Making larger bitcoin (BTC) transactions for business or other purposes can be daunting – and that is why many choose to make use bitcoin escrow services. Simply put, these can help you ensure that you only part with your coins after all aspects of your agreement have been met.
But are bitcoin escrow services all they are cracked up to be? And which ones are gaining traction in 2020?
Down to brass racks: what is an escrow service?
An escrow service is provided by a third party, who can temporarily hold and regulate payment in a transaction, ensuring that both involved parties adhere to the terms of their arrangement.
Once all terms of the agreed transaction have been met, the escrow service provider will authorize the payment.
Effectively, escrow exists to ensure that large payments are processed in a timely manner, and according to pre-agreed terms.
Traditionally, banks and other financial institutions have provided escrow services. Nowadays, you can also find a large number of internet-based escrow service providers.
How does bitcoin escrow work?
As bitcoin transactions are irreversible, it should come as no surprise to learn that crypto escrow service providers are now becoming increasingly common.
In fact, you might have already used a bitcoin escrow service without realizing it!
If you have traded on a platform like LocalBitcoins, for example, you will have used an escrow service.
On this peer-to-peer trading platform, when a buyer finds a seller and enters into a trade, the seller’s bitcoin holdings are temporarily held in escrow by LocalBitcoins until the buyer has sent the money.
Once the payment for the BTC has been received by the seller, the exchange will, in turn, release the bitcoin held in escrow.
Aside from peer-to-peer exchanges that use escrow solutions, there are also dedicated bitcoin escrow service providers.
While the exact steps vary slightly from provider to provider, bitcoin escrow generally works as follows:
After all aspects of a transaction have been agreed upon, the two involved parties choose an escrow service they want to use to make the bitcoin payment.
The terms of the transaction are met and both parties agree that they have been fulfilled.
The party paying in bitcoin releases the funds held in escrow.
The recipient receives their bitcoin payment.
Service providers, in turn, charge a small commission fee.
Choosing a bitcoin escrow service
Here are five bitcoin escrow services that many traders consider to be relatively safe.
Bitrated is an Israel-based provider that has been operating since 2013. The company says it provides “reputation management and consumer protection for the bitcoin ecosystem.”
Technically speaking, however, Bitrated is not exactly an escrow service provider. Instead, its payment platform enables cryptocurrency users to make multisig-based bitcoin transactions using smart contracts.
That means when one party wants to make a larger bitcoin payment to another party, both parties choose a third-party provider that can also access a key to the multisig wallet.
Provided that at least two parties agree that the terms of the transaction have been met, the funds will be released (as two signatures are needed to meet the terms of the smart contract).
Bitrated is free to use, but third-party agents may charge a fee for fulfilling their role in the transaction.
Coinsavr lets cryptocurrency users keep their funds in escrow when they process bitcoin transactions.
This Canada-based company boats a user-friendly, web-based dashboard, but requires that you deposit your tokens on their platform first before being able to use escrow services.
Coinsavr charges a 1% flat fee plus USD 2 for escrow transactions.
Escaroo is a relatively new online provider that was launched in 2019. It claims to enable cryptocurrency users to add a level of security to their cryptocurrency transactions.
Using a non-custodial, smart contract-powered KeylessEscrow system, this UK-based startup, which is registered with the (offshore) Jersey Financial Services Commission says it lets users make secure payments where funds are temporarily held in escrow to ensure all terms of the transaction have been met.
Escaroo charges a 1.5% flat fee for personal and small business transactions, with customized fees for corporate transactions.
IBC Group is a blockchain financial services company that says it is primarily focused on digital asset-based fundraising.
According to its website, IBC says it adheres to international KYC and AML guidelines and makes use of smart contracts as part of its escrow offering, for which it charges a 1% flat fee.
ItBit Escrow is a crypto escrow service provided by New York-based and New York-regulated exchange called ItBit.
The company says all of the USD funds held on the ItBit platform are Federal Deposit Insurance Corporation-insured, and it also claims to be a regulated crypto custodian.
The minimum transaction size for ItBit Escrow is USD 50,000 and the primary target group for this escrow is professional and institutional traders.
ItBit also charges a flat rate fee for escrow transactions.
Are there any risks?
Using an escrow service for larger bitcoin transactions can help mitigate the risk if you are entering into a financial agreement and crypto is involved.
However, as is the case with everything in finance, you can never be too careful. Remember that with escrow services, at some point along the line, you will need to trust a third-party with your funds, so some risks still remain.
Try to use a regulated service when possible, and make sure the service you use is above-board before you ask yourself – to escrow or not to escrow?