Unfortunately, we can’t always trust everyone we are transacting with. Consumers are also plagued with questions such as the following;
- Does the buyer have the funds they claim they have?
- Does the seller have the product they claim they have?
- Will the buyer pay for the product or service?
- Will the seller releases the products once they receive the funds?
- Will the standard of service meet the expectations of the buyer?
Upon initial inspection, consumers might be stuck with the understanding that their transactions are truly limited to the people they already know and trust, especially when large amounts of cryptocurrency are at stake.
Furthermore, cryptocurrency transactions are immutable due to the nature of the blockchain, meaning once the money is sent, there is no going back. Therefore, ensuring the transaction is executed correctly the first time is essential.
This is where an escrow service comes into play. A crypto escrow service helps to mitigate these concerns by giving buyers and sellers trust in the sales process through oversight by a third-party.
How escrow services work
Escrow services traditionally put their reputation on the line by relying on a trusted bank. Now, money transfers can be conducted without a bank account, thanks to escrow services that are conducted through the blockchain. A bitcoin escrow service safely stores cryptocurrency in a deposit account to verify that the funds exist and protect it from both the buyer and the seller.
These funds are held “in escrow” until the terms of the agreement have been met. Funds held in escrow act as a safety net for one transaction or multiple transactions conducted without a legally binding contract.
Crypto escrow services may occur in a peer-to-peer marketplace (similar to eBay) that allows sellers to determine the requirements and set a price. Buyers can find an offer and initiate the trade. This triggers the funds to be moved from a vendor’s wallet to escrow. Once the buyer and seller have verified the transaction and its terms have been met, the money can be released into the seller’s wallet.
In any case, if a disagreement occurs, a moderator can step in and investigate the information surrounding the transaction and make a decision as to where the bitcoin will be awarded. It is important to note that when using an escrow service, the buyer and seller agree to leave the decision-making to the arbitrator. That said, disagreements are minimal, and transactions are usually simple to execute.
Additional benefits to using cryptocurrency escrow services
A secondary benefit to using cryptocurrency escrow services comes down to cost. Typically, when conducting a transaction that involves a large number of funds, legal contracts may need to be drafted or used out of fear that the seller will fail to deliver a given service.
An escrow service eliminates the need for legal services and is relatively low cost. Furthermore, escrow services give users peace of mind knowing their funds are safe in escrow.
It is also important to keep in mind that these transactions are instant, so once funds are released from escrow, the seller will be able to use these funds right away.
Escrow services can also be used for various products, ranging from properties, domain names, cars, websites, consulting services, or even expensive paintings. Therefore, regardless of the frequency of the transaction or size of the payment, an escrow service can provide users with the platform necessary to conduct safe transactions.
Determining if escrow services are for you
Once users have a good understanding of how escrow works and have found a platform that works best for them, it is important to do a little bit of background research. An escrow service that is licensed, regulated by local authorities, and employs knowledgeable escrow officers is the most secure option for conducting cryptocurrency transactions.