The purpose of Bitcoin services: to make businesses more confident about the security of instant transactions

Merchants face many challenges in accepting Bitcoin payments, and while payment service providers can simplify the Bitcoin payment process, there are still some risks to consider.

Retail payment processes require speed, and although Bitcoin is often considered an instant payment method, it is not secure due to the lack of network confirmations for new transactions.

Ideally, the first confirmation of a Bitcoin transaction will be completed within 10 minutes. Every time a block is added to the blockchain, the transaction will be confirmed. The industry standard is that 6 confirmations are considered safe, which takes about 1 hour to confirm.

Accepting Bitcoin payments requires merchants to accept zero-confirmation Bitcoin transactions, but there is a risk that dishonest consumers could change the transaction and initiate a double payment before the block is added to the blockchain.

“For low-value transactions, such as buying candy, this risk is manageable.” — BlockCypher.

As soon as the purchased goods are shipped, the buyer can resend the bitcoins to someone else, initiating a smaller transaction with a higher mining fee than the original transaction, which can be queued in front of the original transaction and thus included in the block in advance. If the fraudster is quick enough, this second smaller transaction will be included in the blockchain, and the merchant will lose these bitcoins. There is even a website dedicated to providing free double payment services (doublespend.me), which has become a great educational resource for this community.

Bitcoin risk mitigation services can mitigate this risk. Erik Voorhees, CEO of ShapeShift exchange, said, “Many companies, including ShapeShift, have created risk mitigation strategies for instant payments.”

BlockCypher started exploring this new space in 2014. The company offers a number of risk mitigation services, such as easy creation of custom wallets, analytics, and micropayments on the blockchain. Their most basic service costs $75 per month, which includes a trust factor score for zero-confirmation transactions and guarantees for transactions of $9 or less.

“By monitoring the propagation of a transaction, and the number and speed at which nodes accept it, we can calculate the ‘win’ rate of that transaction at any given time,” BlockCypher claims.

The company has already partnered with major companies such as Deloitte, Capgemini Consulting, EY, and PwC, and its client list is like a list of companies around the world that accept Bitcoin payments. BlockCypher's services have been adopted by many exchanges (such as Coinbase, OKCoin), wallet providers (such as Xapo, Vaulturo), and ATM merchants (such as Lamassu, Bitaccess).

However, when using the company's service to process high-value transactions, they still recommend waiting a little longer for increased security. "While the probability of a double spend being successful is low, it is possible," the company said.

“Blockchain confirmations provide the highest level of security, especially when dealing with higher value addresses.” — BlockCypher.

Merchants who are looking for risk mitigation services that guarantee transactions greater than $9 should look to GAP600, a company founded by Daniel Lipshitz in 2015 that guarantees bitcoin transactions without the need for merchants to worry about block confirmation times and double spending. GAP600 processes hundreds of billions of dollars in transactions each month.

The company provides global Bitcoin insurance services, and unlike BlockCypher services, it adds an insurance product to the risk mitigation score. "In our environment, confirmation takes only a few seconds," said the company's founder and CEO, who guarantees the value of the transactions they confirm, "if something goes wrong, we will compensate the amount of the transaction."

The system has different membership tiers, with higher fees required to cover a wider range of risks. “We have a web interface that allows account management and statistical analysis,” Lipshitz said, adding that GAP600 Insurance is the first service to offer “instant bitcoin payments with no financial risk.”

The company's service does not require any AML and KYC checks. "We do not control or hold Bitcoin," Lipshitz said. "It is purely an analysis of whether the transaction is good or bad, whether it will fail, or whether it will be double-spent."

Like the BlockCypher service, once websites and merchants integrate the service, the process will be automatically completed by code. However, the company currently raises its own insurance funds, which will lead to layered risks.

“We are currently self-funding and managing our own risk,” Lipshitz admitted, while assuring that they are “fully capable of delivering on our promises.” As the company grows, more insurance products will be used to protect themselves, and “we are in discussions with underwriters to obtain further insurance to enable greater growth.”

“As Bitcoin becomes more of a part of the financial landscape and is adopted by large financial institutions, the services provided by GAP600 will remove the ambiguity of accepting zero-confirmation Bitcoin transactions.” - Daniel Lipshitz, CEO of GAP600.

Web wallet GreenAddress is also trying some ways to mitigate the risks of Bitcoin transactions. When using the company's wallet service to conduct Bitcoin transactions with cooperative exchanges, instant confirmation can be completed. There are at least 10 such exchanges, which is very convenient for Bitcoin traders.

The service doesn’t assign a trust score, but GreenAddress configures each wallet with a multi-signature address that contains a GreenAddress key that the partnering exchanges recognize, so that the exchanges recognize that transactions sent from it are safe because they are sure that GreenAddress will not allow its users to initiate double spending.