Bitrated has announced an online reputation management system for its multi-signature (multisig) escrow service for bitcoin payments. The two innovations combined provide unprecedented consumer protection to Bitcoin users, buyers and sellers alike.

Bitrated‘s bitcoin payment service uses multisig transactions where a trusted third party (trust agent) is nominated to resolve disputes and reverse payments in case of fraud. Two out of three signatures are required to unlock a payment: the seller’s, the buyer’s and the trust agent’s. So if the buyer is happy with the purchased goods or services, the payment can be unlocked by the buyer and the seller alone, with no intervention required from the trust agent. Otherwise, the trust agent will arbitrate the dispute for a fee, and eventually take either the side of the seller, in which case the payment will proceed, or the buyer, in which case the escrowed bitcoin will go back to the buyer.

With multisig, the trust agent is not able to take the money and run, because the payment address is fixed and any decision of the trust agent must still be validated by the seller or the buyer. But as usual, the devil is in the details: a dishonest trust agent could collude with a dishonest seller – or buyer – behind the scenes. Bitrated’s reputation management system addresses this problem.

“We believe that Bitrated holds the key to the next wave of Bitcoin consumer adoption,” said Bitrated CEO Nadav Ivgi . “While disputes about e-commerce are usually settled in a fairly easy process, Bitcoin transactions still hold a major risk of fraud. The new reputation management system is a huge leap forward in consumer protection when combined with the secure payment system, and it can help bring Bitcoin one step closer to the massive numbers of users in e-commerce.”

Bitrated created a marketplace for arbitration services where trust agents can compete for customers by providing quality dispute resolution services, utilizing their domain expertise, building a reputation and offering competitive fees.

“Because trust agents never hold user funds in escrow, we can greatly reduce compliance costs, lower the entry barriers, encourage competition and allow smaller and specialized players to participate in a way that was never possible before.”

To join Bitrated, users need to create a profile like this and link their social network accounts. At this moment, reputation scores are mostly based on the various karma systems and number of friends/followers on the social networks. Later, it’s to be expected that reputation scores will be based on user reviews, successfully completed transactions and dispute resolutions on the Bitrated system itself.

To create a new trade, buyers need to specify what they are buying (a description of the product or service, delivery method and other agreed upon terms), the price in bitcoin, the user name of the seller (an external email address can also be used, in which case the seller will receive an invitation to join Bitrated), a refund bitcoin address, and the user name of the trust agent. Trust agents, who can be found in the Bitrated user database, can specify their fees: a base fee (for example 0.5) and a dispute resolution fee (for example 2). If the system catches on, top-rated trust agents whose services are in demand could earn significant fees.

Bitrated is a very welcome addition to the Bitcoin ecosystem, and one that meets an important need. It can be seen as an open and transparent alternative to the native escrow and reputation systems of specific Bitcoin marketplaces – where often escrow and dispute resolution are provided by the operator itself. Bitrated, which is essentially a public marketplace for arbitration services with a crowd-sourced reputation system, is a good solution to manage trust issues in the digital economy.