Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust: A string of numbers is sent over email or text message in the simplest case. The sender doesn’t need to know or trust the receiver or vice versa. Related, there are no chargebacks – this is the part that is literally like cash – if you have the money or the asset, you can pay with it; if you don’t, you can’t. This is brand new. This has never existed in digital form before.
Doesn't this reveal the flaw in the "Bitcoin is the solution to the Byzantine Generals' Problem" argument? My understanding is that the bulk of transactions costs associated with most payment systems is associated with chargebacks. Some result from fraud by the payer and some by the payee. Regardless, a digital bearer instrument doesn't eliminate these failure modes; it simply avoids them entirely. If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved it. It's simply avoided it.
This is the closest that I have seen to an answer:
<i>Since Bitcoin is a digital bearer instrument, the receiver of a payment does not get any information from the sender that can be used to steal money from the sender in the future, either by that merchant or by a criminal who steals that information from the merchant.</i>
I don't know enough about how the costs of payment fraud breakdown to know what percentage of the administrative costs of the system result from stolen card numbers. I can imagine it being a big percentage, but I can also imagine it being relatively small since solutions to it might be have the same characteristics of scalability as the fraud itself whereas the other failure modes associated with credit card fraud require more comprehensive human involvement both in their perpetration and in their redress.
For the moment then, it looks as if Bitcoin is an improvement to existing costly solutions to the BGP, but not an absolute solution. But that's better than no solution at all, which is how it seemed.
I'm not an expert, but I read the paper. So you don't need an intermediary to confirm that a particular digital transaction took place between two people. By analogy to the original problem as stated, that's like saying you don't need an intermediary to confirm that a message with particular content was delivered between two generals. You still need an intermediary to confirm that the recipient is going to act on it as intended.
And I believe the history of Silk Road and its would be successors is evidence that an intermediary is still required post-Bitcoin. So you don't have to worry about the money not being there. You still need an escrow agent.
>By analogy to the original problem as stated, that's like saying you don't need an intermediary to confirm that a message with particular content was delivered between two generals.
No, that's not analogous. Bitcoin prevents double-spending. It doesn't just deliver messages.
You're talking about a whole other level of cooperation. It's true that Bitcoin doesn't guarantee that, but no one said it did, and that doesn't imply it doesn't really solve BGP.
Bitcoin does have a built-in feature, multisig transactions, that makes a more-trustworthy form of escrow possible.
Well I found a partial answer to the question I asked right in Andreessen's essay, but it's not the one you give here.
I guess I think of the authentication of sender and content for recipients as being equivalent to the elimination of double-spending, and I don't see either as being responsible for the failure modes of fraud in digital payment systems. As a practical matter, recipients don't have has to question whether a particular person actually has the credit to complete a given transaction right now, and I'm not aware of double-spending credit as being a big problem for credit card payment systems. Who cares about solving that problem when we have a perfectly workable solution right now?
But sure, I get the point about other forms of fraud might be harder -- namely, stealing account information necessary to initiate transactions.
The question there is whether that problem too goes away in a world in which credit numbers are kept as private keys on a physical device (like a smartphone) and exchanged with merchants via something like SSH. Is the overhead of Bitcoin still worth it?
There is some academic interest in ability to use bitcoins scripting language to build "smart contracts."
In practice, escrow isn't necessarily needed. In a typical consumer transaction the merchant is more trustworthy than the consumer (think me ordering from amazon). Amazon could just steal my money but that'd quickly destroy their brand. OTOH amazon accounts are free and so amazon is much more worried about me defrauding them. If amazon accepted bitcoin I'd pay them without worrying about escrow.
Doesn't this reveal the flaw in the "Bitcoin is the solution to the Byzantine Generals' Problem" argument? My understanding is that the bulk of transactions costs associated with most payment systems is associated with chargebacks. Some result from fraud by the payer and some by the payee. Regardless, a digital bearer instrument doesn't eliminate these failure modes; it simply avoids them entirely. If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved it. It's simply avoided it.