Suppose we have two people: a merchant (Bob) and a buyer (Alice). Alice wants to buy an expensive good from Bob in excange of bitcoins, so she contacts him and sends him the amount of bitcoin needed. When Bob receives the bitcoins, and the transaction is in a block which has enough blocks built on top of it, he ships the good and both live happily ever after.


Bob could be a malicious merchant and take alice's bitcoins and never ship the good, and he could get away with that. So Alice requests a signed message from Bob prior to sending her coins, so she has the proof that Bob actually requested her coins and can hold him accountable for it. Now they can both live happily ever after.


Alice could be a malicious buyer and claim that the good was never shipped, even tough she has received it, or claim that it is broken whatsoever. She could be rigth or she could be malicious and Bob has no way of knowing it and he obviously doesn't want to send a refund if the good is good. So they "hire" an escrow (another bitcoin user) to act as a third party in as 2 out of 3 multisig contract. In this way if the good was broken and Bob had fled Alice could ask the escrow to sign the contract with her and get her money back. Or if the escrow does not believe Alice he/her could refuse to sign the contract leaving the money to Bob. And they all live happily ever after.

Now the question

How can Bob (an honest merchant) trust the escrow not to pair with Alice in a completely arbitrary way at his damage? He could have shipped an €900 smartphone and get nothing from it because Alice paired with the escrow to get a refund, and once he has signed a 2 out of 3 multisign contract there is nothing he can do to prevent that from happening.


How can a merchant ever be willing to trade his phisical assets over the blockchain if it has not the top security in doing so? In addition to that Alice is just an address hash so he can't hold her accountable in a legal way, while a merchant is likely to provide his bitcoin address over the net in his certified website so his identity is known, and he can be held accountable by that. What am I missing?

  • "So Alice requests a signed message from Bob prior to sending her coins..." Is this a feature already implemented in Bitcoin? – yaobin Nov 12 '18 at 22:58

Simple answer is that both parties need to trust the escrow! Their is no smart cryptographic technique you can use to ensure a link between maths and physical goods in the real world!

If you're talking about digital goods, or products with DRM, the issue is different, but when you're shipping a physical product, like a phone, without DRM, then you need good old fashioned trust. Now if you use a 'reputable' escrow agent on a 'reputable' site, then you can reasonably trust them.

Customer reviews also play into this. This is how sites like AlphaBay could exist. You have no idea that your illegal product is going to arrive in the post, after all, you're dealing with a criminal by definition! However, the interests of the buyer, vendors and site align to ensure that everything works most of the time... See: Jamie Bartlett How the mysterious dark net is going mainstream

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    I was hoping in some mind blowing concepts but i guess this is how the world goes. At least I got confirmation that I understood the concepts correctly haha – Ivano Donadi Aug 18 '17 at 15:58
  • Maybe attatch a rebate, wallet address, to object, Alice the needs to give bob this address so bob can send rebate to Alice. I've seen this kind of thing in eve online, courier contracts. You have to front collateral. – marshal craft Aug 19 '17 at 4:13
  • @IvanoDonadi My understanding is that blockchain does not eliminate the need for trust. It minimizes the need for trust. In other words, there will be some occasions that some extent of trust must exist, and I think your question is one such occasion that the escrow must be trustable. – yaobin Nov 11 '18 at 21:12
  • But isn't the escrow the new "third party"? I think blockchain is trying to remove the third party from business activities but it looks like a third party is inevitable, in the form of either a bank or an escrow. Did I misunderstand something? – yaobin Nov 12 '18 at 23:01

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