An escrow is a standard financial arrangement to add security to transactions. The agreement includes a third party with the responsibility of holding funds in safekeeping until the two parties meet the obligation terms. As you know, bitcoin shares several properties with cash. Therefore, once a Buyer and Seller exchange funds, it is nearly impossible to get back. Immutability has its benefits; however, they also make transactions with unknown parties difficult.
Why escrow services offer security
The rate at which consumers transact with unknown parties has only increased with a growing emphasis on digital currencies and eCommerce storefronts. In comparison to a user sending money to the address of an unknown party, Buyers will send the funds owed to a trusted party. The party will hold the funds as the Buyer and Seller determine their agreement terms. By not transacting directly with the Seller, both parties must work hard to honestly fulfill their agreement to release the funds.
Additional reasons why escrow services are needed
Bitcoin has many appealing features, including its anonymity. Unfortunately, this is a double-edged sword. If a scam is to occur, the authorities may never track down the owner of the bitcoin, and funds may be lost to a fraudulent party forever. Since some platforms only require an email and password for users to transact with, it has become a popular choice for scam artists. The presence of a third party is likely enough to deter scammers from engaging in a transaction since there is no guarantee they will receive the funds.
Many different types of escrow services exist, most traditionally through reputable banks. However, for the first time in history, banks don’t need to be a part of the equation. New offerings include a bitcoin escrow service that relies on blockchain technology.
An overview of the bitcoin escrow process
The main use of an escrow service is to purchase a good or service that may require a complex series of steps to fulfill the transaction, such as the filing of a deed or the dependency on an inspection. On the services side, an escrow provider may help to ensure a contractor or freelancer completes a project to a certain standard, such as a website that may need several website pages or multiple blogs. Although these use cases are the most common, an escrow can be engaged for any transaction regardless of how big or small it is.
How it works
Buyers locate a product or service they would like to purchase and initiate the trade. If the item is on a bitcoin marketplace, the terms of the agreement and price will be included in the description.
After reviewing their agreements, both parties will sign up for the escrow service of their choice. The sign-up process will require the users to provide an email, password, and, depending on the platform, other details for KYC regulations. With the account set up, the Buyer will receive an address to send the funds to. Once sent, the funds will remain in the secure account while the Seller preps the product for shipping.
Escrow providers may require users to submit shipping information for additional security. When the item arrives, the Buyer will undergo a brief inspection period. At this point, the Buyer must decide whether they will accept or reject the product. The Buyer can alert the escrow provider of their decision. If the decision is to accept the product, the platform will release the funds into the Seller’s wallet.
If a dispute is to arise at any point of the process, the escrow provider will step in and act as the neutral third party or judge in the decision. The escrow provider will investigate all of the information available about the trade and decide who the funds’ rightful owner should be. In most cases, disagreements are rare, and there is no need for a moderator.
Locating a bitcoin escrow service
The list of available escrow services continues to grow alongside the use of cryptocurrencies. Therefore, users must do their own research to select a platform that offers features necessary for their transaction. Since an escrow agent needs to be trusted, it is also important for users to do a background assessment on the platform and supporting team.
Crypto Exchange
Crypto Exchange is a known bitcoin marketplace, exchange, and escrow service. The platform offers a breadth of functionality, allowing users to shop on their platform and select escrow as an add-on if they require it. Setting up an account and purchasing bitcoin can be done in minutes. Features include exchanging additional cryptocurrencies, including Ethereum (ETH), XRP, and Litecoin (LTC).
IBC Group
IBC Group is a blockchain fundraising service with an additional escrow service. The website suggests they have optimized their platform for larger transactions. The company’s security and reputation may be unknown; however, the team is visible on several website pages for users who want to conduct further review.
Escaroo
Escaroo is a platform that facilitates escrow services through smart contracts. To ensure each user is trustworthy, the platform also verifies every person that uses the platform.
Bitxoe Beta
On the newer side is Bitxoe. The platform has lofty promises but is still new in inception with a community of 16+ customers and 78 wallets. The platform allows users to transact for a 0.5% fee for those willing to try a newer offering.
Multi-signature technology
In the world of cryptocurrency, another option for escrow services exists. Users may choose not to use a third party in favor of multi-signature (multi-sig) technology. A multi-wallet will only release funds held if a certain number of users sign off on it. For escrow services, the wallet might be accessible to three different parties and require the signature of at least two of them. The Buyer and Seller may agree together and have the funds released, or the third party may act as a moderator to sign off if a dispute arises.
Final comments
Bitcoin escrow services institute a transparent payment process that guarantees the safety of both Buyer and Sellers. Both parties should always use escrow services when making large transactions, or the party is unknown.
Image: Flickr
