What is an escrow in crypto?
Are you curious about what escrow is and how crypto escrow can make your transactions safer? In this article you will find all the answers!
What is escrow?
Escrow is a situation in which a third party holds money. The money is released once the recipient and the sender indicate that the transaction has been successfully completed.
You can also use escrow on the blockchain, for example, you receive bitcoins only after the laptop you want to sell has arrived in good condition.
Escrow accounts often contain a certain amount of money. The administrator only sends the funds once a certain contractual obligation has been met.
How does escrow work in crypto transactions?
In crypto, escrow works the same way as with fiat money:
- Person A sends a certain amount of money to the escrow company
- Person B sends a laptop, for example, to person A
- Once the laptop is received, person A indicates that the funds can be released.
An escrow is similar to a smart contract. In a smart contract, however, the agreement is fixed in code, while an escrow is a service.
What are the advantages of escrow?
It makes transactions safer
The important advantage of escrow is that it allows for a safe transaction. Scams and delivery problems are prevented with an escrow.
Low Costs
Moreover, Escrow actually does not involve significant costs. The costs for storage in escrow are very low, making the threshold to apply it relatively low.
Faster transaction processing
The presence of escrow increases trust in the seller. As a result, more people will be inclined to purchase products.
What are the disadvantages of escrow?
Not very flexible
Apart from the benefits, Escrow unfortunately also has a few drawbacks. It is possible that you accidentally overpay for an escrow. This can cause you to make an adjustment when you need to fulfill your obligations.
Costs can add up
Costs can also add up when you frequently use escrow services. This is not so much of an issue for individuals, but it is for companies that, for example, deal with contracts on a daily basis.
What are the best crypto escrow companies?
Bitrated
This is the top choice when it comes to Escrow services. This company is based in Israel and has been active since 2013. Technically speaking, Bitrated is not an official Escrow service provider, although the company is used for this purpose. Through the payment platform, cryptocurrency users are enabled to perform bitcoin transactions with smart contracts.
This means that when one party wants to make a larger payment to another party, both parties choose a third-party provider who also has access to a key of a special wallet. Provided that at least two parties agree that the transaction conditions have been met, the funds will be released. This also means that two signatures are needed to fulfill the contract.
Coinsavr
This is another well-known company that allows the use of Escrow services. The Coinsavr platform enables cryptocurrency users to store their funds in escrow when they want to process transactions.
This Canadian-based company is very user-friendly for beginners due to its pleasant interface. However, keep in mind that this platform requires you to first deposit your tokens onto their platform before you can use their Escrow service. Coinsavr charges a fixed fee of 1% plus 2 Euro for Escrow transactions.
Escaroo
Escaroo is a relatively new provider of Escrow services. The company enables crypto users to add a level of security to their transactions with the Keyless Escrow system.
This system allows all users to perform secure payments in which funds are temporarily held in Escrow to ensure that all transaction conditions are met. Escaroo charges a fixed rate of 1.5% for personal and small business transactions, with customized rates for business transactions.
ItBit Escrow
Lastly, you can choose ItBit Escrow. ItBit Escrow is also a special Escrow platform offered by the New York-regulated exchange ItBit.
The company says that all funds held on the ItBit platform are insured by the Federal Deposit Insurance Corporation. This provides users with a higher level of security when using Escrow services.
The minimum transaction size for ItBit Escrow is $50,000. It is therefore not surprising that institutional investors are the primary target audience for this Escrow service.
How secure is Escrow?
As long as you are dealing with a credible Escrow company, it is generally very safe to use Escrow services. These services ensure that your money is stored in a so-called “cold storage”. This is a physical isolation of all IT systems, which means they are no longer connected to the internet.
The fact that they are not connected to the internet means that these amounts of money cannot be hacked. These crypto Escrow services run on a blockchain. This means that you can be sure that your data is secure.
What types of escrow contracts exist?
There are several types of escrow contracts on the blockchain:
- Individual escrow agreement: this is an agreement between two individuals.
- Collective escrow agreement: this is an agreement between a supplier and a larger group of buyers.
- Distribution escrow agreement: an escrow agreement involving multiple parties, such as the producer, supplier, and customer.
Famous escrow: Ripple
A well-known example of escrow is the cryptocurrency Ripple. Ripple is released from an escrow wallet. Every month, a portion of the supply is released, causing the supply to increase.
Ripple holders are not always happy about this: as the supply increases periodically, the value may come under pressure.
How secure is crypto escrow?
Crypto Escrow is generally considered safe. The money you transfer to an escrow agent is stored in a cold wallet (i.e. not connected to the internet).
It is important to use multi-signature. This way, at least 2 parties need to sign off on an action, and the escrow agent cannot send the funds to themselves.
Escrow is also increasingly being used in ICOs. This way, as an investor, you can be sure that the developers will not disappear with the cryptocurrency.
