Question for Arbitrators


#1

In a dispute how does the arbitrator decide what is the right way to punish the party that made a mistake?

Example scenario:
Buyer tries to buy .01 btc from seller using venmo, buyer sends usd to seller and enters “bisq” in the venmo “what is this for” field instead of the transaction ID.
Seller opens dispute.
Arbitrator then allows seller to cancel transaction then awards seller 25% of the buyer’s security deposit (.0025btc) as punishment. So the person trying to buy bitcoin ends up losing 25% of what he was trying to buy.


#2

In general, all protocol violations will result in some amount of security deposit penalty. How much that penalty will be is a function of several factors, including amount of bitcoin being traded, amount of the security deposit itself, and the actual or potential negative impact to the counterparty that the violation represents. Most protocol violations result in relatively minor negative impacts to counterparties, mainly in the form of wasted time, effort, and illiquidity of funds while dealing with the dispute. Other violations, like the one you’ve described above are potentially much more damaging. When a buyer uses terms like “Bisq”, “bitcoin” or “BTC”, this puts the seller’s relationship with their bank at risk. One never knows what kind of policies a bank may have in place for monitoring potential bitcoin-related transactions and shutting them down, and it would be an extreme negative impact on a seller if they were to have their account frozen or altogether shut down because of this kind of failure on the buyer’s part. So in a case like this, we award a larger than usual portion of the seller’s security deposit to the buyer, both in an attempt to better compensate them for the risk they’ve been exposed to, but also to impress upon buyers that this kind of violation is absolutely unacceptable.

Situations where we would award even more, and possibly all of a security deposit include outright fraudulent behavior and total non-responsiveness. But these situations have been virtually non-existent to date.


#3

I seldom punish traders if the protocol violation is an honest mistake. If the buyer does not pay, which virtually always is because the price has moved to the buyers disadvantage, then the deposit is awarded to the seller. If there is a scam attempt (so far only once for me) then naturally the deposit is lost. For more serious protocol violations, e. g. trying to give a false name then I judge on a case to case basis. By its nature arbitration is judgement based.

Keo


#4

And has the community decided this is proper protocol? How does the community know that the arbitrator isn’t in collusion with the seller?
Are you familiar with using venmo to send money? The reason I ask is people who use venmo write nonsense in the “what is this for field” venmo isn’t a bank they are more like a paypal with a social media vibe (they are owned PayPal). Because of this I think many new bisq users will make this very same mistake. “Hey I can’t write bitcoin or btc, I’ll write bisq no one knows what bisq is.” I would argue that the seller should be aware of the risk of this occurrence and should use venmo at there own risk, there are other payment methods that reduce this risk. Awarding the seller the buyer’s security deposit in this instance damages the community more than teaches a lesson. The lesson is learned by the buyer not being able to buy the btc he wanted to buy and losing the transaction fees. In my mind if arbitrators are going to continue to punish the buyers so harshly in this instance they are incentivizing sellers to use venmo to make an easy profit off new bisq users. I’d bet that this will happen to one out of five new bisq users who use venmo regularly it wouldn’t take long to make a decent profit off this exploit as a seller. As a new user I thought the security deposit was mainly to protect against chargeback, now its being used to award how the arbitrator sees fit. I think the team needs to seriously discuss how they handle these situations because it seems like the arbitrator is pulling numbers out of the sky when making these decision. Does awarding the seller actually compensate them for the “potential privacy issues” this caused? This brings up a philosophical question: What’s the price of privacy? What if .0025 btc was so much of the buyers btc holdings that he can no longer afford the security deposit for another transaction? Have you considered awarding the seller a bisq token as compensation?


#5

Feedback, noted, @cardochav. Thank you.

And has the community decided this is proper protocol?

There are no ‘community decisions’ here. There are decisions made by individual arbitrators, and there are decisions made by individual users as to whether they wish to use Bisq. Each is free to do as they choose, and each must also deal with the consequences of their choices, especially arbitrators. If an arbitrator displays bad judgement, it is likely that users will make that known. Your post here is a good example of how that can work. This conversation is now public, and free for anyone, including other experienced users and prospective new users, to review for themselves. When an arbitration decision gets publicly discussed, it forces everyone to evaluate their actions and decisions carefully. As an arbitrator, I know that this is always a possibility; I know that my decisions are always potentially subject to harsh scrutiny; I know that users who are unhappy with my decisions can blacklist my arbitrator address and stop doing business with me. All of these things are designed to keep me and other arbitrators in check.

How does the community know that the arbitrator isn’t in collusion with the seller?

You infer this by understanding the design of the system and its incentives, and observing that there have been zero incidences of this kind of collusion in the past. If an arbitrator colluded with a seller to defraud a buyer, it is reasonable to expect that the buyer would do everything in their power to make that known to others. An arbitrator might be able to do this once or even several times, but very quickly it would become known that Bisq is an unsafe place to trade. Even one instance of this kind of collusion, I believe, would destroy the reputation Bisq has built up over years. This is why, in the beginning, the only arbitrators were co-founders. The co-founders are the people with the largest stake in Bisq, and who have the most to lose if Bisq’s reputation were to be destroyed. It makes no economic sense for us to collude with one or even many sellers; no such collusion could ever be worth the years of work we’ve put into building Bisq. Now, as we incrementally roll out the Bisq DAO, new arbitrators will be required to post a very large bond in $BSQ to take on arbitration duties, and that bond can be confiscated should an arbitrator be found to be colluding or otherwise acting in the disinterest of users.

Are you familiar with using Venmo to send money?

Yes, we are familiar with the “social” aspects of Venmo, and familiar with the fact that users can opt out publishing their transaction details.

In any case, we publish a very prominent popup message in the application letting users know that they must not use any value other than the trade ID in the “payment reference” / “reason” field. This is simply a hard and fast rule of the Bisq protocol, and one that users must not violate, for everyone’s protection.

If, in practice, we find that Venmo is unusually problematic, i.e. that for whatever reason, users continually violate this rule, and that nothing we do makes a difference in changing that, then we will simply remove Venmo as a payment method. As you may know, we only added Venmo in Bisq v0.6.6 a couple weeks ago. Think of this as a trial period.

In my mind if arbitrators are going to continue to punish the buyers so harshly in this instance they are incentivizing sellers to use venmo to make an easy profit off new bisq users. I’d bet that this will happen to one out of five new bisq users who use venmo regularly it wouldn’t take long to make a decent profit off this exploit as a seller.

Noted. I doubt that this is a significant risk. It would be a very frustrating game to play for such a scammer, as in our experience, most users have no problem following the instructions and using the Trade ID. For example, in the last month, I have handled on the order of 30 arbitration cases, and just 2 of them had issues with the payment code. This would simply not be a profitable scheme for the scammer you describe here.

As a new user I thought the security deposit was mainly to protect against chargeback, now its being used to award how the arbitrator sees fit. I think the team needs to seriously discuss how they handle these situations because it seems like the arbitrator is pulling numbers out of the sky when making these decision.

Security deposits exist to create economic incentives for Bisq traders to act honestly and comply with Bisq’s trade protocol. When I make a decision to award a portion of a security deposit, I am always asking two questions: what would be fair to both parties, and what would maintain the integrity of Bisq’s incentives?

In the case in question, had I been the seller, I would have been rather upset that the buyer put me at risk by using the word “bisq” in the payment reference, and depending on how much previous experience I had using Bisq, I would likely have reconsidered whether I wanted to keep using it going forward. Upon seeing that I was awarded 1/4 of the buyer’s security deposit, however, I would have understood that there are in fact meaningful penalties for violating these rules—that Bisq arbitrators actually enforce the rules of its protocol—and this would have made me feel at least somewhat more confident in continuing to trade with Bisq. Likewise, as the buyer, I certainly would not have been happy to lose a portion of my security deposit, but I hope I would have found the amount (about $25 USD worth of bitcoin in this case) to be commensurate with the amount being traded and in proportion to the violation.

When choosing whether and how much of a security deposit to award, I am thinking carefully about how both parties will be likely to take the decision, and how any reasonable, disinterested third party familiar with Bisq would evaluate the decision. I am also basing each decision on my many dozens of previous arbitration decisions that were accepted by both parties without issue. As Keo mentioned above, arbitration is by nature based on judgement; if I make bad ones, that will become known, and I won’t remain an arbitrator for long.

I hope this is a satisfactory response for you, @cardochav. Thank you again for raising your concerns. Conversations like these, for the reasons I detailed above, are an important part of how the practices and policies around Bisq arbitration take shape over time.


#6

Thanks for the discussion. This brings more questions to mind if I may.

Blockquote “This is why, in the beginning, the only arbitrators were co-founders. The co-founders are the people with the largest stake in Bisq, and who have the most to lose if Bisq’s reputation were to be destroyed.”

So right now are the arbitrators are cofounders? Are they Part of the development team? Can they identify a user in the system as someone they have dealt with before? In my mind a neutral party would be someone who does not have a stake in the matter and cannot identify the two parties thereby forming a bias. How is neutrality of the arbitrator determined? What if one of the cofounders had a falling out with the team how then could his/her neutrality be ensured anymore?

For companies in industry a procedure is usually written for individuals who execute quality related functions. This is done so that the company can create a quality product and ensure consistency. For an individual performing a task in the process of making a product, decisions are made in advance by the team that developed the procedure. They use “if… then” statements so that individuals don’t have to make judgement calls, this creates a consistent product/outcome. I’m not a coder, but I’m sure there are “if…then” statements used in coding as well. It would seem an arbitrator in bisq‘s case wouldn’t need to make judgement calls if his/her actions were proceduralized or even if a bot handled support tickets. The best procedures are those that eliminate the possibility of human error as much as possible. Are there any procedures written for arbitrators and made public?

I imagine the goal for a truly decentralized system would be to do away with the arbitrator part of the equation altogether and the rules be built into the system.

Once again thanks for the discussion in a public forum. I definitely appreciate the bisq network and believe bisq has a solid team of entrepreneurs and offers the most decentralized exchange out there at this time.

Thanks


#7

I’ll get back on these questions as I have time. Might be a couple days, thanks.