Why is the current credit card’s conflict resolution system is broken

credit-cards

Credit Cards were invented in the 1950s and were first used as plastic traveler’s cheques. They were designed on extending credit to the consumer and allowing the merchant to collect or debit money from the consumer’s account, whats known as a pull system. As credit card users, we have that notion that our transactions are “protected” in the form of chargebacks. It is true that when a fraudulent transaction occurs on your credit card by someone that isn’t you, a chargeback would resolve in your favor and reverse the funds. However, when it comes to more intricate fraud, like being overcharged in a restaurant, a chargeback might not resolve in your favor and you would loose out on your money. Furthermore, each credit card company has their own rules for chargebacks. If for example you have a VISA card and you want to use Mastercard’s, or PayPal’s conflict resolution system you are not able to do so. The system is broken because the “escrow” system is tied to the payment network.

What do multisig transactions allow us to create?

multisig-keys

With bitcoin, we are able to use any escrow providers. For example we have the ability to use BitPay’s or Coinbase’s escrow system on any bitcoin transaction. There is no escrow system embedded on the network, when a transaction is sent it cannot be reversed. However, with the help of multisig, we are able to reintroduce consumer protection for bitcoin users.

With blockchain technology, or programmable money we can create multisig transactions. I think the best way to explain what multisig transactions are in simple english is the way Andreas Antonopolous said:

“You can say that in order to redeem money from a specific address, it takes more than one signature, or it takes a specific time delay, or both.”

Multisig transactions allow us to create automated escrow, time based escrow, and even automated dispute resolution. These are just some of the examples how blockchain technology can help us achieve amazing new services that couldn’t exist before. So, we are able to reintroduce consumer protection in a programmatic way, which makes it a much more powerful and flexible mechanism than the current credit cards’ consumer protection system in place. Lastly, the introduction of multisig transactions creates a brand new open market for entrepreneurs to create multi-million dollar arbitration businesses.

Real life example of the use of a multisig transaction

Let us say that you sell shoes on ebay. You ship your packages via UPS to your ebay customers and always receive a tracking number, which you enter into Ebay’s website. If you are a new seller, the current Ebay’s “escrow” system in place usually releases the funds 3 days after the tracking shows as confirmed. Now, lets say that a customer files a dispute for an undelivered item. Because Ebay is tied to PayPal the buyer has 30-60 days to file a chargeback. If a customer files a dispute Ebay will start an investigation. During this investigation Ebay would look at the tracking number and if it shows the item as delivered it would most likely deny the customer’s dispute (in a perfect scenario of course). If the tracking shows as undelivered, then Ebay would reverse the funds and return the funds to the buyer. That is a great process, but how long do you think that takes? Ebay disputes can take at least 7-10 days. The current system in place is not scalable because it is inefficient.

With multisig technology we can introduce a business that creates a multisig transaction with 3 required keys, the buyer, the merchant, and itself. The company would then automatically look up UPS’s tracking number and once it shows as delivered would automatically sign the transaction with their keys and release the coins to the merchant. Thus, we have eliminated unnecessary human labor and introduced a more efficient programmatical way to perform escrow with multisig transactions.

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