Internet commerce relies almost entirely on financial institutions as trusted third parties to process electronic payments

While the system is not bad for most transactions, it is still hampered by the inherent flaws of trust-based models. A completely irreversible transaction is not practically possible, as financial institutions cannot avoid arbitration disputes. The cost of arbitration increases transaction costs, which in turn limits the size of the minimum possible transaction and simply prevents many micropayment transactions. On top of that, there's an even bigger cost: the system can't make irreversible payments for services that aren't reversed. The possibility of reversal has created an all-pervasive need for trust. Merchants have to be wary of their customers, bothering them to provide more information that would not be necessary if it were not (if trusted). A certain percentage of fraud is considered unavoidable. These costs and payment uncertainties can be avoided when payments are made directly between people using physical currency; However, there is no mechanism for both parties to make payments through communication channels without one of them being trusted.