Many new users continue to adopt bitcoin and other digital currencies into their payment processes. After all, they make transactions easier and more efficient than traditional currencies. Additionally, crypto has lower fees and greater anonymity for transactions, similar to cash payments.
Honing in on this anonymity, many questions might arise, such as how is my security protected if I don’t know who is on the other side of my transaction? What if a misunderstanding arises? How am I protected from fraudulent buyers or sellers? The answer is simple: escrow services.
An overview of escrow services
The concept of escrow is not new. Simply stated, an escrow is a form of financial agreement in which a third party is in control of regulating and managing a participant’s payments. Escrow services continue to play an important role in the blockchain community and in our society as a whole.
A bitcoin escrow payment service is a representative for the two transacting parties. It adds a layer of neutrality since sellers can’t gain access to funds until both parties meet every condition in their agreement. In traditional examples, many commonly use escrow services to exchange large items such as real estate or vehicles, which may also include several item transfers and payments. Blockchain-based escrow operates similarly, except the holding and transferring of funds becomes reliant on the exchange of public and private cryptocurrency keys.
How does bitcoin escrow work?
Many bitcoin marketplaces have created their own escrow services that may be selected when a user checks out. A select few have stood in the minds of consumers for offering a variety of services and maintaining a positive reputation. Before selecting a platform, it is important to do your research and consider overall user sentiment towards it. Escrow services also come with a fee, so users might want to consider this cost when they decide to engage these services. In general, bitcoin escrow platforms are useful for carrying out transactions involving many funds without involving lawyers and other legal parties. Bitcoin escrows eliminate the need for these added intermediaries through blockchain technology.
The remainder of the process is fairly standard and involves the following steps:
- Transacting parties agree to a set of terms: To initiate the transaction, both parties must agree to which platform they want to use to execute their exchange and the terms that will mark their agreement as complete. The two parties must also decide who will cover the escrow fee. In some cases, one of the two parties will make the payment in full. In others, the buyer and seller will agree to split it in half.
- Buyer issues payment: After both parties reach an agreement, the buyer will pay the escrow service for the item in question. To issue the payment and secure the account, the buyer may need to provide a driver’s license as a part of Know Your Customer (KYC) protocols or verify their log in with two-factor authentication. A notification will then be sent to the seller indicating that funds are secure and held in trust.
- Product arrives in the buyer: The seller will receive authorization to send their product or service to the buyer. After inputting this information, the buyer will receive a notification that their product is being shipped and may receive a tracking number or estimated arrival date.
- Buyer accepts merchandise: After the buyer gets their product or service, they must choose to accept it and authorize the payment to the seller. When the escrow receives this confirmation, the agent will release the funds held in trust to the seller.
In the event of a dispute, the bitcoin escrow agent will decide the buyer and seller’s corrective action. The buyer and seller both agree to this condition when signing up for the account. As a neutral arbitrator, the platform will consider all available information before awarding the funds and product to the rightful party.
Selecting a worthy crypto escrow provider
Many types of escrow services are available, depending on the type of cryptocurrency users exchange and the other needs of these parties. As a result, selecting an escrow service can be overwhelming as many platforms are increasing in breadth and functionality.
A final word
Digital currency creators made crypto to be irreversible. Although beneficial, it has left buyers in the dark about the whereabouts of their funds. In rare cases, users have become subject to cryptocurrency scams, where the platform itself has been fraudulent. More common are scams occurring due to fraudulent individuals who request payment for products or services they don’t own. It is for this reason that already trusted platforms create bitcoin escrow services, and people continue to use them.