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These fully centralized systems have a simple design and implementation however, there are some key issues that affect the users of the system - both merchants and customers - two of which are discussed here. | |
The first issue is that the trusted entity has a legal responsibility to handle ``charge-backs'' or reverse transactions, the cost for this escrow service - in which the central authority acts as an arbiter in disputes - is placed on the customer as a transfer fee or to the merchant as a fine, or worse\cite{violin}\footnote{\url{http://www.guardian.co.uk/world/2012/jan/04/paypal-buyer-destroys-violin}}. | |
The second major disadvantage of a centralized system is that it allows for a single point of failure resulting in a lack of reliability from the perspective of the user. The central authority has complete control over the status of the users' account - that authority can freeze the funds of that account at their discretion according to their own terms of service, this can include pressure from legal authorities~\cite{mtgox-dwolla,vlad:mtgox-dwolla,wikileaks-paypal}. Additionally, the central authority exists as an easier target for legal action, should that authority fail to freeze or track `problematic' accounts and this may result in a total shut down of that service~\cite{lr-shutdown,egold-shutdown,lr-idictment}. This report assumes that being resistant to attack from a third party, regardless of the good intentions of that party, is an advantageous feature of a currency. It is not in the scope of this report to discuss the legal or ethical repercussions of such a currency. |
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