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Direct peer-to-peer bitcoin transactions are irreversible; and relying on a centralised escrow or reputation service for fraud protection is contrary to bitcoin's decentralised philosophy.

What other methods or techniques have people devised to reduce bitcoin fraud to a modest amount?

For example, two traders don't know each other* and want to exchange goods, services or currency directly.

* on bitcoin anyone can be a dog... or Walt White or Cthulhu.

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One possibility is to use 2-of-2 multisig. This means that if the parties don't reach an agreement, the funds are lost so they have an incentive to cooperate. (This is still vulnerable to blackmailing).

Another is 2-of-3 multisig with a 3rd party. If the parties agree (which is usually the case) the 3rd party doesn't need to do anything and can't control anything. If the parties disagree the 3rd party can arbitrate. This means that for a problem to exist, one of the parties and the 3rd one must misbehave, which is by far rarer.

It is a mistake to think that Bitcoin means there should be no centralized services. It means that whatever can be decentralized, should be; leaving centralized services with a reduced role, leading to lower barrier of entry, lower vendor lock-in and more competitive service.

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