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Does Bitcoin plan to implement any Fraud/Loss Prevention in their protocol? I just read a story of how Brokerage Exchange Shapeshift, and Internal Employee stealing private keys from their customers. https://news.bitcoin.com/looting-fox-sabotage-shapeshift/

Also heard about Bitfinex and Binance having similar issues.

  1. Maybe allowing nodes to create new/recover Bitcoins that were stolen? And expiring tokens from the thief?

  2. Restricting consumption of any bitcoins with a certain publickeys/IP address?

When using credit card, I had thousands of dollars charged. My credit card company said not worry, and reverted the charges.

I can see SEC or FDIC having something similar come to Crypto, and hopefully bitcoin community can address issues in their next protocol. Otherwise, government regulators may interfere.

Murch
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mattsmith5
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  • I asked similar question about insurance few weeks ago, but now asking about protocol actual solution proposals for Bitcoin Fraud/Money recovery – mattsmith5 May 04 '21 at 17:20
  • similar how tellers often help internally with bank thieves, employees with admin privilege at Bitcoin wallet companies, can steal private keys, etc https://www.theverge.com/2013/12/19/5183356/how-to-steal-bitcoin-in-three-easy-steps – mattsmith5 May 04 '21 at 17:26
  • why is this voted down? trying to learn – mattsmith5 May 04 '21 at 23:08
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    As the answers say "does Bitcoin plan to" suggests there is a plan by an individual or group of individuals who decide what happens to Bitcoin. The short answer to this is no because "Bitcoin" is a protocol, network and currency and doesn't plan to do anything. – Michael Folkson Jun 16 '22 at 16:57

3 Answers3

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The question is framed in a way that does not align with reality.

Does Bitcoin plan to implement any Fraud/Loss Prevention in their protocol?

Bitcoin doesn't exist as a person, corporation or other entity

The question implies the existence of a person or organisation named Bitcoin. As Mark H pointed out, there is no entity named Bitcoin who owns the Bitcoin protocol. There is not even any group of people who can claim exclusive control of Bitcoin.

Yes there are all sorts of people who think about fraud and Bitcoin, but they are not a well defined group with a well defined membership. Anyone can think about this and make proposals.

However there is another reason why this is irrelevant:

Cash is not Banking

Bitcoin is digital cash and this is fundamental to any answer to this question. Fraud prevention in cash is a different problem to fraud prevention in banking. Satoshi Nakamoto's Bitcoin Whitepaper begins

Bitcoin: A Peer-to-Peer Electronic Cash System

Satoshi Nakamoto
satoshin@gmx.com
www.bitcoin.org

Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

Note the repeated use of the word cash there. Note the rejection of any role for any kind of financial institution.

What do other systems of cash do?

Now we can ask ourselves, who designs and creates US dollar bills (banknotes) and what fraud prevention measures do they use?

The answer is the US Treasury Department's Bureau of Engraving and Printing. The fraud prevention measures they take are, so far as I know, entirely measures by which one can detect forgeries. They include special papers and inks, special printing methods and so on. These are all features built in to the currency.

Note that the US Treasury Department's Bureau of Engraving and Printing do not provide a service where you can phone them up and say Mr X swindled me, please trace Mr X and remove five $10 bills from Mr X's pocket and then place them in my pocket. That is not the job of the US Treasury Department's Bureau of Engraving and Printing.

In this system of cash, it is the police and the courts who remove cash from the pockets of swindlers and return the cash to the pockets of victims. It is their job, not the job of those who design the bills (banknotes).

Solutions?

Note that there is nothing in the design of the US dollar bill that in reality facilitates the work of US police in determining which party is telling the truth or tracing the location of Mr X or working out where he put those bills. The serial numbers are some potential help but few of us write down the serial numbers of money we receive or pay. Transaction Ids in Bitcoin might play a similar role.

So what do users of cash like the US Dollar do?

The answer is as old as cash. Escrow and the courts.

Conclusion

The job of the people who design the cash is to prevent fraud by preventing forgeries. It is not their job to intervene in disputed transactions or to move money between citizens.

RedGrittyBrick
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Does Bitcoin plan to implement any Fraud/Loss Prevention in their protocol?

"Bitcoin" doesn't plan anything. It's a network of software nodes run by individual operators, who each decide whether or not they accept transactions as valid based on the transaction's inclusion in the valid chain with the longest proof of work.

There is no "their." Bitcoin doesn't belong to anybody. If someone has a proposal to improve bitcoin they must publish the idea and attempt to have the overwhelming majority of bitcoin validators run software which incorporates the changes.

Maybe allowing nodes to create new/recover Bitcoins that were stolen? And expiring tokens from the thief?

In regards to having some kind of backdoor, as you suggest, to revert bitcoin transactions, I think that almost all bitcoin node operators will decisively say NO! The fact that bitcoin transactions are irreversible is a feature, not a bug.

Bitcoin eliminates buyer fraud. Once a transaction has been confirmed past a few blocks, it is then absolutely irreversible. Whether a recipient of some funds would like to give a refund is a separate matter and is for dispute between the respective parties only - it is of no concern to other bitcoin users. As a consumer, you might find the ability to reverse credit card transactions "desirable," but businesses accepting credit card payments certainly don't. Many businesses suffer significant losses because of credit card fraud, and will be delighted to accept irreversible transactions.

The matter of seller fraud must be addressed by other means such as third-party escrows.

As for exchanges not being able to internally manage their data security - this is their problem only and is not of concern for the rest of the bitcoin network.

Restricting consumption of any bitcoins with a certain publickeys/IP address?

The fact that you can't censor certain transactions outputs from being spent is also a feature and not a bug. Bitcoin is intended to be for everyone. Any tool intended for censoring "fraudulent" transactions will inevitably be used for other nefarious purposes.

I can see SEC or FDIC having something similar come to Crypto, and hopefully bitcoin community can address issues in their next protocol. Otherwise, government regulators may interfere.

Bitcoin is governed by mathematics and individuals deciding whether or not they accept a global source of truth. Anybody can attempt to contribute to this truth by mining bitcoin blocks, and they do not require any permission. There is not going to be any regulation that targets bitcoin itself - such thing is unenforcible and entirely a folly. Regulators can only hope to take on businesses which deal in exchanging legacy fiat for bitcoin, which is unrelated to the bitcoin protocol.

And there is also no "their next protocol". Bitcoin is already here, it works, and its rules are being enforced by tens of thousands of unrelated people who each assume that every other party in this network is potentially malicious.The protocol can and is being improved, but it will certainly not be getting these kinds of backdoors. It is unlikely that any kind of "hard-fork" will ever be accepted by the majority of bitcoin users.

Welcome to the new age of personal responsibility.

Mark H
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  • interesting all things you say above are true; I have a feeling regulators will be involved and will enforce changes on corporate entities, who abide by rules in sec or have risk fines/penalties, or with company of 1000+ employees, someone will disclose non-compliance issues, – mattsmith5 May 04 '21 at 20:35
  • however these rules cannot be enforced in individual levels , hopefully lightning network finds a solution, because if bitfinex, binance, and shapeshift don't even have personal responsibility to enforce security with highly encrypted systems, good luck to mom and pop regular people who aren't computer experts; bitcoin may never reach large market corporate penetration, and 'governments will never let a crisis go to waste, to exert control next time an exchange has money lost, appreciate the answer, thanks – mattsmith5 May 04 '21 at 20:36
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If a transfer was a fraud or not is not decidable by a decentral network. If you put an instance in between then you created a new banking system with all it's corruption and political influence. So imagine someone transferred 1 BTC to another person against cash and claims afterwards the BTC was stolen. Whom to believe and who should make the decision? It's like with cash today, if it's gone you can go to police and only in case you have good evidence you have a chance to get anything back. If you implement your proposal in Bitcoin then it's not Bitcoin anymore, it's maximal an altcoin then.

tempo
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