by: ofir beigel | last update: 4/1/21
Using a third-party escrow service to handle a bitcoin payment is a good idea when transacting with an untrusted party. this post will cover the different services available and what to look for.
Reading: Bitcoin escrow service
bitcoin custody overview
A bitcoin escrow service is a mediation service that holds the money from a transaction between strangers in escrow until the bitcoins (or goods) are delivered.
There aren’t many reputable escrow services to choose from these days. An alternative to bitcoin escrow service is bitrate, which is a multisig wallet designed to facilitate transactions between strangers.
That’s bitcoin escrow in a nutshell. if you want a more detailed review, read on, here’s what I’ll cover:
- what is a bitcoin custody service?
- the problem with custody services
- bitcoin custody services review
- custody agents
1. what is a bitcoin custody service?
An escrow service is a brokerage service that keeps the money from a transaction in a safe place until the bitcoins are delivered.
Escrow protects buyers from fraudulent sellers by requiring bitcoin to be deposited in advance, before the money changes hands. In the event of a dispute, the escrow service will act as an arbitrator and determine who should ultimately receive the bitcoins.
Many bitcoin marketplaces have a built-in escrow service (for example, localbitcoins and paxful). however, if you are not using one of these services, you can review the escrow services below.
2. the problem with escrow services
In the past, I’ve made some big bitcoin-related purchases with people I’ve never met before. this, of course, required you to use some type of escrow service to complete the transaction.
In researching the different services available, I ran into two major issues:
you are (still) sending your money to a stranger
When you use bitcoin escrow services, it doesn’t really solve the original problem you’re dealing with, which is not sending your money to strangers.
You have no idea who’s behind the escrow site, so why should you trust them with your money any more than you trust the person you’re buying from?
lack of reputable bitcoin custody services
Unfortunately, you cannot find many well-known bitcoin custody websites. All of the bitcoin escrow sites I could find have no reputation (good or bad) and haven’t been around long enough to be considered trustworthy. In short, there’s no way to tell if they’re legit other than trying their service.
3. review of bitcoin custody services
The following two services are the only ones I could find that seem to have a somewhat satisfactory reputation for being considered a reliable service.
colbert low has been in the bitcoin community since 2013 and has established a bitcoin custody service called btc asia. colbert’s reputation can be examined via localbitcoins (over 100 confirmed exchanges).
ibc group is a blockchain fundraising service that also provides a bitcoin escrow service. from their website, it appears that they deal with larger transactions. while it’s not clear how reputable the company is, its members are clearly listed on the “about” page, which is a good start.
4. escrow agents
If you don’t like the options presented above, all is not lost. there are still some viable options that will allow you to make a bitcoin transaction via escrow.
First, you can check out the escrow thread on bitcointalk which has multiple users providing escrow services. all of these users have extremely high trust ratings and probably won’t scam you (use at your own risk, this is just my own advice).
Another option, which I personally prefer, is to use a multisig service like bitrated. bitrated is not an escrow service, it is a multisig wallet, which means it requires a certain number of signatures to transfer funds from it.
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for example, the wallet can be shared by 3 people and when 2 of the 3 decide to send the money, the order is executed.
bitrated is basically a platform that introduces buyers and sellers with referees. it then creates a multisig wallet shared by all three parties, requiring only two signatures to release the funds.
If both the seller and the buyer agree that the transaction is complete, the arbitrator is not needed. if either the seller or the buyer believes the dispute needs to be resolved, then the arbitrator’s job is to decide where to send the money.
Referees usually charge a fee for their services, but it is usually very decent. fees change, depending on whether or not arbitration is ultimately necessary. the platform itself does not charge any fees.
The system also provides a very basic feedback mechanism that allows you to see who are the highest rated users and referees on the site.
One last thing to note is that the system is set up so that the seller always pays the arbitration fees.
the main advantage of bitrated is that you are not sending your money to strangers; you are simply depositing it inside a multisig wallet that you have some control over. bitrated itself does not have the wallet’s private key and cannot steal the funds.
my personal bitrated lesson…
Not too long ago I made a large bitcoin transaction through bitrated. I must say that although the system lacks some basic functions (eg editing a transaction, sending messages to users, etc.), it works quite well. the only problem I had was that I actually lost my 2fa password for the account (but I’m just stupid).
Since bitrated has no way to access the multisig wallet, I had to use the arbiter service to release the money to the seller. Fortunately, everything went quite well. All in all, I can say that I was quite impressed with the bitrated service.
There aren’t many options for bitcoin escrow services, but there are still a handful of services you can use. while not a custodial service per se, bitrate is definitely my personal choice as it doesn’t actually transfer control of your coins to a third party and you get to choose the arbiter.
have you had any experience with bitcoin escrow services? Do you know of any trusted services that I haven’t mentioned? I’d love to hear about it in the comments section below.
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