As a decentralised currency, bitcoin has been both criticised and celebrated for its lack of regulatory supervision.
Unlike credit cards – or other traditional payment methods – bitcoin's transactions are final by design, with almost no recourse for consumers in cases of fraud.
This, in addition to the semi-anonymity afforded by the digital currency, has led some to question how participants in a bitcoin transaction can be trusted.
One bitcoin startup, Bitrated, thinks it may have the answer.
The Israeli-based company, founded in 2013 by software developer and bitcoin enthusiast Nadav Ivgi, is a trust platform that aims to provide fraud prevention and consumer protection mechanisms for bitcoin.
The team has spent the last year upgrading the service, which Ivgi describes as a "complete rewrite from the ground up".
Bitrated now operates on three different, albeit complimentary levels: a reputation management system, a multi-signature payment system and an arbitrated marketplace which allows for payment reversibility.
How it works
The Bitrated reputation system is based on three primary components: reviews, a 'web of trust'– itself modelled on a social graph of trust relationships between users – and the consumers' online presence.
According to the website, the basic concept is simple.
If I trust Bob, and in turn Bob trusts Alice, then I should also be able to trust Alice. By analysing how well the two users are connected within the graph, Bitrated is able to extract metrics to help it determine just how trustworthy they are.
The system also rates users based on their Bitrating – a trust score – achieved thanks to an algorithm which aggregates information from the users' social media profile, taking into account metrics such as Reddit Karma, Twitter followers and LinkedIn connections.
"Our goal with the linked accounts system is to allow users to leverage their pre-existing internet persona and past internet activities into a measurable reputation."
He added: "Some of that information is about identifying throw-away sockpuppet accounts, some is about verifying the user identity – by leveraging the fact that services like PayPal and Coinbase already verify the user's identity and expose it via their API – and some is more likely related to trustworthiness.
Registered users can use Bitrated's payment system to make reversible e-commerce transactions using 2-of-3 multisig smart contracts in its arbitrated marketplace. To do so, the buyer and seller must nominate a trust agent to act as an arbitrator for their transaction.
If the transaction goes smoothly, the buyer and seller agree and release the funds to the seller without the trust agent's intervention.
Trust agents will only intervene if a dispute arises. In this instance, they would be required to review the case and decide which party to side with, either refunding the buyer or releasing the funds to the seller.
Perceived by many as an open and transparent alternative to the native escrow and reputation systems of other specific bitcoin marketplaces, Bitrated is essentially a public arbitration service with a crowd-sourced reputation management layer.
The service seems to be a welcome addition to the growing bitcoin ecosystem, with almost 2,000 registered users.
According to Ivgi, transaction volume on the site's arbitrated marketplace had reached approximately $80,000 (310 BTC) at press time.
User Eric Martindale, who is also a developer at BitPay, spoke about a need for this kind of service:
"I am currently ranked the number two most reputable user on Bitrated (whatever that's worth remains to be seen), and I'm pretty excited to see this next layer of the infrastructure develop. Bitcoin and other cryptocurrencies ... decentralise money, but identity is the next big problem in the space."
He continued: "Bitrated has the most polished experience around the complicated technology required to have decentralised identity, and I think they've got a real chance at at being massively successful in providing the answer the industry needs."
Notably, Bitrated does not operate an escrow system. This is considered a benefit by some members of the bitcoin community.
"The major attraction for me is that the trust agent has no direct control over neither the funds nor the goods that are being traded, making it safer than most attempts at escrow services," said user Walid Daniel.
Elichai Turkel, another Bitrated user, said his experience with the service was "pretty good", praising the fact that choosers could choose their desired trust agent.
Competition, future plans
OneName sets out to facilitate bitcoin payments between users, by replacing lengthy bitcoin payment addresses with sleek, social handles. Once a user has registered, asking for payment is as easy as adding a plus sign to your user name (+yessi_belloperez_, for example).
Bonafide, which set out to build a reputation system for the bitcoin industry, raised $850,000 in February funded by Quest Venture Partners, Crypto Currency Partners and the AngelList Bitcoin Syndicate, among others.
Ivgi is confident that his startup can compete in this area, however:
"The main thing that sets us apart is that we're providing a very comprehensive solution for the trust issues the cryptocurrency economy is faced with, which we then provide as a base layer for other services in the ecosystem to build on top of."
The CEO is also optimistic about Bitrated's future.
"In the long term, we anticipate that Bitrated will cease being an application that users interact with directly, and become the platform that powers up the identity and reputation across the ecosystem, as well as a payment processor for when recourse and buyer protection is needed," he noted.
Ron Gross, a Bitrated user, echoed Ivgi's thoughts, saying:
"I think the service will be a critical component as an integration point in other services eg marketplaces and exchanges. Instead of each of them having to come up with reputation from scratch, it makes sense to rely on one key rating system. Bitrated API will fill in this spot."
Although trust agents may decide to charge for their services, Birated does not currently do so. However, Ivgi said the service may incur fees in the future "both as a way to sustain the platform and as a protection mechanism against sybil attacks", notes the website.
The website also notes that it plans to integrate additional cryptocurrencies in "the near future".
Bitcoin image via Shutterstock
Unlike credit cards – or other traditional payment methods – bitcoin’s transactions are final by design, with almost no recourse for consumers in cases of fraud.
This, in addition to the semi-anonymity afforded by the digital currency, has led some to question how participants in a bitcoin transaction can be trusted.One bitcoin startup, Bitrated , thinks it may have the […]