Bitrated is a identity and reputation service which let’s buyers and sellers utilise a multisig address and appoint  an arbitrator to hold one of the required keys in case of dispute.

Users are encouraged to link their other social accounts to their profile and others can vouch for their integrity. Bitrated then collates this information to produce a “Bitrating Score” which can be used as an indication of their trustworthiness.

Users can put themselves forward as potential arbitrators, specifying their qualifications, the types of transaction they are willing to arbitrate, along with the fees that they will charge. The buyer and seller must agree on the terms of their trade and the arbitrator before commencing their transaction. A multisig address is then created, using the public keys of buyer, seller and arbitrator; any two of the corresponding private keys can be used to spend the bitcoins held at this address.

The buyer sends their bitcoins to the designated multisig address. If the seller completes their side of the trade (sends the goods or delivers the service etc.) then both the buyer and seller will sign a transaction sending the bitcoins to the seller. In this case there is no need for the arbitrator to get involved.

If the buyer is not happy they can refuse to sign the transaction and ask the arbitrator to intervene. The arbitrator will look at the evidence and sign a transaction they thinks is appropriate, either returning the bitcoins to the buyer, sending them to the seller, or a combination of the two. He will give a copy of the signed transaction to both parties. Either one can then sign it and complete the transaction.

Bitcoins UK can act as an arbitrator in certain types of transactions, see this blog post for more information.

It is important to choose an independent and reliable arbitrator for your trade. If they are not independent they might collude with the other side and make an unfair decision, there is no further recourse, as all Bitcoin transactions are irrevocable. If you can not reliably depend on the arbitrator to carry out their duty then you may find that, without reaching an agreement with the other party, your bitcoins are stuck in limbo.