The bitcoin escrow service acts as a neutral third party between buyer and seller when doing business online. An escrow service is specially needed when making payments, buying things online, doing bitcoin exchanges on forums and similar. Since bitcoin transactions are irreversible many use escrow services.
An escrow service provides safer transactions by holding buyer’s coins in escrow which are released after both parties are satisfied. Some services also offer dispute resolution/mediation within escrow service. An escrow service protects seller and buyer.
Bitcoin Multisig feature
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 must be provided for a valid transaction.
For example, you can have two people who must both provide their signature (2 of 2) to validate the transaction, or you can set it up to require any 2 out of 3 possible signatures, or anything else which suits your needs. You can use multi-sig addresses to create a kind of joint account, which requires you and your partners to sign off on any withdrawals, or maybe requires a few company’s bosses to approve expenditures. You can also use them for savings wallets which require multiple signatures to increase security.
How To Use Bitcoin Multisig for Escrow
Probably the most common use of multisig is bitcoin multi-sig escrow. Multi-sig escrow provides consumer protection without the need to trust some escrow service (such as one described below) to hold coins on your behalf. Instead an address is created that requires 2 of 3 signatures from the buyer, seller, and a third person who provides arbitration in case there is a dispute. This address holds the payment until a product or service has been delivered, and can then be used to either make payment to the seller or refund the buyer.
Bitcoin Wallets That Support Multisig
If you are able to choose a third-party (an escrow agent) to act as an intermediate in case of dispute, you can use these services as an escrow, although strictly technically these are not typical escrow services. Some of them do not charge any fees as they just provide bitcoin built-in feature. Maybe you already use one of them anyway! The first escrow option is to setup a rule of minimum of 2 parties to sign on a multisig wallet of 2 keys. That means once a deposit has been made, both parties need to agree in order to move the funds. A second option is a minimum of 2 parties to sign out of a 3 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.
- Copay – like a joint-checking account, your Copay wallet can have multiple users. To send money, the group approves each transaction. Manage shared funds with friends and co-workers or use it as an escrow. Copay makes sharing a wallet simple and secure.
- Xapo – 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.
- BitGo – this is an online wallet with multi-signature features.
You may also create a multi-signature wallet by yourself. This tutorial is great.
Bitcoin Escrow-Specialised Services
There are a few platforms that are specialised for providing escrow services to bitcoin users. In addition to services described above, when you use one of these services, you are able to 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.
- Bitrated – participants choose from a list of independent arbitrators registered on platform. Once confirmed, 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 the trust agent may charge.
- Escrow my Bits – new arrival to bitcoin escrow market but from trustable bitcoin people. The service charges a 1% escrow fee which includes potential dispute resolution. Your funds are kept in a secure 2 of 3 multi-signature transaction where they hold one key.
- StrongCoin – this is an online hybrid wallet with an escrow baked in. Use their escrow service to buy items and be sure they will arrive. Through a feature of bitcoin cryptography for 1% fee they are able to offer escrow where no single party holds bitcoins. They only hold one vote and for the coins to be released two votes are needed.
- BTCrow – an established and reliable bitcoin escrow service, running since 2011 (should need a refresh though). Their escrow process is straightforward, with 1.5% fee on transactions, they have a dispute guide and hints for the buyer/seller doing escrow. The service does not use multi-signature transactions.
Bitcoin Escrow Services on Forums
As you can buy bitcoins on forums from other users, many forum users offer escrow services. 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) and it is highly recommended to use an escrow service within forum to avoid scams and fraud. Please note that these services are not offered by forum platforms like some built-in feature, but are simply managed by forum users by itself.