The bitcoin escrow service acts as a neutral third party between the buyer and the seller. It is especially needed when you are using online services, such as making payments, buying things online, doing bitcoin exchanges on forums and similar. Since bitcoin transactions are irreversible by default, many people use escrow services.
An escrow service provides safer transactions by holding buyer’s coins in an escrow. Coins are released after both parties are satisfied. Some services also offer dispute resolution/mediation within an escrow service if something goes wrong. An escrow service protects the seller and the buyer.
Multisig as Bitcoin Escrow Service
Multisig (short for multi-signature) bitcoin addresses have many interesting uses and are not as complicated or difficult to use as it may seem at first. The basic idea is that more than one person must sign a transaction for it to be valid. Bitcoin has built-in feature that gives you an opportunity to choose as many signers as you like, and then choose how many signatures in total one must collect for a valid transaction.
Multisig is generally used to divide up responsibility for possession of bitcoins. Here are a few examples. You can have two people, who must both provide their signature (2 of 2) to validate the transaction. Set it up to require any 2 out of 3 possible signatures. Use multi-sig addresses to create a joint account, which requires you and your partners to sign off on withdrawal. Gather signatures of a few company’s bosses to approve expenditures. Use them for savings wallets, which require multiple confirmations to increase security.
How To Use Bitcoin Multisig?
Probably the most common use is bitcoin multisig escrow. It provides consumer protection without the need to trust some outside escrow service (such as one of those described below) to hold coins on your behalf. Instead, you can create an address that requires 2 of 3 signatures from the buyer, seller, and a third person who provides arbitration in case if there is a dispute. This address holds the payment until a buyer gets a product or service. Then it is also possible to use it to either make payment to the seller or refund the buyer.
Best Bitcoin Wallets That Support Multisig
If you can choose a third-party to act as an intermediate in a case of dispute (an escrow agent), you can use these services as an escrow. Some of them do not charge any fees as they only provide a built-in bitcoin feature. Maybe you already use one of those already! So, let’s find out what are some of the best multi-signature wallets?
A simple but very well-built wallet that supports multi-signature addresses to secure your funds. It is a true bitcoin wallet, not an account service. Secure your funds with one or multiple signatures. Take security into your own hands and avoid trusting third parties with your savings. Like a joint-checking account, your wallet can have multiple users. Copay makes sharing a wallet simple and secure. To send money the group approves each transaction. Manage shared funds with friends and co-workers or use it as an escrow.
It is a multisig web wallet with some great features. They have developed it for every major platform, and this means that works nicely on whatever device you’re using. It also has the widest array of customizable triggers that tell the software when it’s ok to sign your transaction with their remote key. You don’t need to choose between privacy, security, and convenience. Two-factor authentication, multi-signature, and deterministic wallet allow you full control over your transactions.
With Xapo’s custom account permission settings, you can easily and securely share a single wallet among multiple users. With enhanced approval permission settings, you can ensure that any transaction is approved by multiple users. It is one of a few wallets that offers insurance on a multi-signature wallet account. It needs your full identification.
It is an online wallet with multi-signature features. The best-in-class multi-signature software addresses the most challenging security issues without ever taking custody of the assets.
Bitcoin Multisig Rules
You can set up a rule of a minimum of 2 parties to sign on a multisig wallet of 2 keys. That means once a deposit arrives; both parties need to agree to move the funds.
A second option is a minimum of two parties out of a three need to sign a key wallet (the seller, the buyer, an arbitrator). If there is a dispute, the arbitrator can sign with the buyer or with the seller, but cannot run away with funds.
Bitcoin Escrow Service Platforms
There are some specialized platforms for providing escrow services to bitcoin users. In addition to the services that we describe above, when you use one of these services, you can choose a third-party from a list of independent arbitrators. If they do not have the list, in the event of a dispute, they will act as mediators. Let’s find the best bitcoin escrow service.
Participants choose from a list of independent arbitrators registered on platform. Once the arbitrator accepts the job, the buyer deposits their bitcoins into a multi-signature address, and the payment is locked in that address until two of the parties (buyer, seller, and arbitrator) agree to release them. Platform charges no fees, except for the fees of the trusted agent.
StrongCoin is an online hybrid wallet with a built-in escrow. Use their escrow service to buy items and be sure they will arrive. Through a feature of bitcoin cryptography for 1% fee they can offer escrow where no single party holds bitcoins. They only hold one vote. If a person wants to release coins, it needs two votes.
If you want to buy bitcoin currency from another person, we suggest you to use LocalBitcoins that acts as an escrow in this process. It is a peer-to-peer marketplace where people exchange crypto with each other.
LocalCryptos is similar to LocalBitcoins, however, this is a non-custodial P2P marketplace. Here people buy and sell crypto on their terms, using any payment method. Unlike other P2P marketplaces, they don’t invade your privacy, and they don’t touch your funds. They cut a platform risk by putting you in control of your wallet. When trading on LocalCryptos, only you know your private key — they never take custody of your coins.
An escrow account holds the crypto side of the trade. This provides a guarantee of funds to the buyer and an abort path for the seller. The buyer of crypto should never send money before the crypto is in escrow. Likewise, the seller should only release the escrow after they see money in their account. If payment never arrives, either party can raise a payment dispute. This allows an arbitrator to decrypt messages, verify evidence, and get the crypto to its rightful owner.
LocalCryptos is the first and largest platform to offer a non-custodial escrow system. The technical details of the escrow depend on the crypto chosen. Ethereum escrows use a smart contract, and Bitcoin escrows use a P2WSH transaction. A non-custodial escrow system makes it impossible for LocalCryptos to steal from escrow accounts. By the same token, the platform’s non-custodial nature makes it immune from common hacks and thefts.
Users on Forums
As you can buy digital currency from other users, many forum users offer escrow service thus acting as in-person bitcoin escrow service. BitcoinTalk escrow thread is one of the most popular places to find a reliable escrow user. Usually there is 0.5-1.5% commission/fee (some are even free). We highly recommend to use an escrow service within the forum to avoid scams and fraud. Please note that these services are not some forum built-in feature, but are simply organised by forum users by itself.
- Strictly technically speaking, a multisig wallet is not a typical bitcoin escrow service.
- You may also create a multi-signature wallet by yourself. This tutorial might help.
- P2SH.info keeps track of the number of bitcoins being held in pay to script hash addresses. This accounts for most of the multisignature addresses in use. Using pay to script hash (P2SH), you can send bitcoins to an address that is secured in various unusual ways without knowing anything about the details of how the security is set up. You just send bitcoins to the ~34-character P2SH address. The recipient might need the signatures of several people to spend these bitcoins, or a password might be required, or the requirements could be completely unique.
- bitify – bitcoin & litecoin marketplace and auction site has a built-in bitcoin escrow service that lets users buy and sell with peace of mind.