Evening markets at work. Photo by Juan igancio Tapi

Moderators — the key to P2P contracts

OpenBazaar
Apr 7, 2016 · 4 min read

This is a guest post by Michael Folkson

If the peer-to-peer revolution is going to keep picking up steam, the role of the moderator is going to be put under greater stress. Depending on the context, the moderator may also be known as an arbiter, oracle, referee or in an insurance context a “claims adjuster”.

OpenBazaar has now launched, allowing individuals to conduct peer-to-peer (P2P) e-commerce or online trade of products and services. You can think about it like a decentralized EBay. You buy directly from the merchant using a protocol like the internet protocol TCP/IP.

One of over a thousand stores created on OpenBazaar

However, now that you aren’t going through EBay's website, what is standing between you and being scammed by a dishonest merchant?

There are two lines of defense. The first line of defense is the reputation system. You can choose which merchants you buy products and services from and you can refer to their reputation score and feedback on previous transactions when making this decision.

The second line of defense is the moderator. When you a buy a product or service from a merchant, you can assign a moderator. Similarly, the moderator you choose will be based on whether you trust them. If you don’t know them, you are likely to refer to their reputation score when you decide who you want the moderator to be. If the transaction goes to plan, you receive the good or service you requested and the choice of moderator will be inconsequential. However, if the transaction doesn’t go to plan, you will need to convince the assigned moderator that you didn’t receive it so that the moderator can return your funds. The beauty of Bitcoin multisignature technology is that the moderator is unable to steal the funds! All they can do is decide whether the funds get sent to the merchant or returned to the buyer.

The team at OpenBazaar has obviously given a lot of thought to how to build a robust reputation system and moderator function. Without these two lines of defense, each purchase would be a gamble and trade on the protocol would be unreliable. The current OpenBazaar release is very early and there is still much work to do to bolster both the reputation system and the moderator function.

Depending on how expensive the purchase is, you may wish to consider in advance how you will prove to the moderator that you did not receive the good purchased. A receipt from a postal delivery service is easily obtained by both the buyer and the merchant. This proves you received a package from the merchant. However, it doesn’t prove that you received the exact good purchased. Perhaps you bought a pair of shoes but instead you received a pair of socks. The best way to prove this is to film the opening of the package with a video camera or smartphone. Once the package is opened, it is too late. The moderator won’t know whether you have swapped the good and filmed it with already opened packaging.

Now this sounds like a hassle, and it is, but remember that by using OpenBazaar you are not paying EBay fees. You are paying the moderator a small fee only in the event of a disputed transaction that hopefully will be rare.

As the marketplace and the reputation system matures, it is possible that incentives will align and the moderator function will become less needed. If a merchant has built up a high reputation score on OpenBazaar, it may be the case that it is not in his/her interests to risk damaging this reputation score by entering into a fraudulent transaction.

In the meantime, be careful. We are entering a new world with new technology and new opportunities for trade. The OpenBazaar release is a fantastic achievement and incredibly exciting for the Bitcoin, blockchain and cryptocurrency community. However, it is new technology and as a yet unproven way of doing reliable P2P trade.

New is exciting, but it is also uncertain!

OpenBazaar

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An open source, decentralized marketplace for peer-to-peer commerce using cryptocurrency. No fees. No restrictions. Browse now @ https://openbazaar.com