Trust & Reversibility

2019-11-11

A common problem that arises in payment systems is the reversibility of transactions this problem is

For reversibility to be possible in any payment system trust of a 3rd party is needed to arbitrate the transaction of the two parties involved. The buyer and seller should trust that the trusted 3rd party will make the correct decision (reverse or not reverse the transaction) based on the policies and rules of the system.

The ability to reverse transactions has some advantages but it also has it's own set of disadvantages.

Trust based systems are centralized around the 3rd party arbitrator whilst in decentralized Peer to Peer systems where no 3rd party is present there is no one to trust this is why in decentralized systems reversible transactions are usually not possible by design. In decentralized systems only the underlying cryptography of the system is trusted, this approach is much more secure, faster and affordable because:

  • 3rd parties cannot be bribed/tortured/politically influenced to reverse a transaction
  • The system is difficult to exploit because the feature of reversing a transaction does not exist
  • Merchants do not need extra information from the customers, this makes this type of payments similar to paying with hard cash where no trail of personal information is needed.
  • Cheaper transactions because no more payments for the cost of mediation
  • Smart contract are possible because of minimal trust

Irreversibility also means that the ledger is a single persistent structure with an immutable history this makes allot of sense philosophically and practically.

cy6erlion