BTDEX Disputes

Dimelo Waterson
7 min readMay 30, 2021

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An important element of the btdex exchange for buyers and sellers is the Dispute process. First, let’s review how order transactions occur:

  • An order-maker posts a buy or sell order to btdex. If they are a buyer, they must submit their security deposit to the smart contract that represents the order. If they are a seller, they post their security deposit and the full amount of BURST they are selling to the smart contract.
  • An order-taker accepts the order by posting their security deposit to the smart contract. If they are a seller, they also post the full amount of Burst they are selling.
  • The order, now accepted, is removed from the market except from the perspective of the participants (the buyer and the seller). The seller’s order will display “CONFIRM/DISPUTE,” and the buyer’s order will display “DEPOSIT/DISPUTE.” From now on, both the buyer and the seller have the ability to dispute the transaction.
  • At this point, the buyer must submit their payment in the quote currency to the seller’s quote currency address. Once received, the seller must confirm the deposit was received.
  • Once the seller confirms that the quote currency deposit was received, the smart contract releases the BURST to the buyer’s BURST address. Both the buyer’s and seller’s security deposits are returned to their BURST addresses. Whoever was the order-taker will receive their security deposit less 0.25% BURST as the trading fee. At the next weekly TRT payout, the order-maker will receive 0.25% of the numeric Burst value of the offer in TRT.
Photo by Sebastian Herrmann on Unsplash

Reasons to Dispute

Both the buyer and the seller can dispute a transaction- and sometimes both sides may want to dispute the same transaction for different reasons! Once a dispute is entered, each side has the opportunity to contact each other and determine how the Burst locked into the contract (the seller’s Burst, plus both sides’ security deposits) should be allocated. If both sides agree, the contract is divided accordingly and the dispute is resolved without intervention.

Let’s consider some possible scenarios, in which the security deposit is 10 BURST each, and the amount being sold is 100 BURST:

  • A seller disputes a transaction where the buyer never sent the quote currency to the seller’s account. At the very least, the seller is entitled to receive their own Burst back and their own deposit back; they did nothing wrong. However, the seller can also choose to penalize the buyer for breaking the terms of the agreement by demanding the buyer’s security deposit as well. Of the 120 BURST held in the contract (100 for the lot, 10 for the buyer’s security deposit, and 10 for the seller’s security deposit), the seller could request all 120 BURST in the contract.
  • A buyer disputes a transaction where they sent the quote currency to the seller, but the seller never acknowledged the deposit. The buyer sent the payment to the correct address and can confirm it using a blockchain explorer for the quote currency. As in the above case, the buyer could choose to penalize the seller for breaking the agreement and claim their security deposit. As in the previous case, the buyer would take all 120 BURST in the contract.
  • A seller receives quote currency from the buyer, but in less than the amount agreed upon, perhaps only 95 BURST worth. The seller could claim some or all of the buyer’s security deposit to make up the difference. Of the 120 BURST held in the contract, the seller could take their security deposit back plus 5 Burst from the sell order (15 BURST). The buyer would receive the order amount (100 BURST) but only 5 BURST from their security deposit. If the discrepancy was large, the seller could even garnish the amount from the sell order. Imagine if the buyer only paid for 50 BURST at the given rate; the seller could take their own security deposit and reduce the lot for sale by 50 BURST, and maybe even take some of the buyer’s security deposit for their trouble!
Photo by Cytonn Photography on Unsplash

Dispute Resolution

A charitable outcome to any of the above situations could be for the injured party to request less than 100% of the offending party’s deposit, or none of it. While it doesn’t penalize bad behavior, it could be as acknowledgement for a new user error or casual mistake, and would be highly likely to be accepted by the other party.

An important factor when considering a dispute is to remember that the other party must agree to the terms for the dispute to be settled quickly. A seller who receives funds and then, instead of confirming the deposit, enters a dispute for 100% of the contract, is unlikely to find the buyer sympathetic. Since, at the time of writing, the dispute process is only automatic if the buyer and seller are in consensus, disputes alone cannot be abused in this way.

What if both parties don’t agree?

Don’t panic. It’s okay if your dispute can’t be resolved immediately, especially if you don’t have a way to contact or identify the other person. Many disputes are initiated because the other party is unresponsive after a transaction is initiated. For cases like this, btdex has mediators who can assist with the dispute process.

Photo by Tingey Injury Law Firm on Unsplash

What is a mediator?

A mediator is a member of the btdex community who assists in the resolution of disputes. Mediators are bonded by 1 million (1,000,000) TRT, which is used to secure their trustworthiness. Most transactions on btdex at the time of writing are under $1,000 USD in value. Speaking generally, the mediator bond is approximately $3,000 to $8,000. There are also two mediators assigned to each contract at random from a pool.

Why should I trust mediation?

To manipulate the dispute process, the entire mediation system would need to be corrupt with each mediator risking a significant amount of money in the process. That risk would increases the financial incentive for an honest mediator to report the dishonest ones.

Consider a fraudulent dispute, in which honest buyer Bob tries to purchase $500 worth of BURST from dishonest seller Shelly, who receives Bob’s payment in PirateCoin but then submits a dispute anyway, denying it was received and demanding to be awarded the lot for sale. When Shelly lodges her dispute, two mediators, honest Trent and dishonest Chuck, are assigned randomly from a pool to the case.

The first thing that will happen is that Trent and Chuck will verify that the PirateCoin transaction occurred between Bob and Shelly. Since Shelly’s PirateCoin address is listed in the contract, Shelly cannot lie about where she requested the deposit. Trent can look at the PirateCoin explorer and see that the transaction occurred. Chuck does not care about the truth because he is colluding with Shelly to defraud Bob, so he will lie and say it did not occur.

Already, Chuck and Shelly have a problem. Trent is an honest mediator assigned at random and can verify that Bob’s claim to have paid is true. If Shelly and Chuck want to bribe Trent, they would have to bribe him for at least more than he stands to lose in his TRT bond (let’s say $3,000). The most Shelly and Chuck can steal from Bob is the money Bob already paid ($500 in ARRR) and Bob’s security deposit, which is no more than $150 (30%) in BURST.

Unfortunately for them (and fortunately for Bob), no matter how Shelly and Chuck divide $650, it will never be worth the risk to Trent, who stands to lose at least $3,000 if he is caught. Since blockchain transactions must be verifiable to be listed on btdex, this means that even if Trent were to be convinced to join the fraud, any other member of the community, like Peggy, could simply corroborate Bob’s story by proving the transaction took place. For each mediator who joins the scam, the incentive to report fraud increases, because mediators risk losing their TRT if they fail to perform their duties. Now, individuals who report Chuck and Trent stand to gain at least $6,000, while the collaborators only stand to gain $650, nearly 1/10th of what they risk by participating.

What if the entire mediation system is corrupt?

This is an important question, with an equally important answer. Because there is a human element, it is inherently possible that all participants in the mediation system (and indeed, the entire Burstcoin community) could be bad actors, no matter how unlikely. For many, that possibility may be a reason for pause. However, the solution is simple:

Never participate in a system you do not trust.

If you do not trust the mediator pool and the btdex team, do not use btdex.

If you do not trust the Burstcoin team, do not use the coin.

You must always be confident in the systems you use, or at least willing to accept the risks of using them. I myself hold BURST and participate in the BURST ecosystem .For many, the risk of loss or abuse is considered acceptable. If such risk is not acceptable to you, wait.

  • Get more information
  • Ask questions
  • Interact with members
  • Observe others’ transactions.

BURST will be here when you’re ready 😊

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Dimelo Waterson

Just a poor person looking for the next big thing, and toying with crypto along the way.