Challenges and Opportunities Associated with a Bitcoin-Based Transaction Rating System

It has been shown that seller ratings given by previous buyers give new customers useful information when making purchasing decisions. Bitcoin, however, is designed to obfuscate the link between buyer and seller with a layer of limited anonymity, thus preventing buyers from finding or validating this information. While this level of anonymity is valued by the Bitcoin community, as Bitcoin moves toward greater adoption there will be pressure from buyers who wish to know more about who they are doing business with, and sellers who consider their reputation a strong selling point, to allow greater transparency. We consider three different models by which a reputation/rating system could be implemented in conjunction with Bitcoin transactions and consider pros and cons of each. We find that each presents challenges on both the technological and social fronts. 1 Background Bitcoin is electronic currency. This fact has consequences for how people think about it and how they regard doing business with it. They expect to do business in a businesslike way. The promise of Bitcoin is that transactions will be quick and frictionless. Unlike businesses using more established and controlled currencies, they may also be anonymous. The Bitcoin protocol provides for monetary and other transactions to be tied to addresses, not identities. The ability to generate and use new addresses provides a degree of anonymity that non-technically inclined users are unlikely to pierce. The Bitcoin community points to this anonymity, often referred to as pseudonymity because it is not absolute, as an asset, a way of circumventing surveillance and cumbersome regulatory regimes [1]. It is also considered a defense against the user profiling/data mining practiced by large merchants such as K-Mart. The original description of Bitcoin described the features of non-reversibility of payments and cryptographic verification as substitutes for more traditional forms of ensuring trust [2]. However, the anonymity of Bitcoin transactions removes another source of trust in transactions: Knowing who you are doing business with. It opens the possibility of counter-party risk, the danger that the other person will not live up to their obligations once the money is received. For buyers, being able to know who they are buying from can increase trust and so reduce barriers to a successful purchase. Likewise, sellers whose business grows by word of mouth or who consider good will a valuable asset may wish to share information about successful transactions with the buying public. Bitcoin allows …