popescu> HeySteve, cheaper than two guys with shotguns to back you up and a new pair of spatz every time some twennysomething spaz tries to be smart.
Now, maybe some service will arise to do this or LocalBitcoins will implement it. As mentioned in the log, there’s a few ways to do this and it can be simplified via a good online service. In the meantime, there’s nothing stopping prospective traders from arranging such contracts privately. Here’s a clear guide to creating such contracts through the command line and #bitcoin-otc (which I described here).
This idea would also serve to familiarise people with the four C’s of the financial future: Cryptocurrency Combined with Cryptographic Contracts.
Last modified (UTC): April 26, 2014 20:33