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Bitcoins for Buyers and Sellers: The Irreversible Currency

Introduction

As consumers, many of us have gotten used to the prospect of being able to reverse our transactions. We use credit cards the most, not only because they are convenient and we can pay them off over time, but also because if something goes wrong we are not held accountable. If someone steals our credit card and makes purchases, we are not charged. If we make a purchase and the seller does not follow through with their end of the deal, we can simply reverse it by doing a charge-back. With Bitcoins, however, this is a very different scenario. Through this article I want to look at this from both the buyer and seller's point of view (as I am both of these) when it comes to handling transactions.

The Seller

Sellers often have to increase their prices above and beyond what they would like to. Why? Because far too many people make a purchase using their credit card and then turn around days, weeks or sometimes even months later and do a transaction reversal. There are a couple of effects from this that some people do not realize:

  • The seller has to pay a fee for that reversal. Some processors will charge $25 and some go even higher than this. This charge is on top of whatever was reversed. For example, if you made a $2 purchase and then reverse it, the seller gets charged $27 for that, plus you often get to keep the items you bought
  • There are usually quotas that have to be met by sellers in terms of their accepted charge-back rates. If a seller has an abnormal amount of people coming back to reverse the charges, they can be cut off from the system altogether because this is seen as being a sign that they are doing something shady. Not to mention the payment processor does not want to keep having to go through all of the reports

What a lot of consumers do not take in to consideration is that these fees have to come from somewhere. And where can the sellers take them from? The consumers. In other words, as more and more people scam companies by doing fraudulent charge reversals, we all end up having to pay more for our items.

Another thing that people do not look at when they consider how reversed charges affect the companies is when it comes to them owing others money. Most companies buy things on a sort of credit (kind of like our own credit cards). This means they owe others money for everything they buy. Now, how are they supposed to pay all of that back if they are losing money because people are essentially stealing it from them? What if they already paid for the items? Now they do not have enough money to buy more. The issues can really start to compound, and, especially with Internet related purchases, things can get bad. Because of this, I would argue that there is a major lack of security for sellers when it comes to accepting credit cards. Their entire business is in the hands of their payment processor, and a lot can be lost as a result. Just to throw out a comparison here, with cash there is no charge reversal. If a person has an issue with a company they paid in cash already, their choice is to let it go or take it to court. In the business is in the right, this means that the courts will likely agree with them and they lost nothing (other than time; usually they are able to recoup their fees from the plaintiff). With the payment processors and credit card companies, they are not under the guidelines of the law, but rather the processor themselves.

I am not really looking at the normal transaction fees in this article, although they do have a pretty big impact as well. For now, I am just looking at the actual irreversible part of transactions and its impact. And as we can see, this is of great benefit because they lower the company's costs and decrease the risks involved with making their sales.

The Buyer

We already looked at how the buyer will (or at least theoretically will) save money as the cost of items goes down due to less money being stolen by the sellers. But this is not the only effect the buyer goes through, as we have been shown multiple times throughout the Bitcoin world.

While I would love to sit here and say that everything about the system is positive, it is really not. There is a big flaw with it, and it is the same thing that is great for sellers: the irreversible stance. From a buyer's standpoint, we can rely on our credit cards because we are able to take risks. We already know that if something goes wrong and we bring it up to our bank, the charge will (most likely) be reversed. This takes the risk out of giving people a chance. After all, what is the worst we can lose? A little bit of our time.

With Bitcoin, all of this changes. Now, the only protection there is comes from going to court (or hoping the person or place you purchased from works with you to get the issues resolved). There is n more making a simple call to the bank and explaining the situation, because they can not help. It also removes the chances of allowing “buyer's remorse” to take over and cause you to back out, as there is no way to do so.

In other words, because the funds can not be reversed, you have to be absolutely sure of the following before you send anyone money:

  • You are putting in the right address (as the money is gone if you do it wrong)
  • You trust the person or company (as it is up to them whether or not you will get back any of it)
  • You are sure you want to make the purchase (as you can not just back out later if you decide it was a mistake)

Conclusion

I think the system is great, although it does have its pitfalls. From the seller's point of view it is pretty much all positive: it removes any risk we would otherwise be forced to face. If we do not have to wonder whether or not we have the funds in our hands, we can make much better business decisions and can save the consumers money in the process. But from the buyer's point of view, the only real benefit of the irreversible transactions is that they can save money (possibly – if the stores will lower their prices accordingly). This comes at the risk of being scammed, though, which we are seeing far too often. Being that the only way to get your money back would be to go through court, and Bitcoin is a somewhat anonymous system, it makes pursuing people extremely difficult.

Because of this, I think that Bitcoin will have a long way to go before it can really replace credit cards in our society. While some consumers will use their credit cards to scam, there are also businesses that scam. As a result, it is hard to fathom a world where we do not have the security that we live with today. Allowing the businesses to essentially have full control over everything related to how they run things (allowing them to steal in the process) is not really the solution. Instead, we need a sort of median.

Bitcoin


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