Last updated on January 2nd, 2018 at 12:00 am
Using a 3rd party escrow service to handle a Bitcoin payment is a good idea when transacting with an untrusted party. Escrow protects sellers from fraudulent buyers by requiring the Bitcoin be deposited up front. Likewise, buyers are protected if the seller turns out to be a scammer and doesn’t deliver the goods. In the event of such a dispute, the escrow service will act as the arbitrator and determine who should ultimately receive the Bitcoin funds.
Many Bitcoin marketplaces have a built-in escrow service (i.e. LocalBitcoins, CryptoThrift, BitPremier, etc.). Otherwise, check out the escrow services below — each one of them has built a solid reputation and is generally trusted by the Bitcoin community.
Recently I’ve made a few large Bitcoin related purchases with people whom I’ve never met before. This of course required me to use some sort of Escrow service to conduct the transaction. When doing my research about the different services available I’ve encountered two major problems:
1. You’re (still) sending your money to a stranger
When you’re using Bitcoin escrow services you don’t actually solve the original problem you’re dealing with, which is not to send your money to strangers. You have no idea who is behind the escrow site and why should you trust them with your money more than you trust the person you’re buying from?
2. There aren’t many reputable Bitcoin escrow services
Unfortunately you can’t find many well known Bitcoin escrow websites. The oldest one that is still active is BTCrow (update 2017 – service discontinued). Established in 2011 BTCrow is still the only “long lived” solution out there. However it too is not that reliable. Several BitcoinTalk users have reported delays is the system’s response.
For example this user sold a domain name through BTCrow but once the transaction was complete, he didn’t get his money. Even though he posted on BitcoinTalk and contacted BTCrow’s support it took 12 hours until the issue was resolved, which is way to much if you’re waiting for $7,500 to come in.
When I personally tried to use it for the first time the confirmation emails took more than an hour to arrive. In the end I decided to send the money directly to the seller since I was afraid their system wasn’t up to date.
Even though at this point I did a thorough check on the identity of the seller, it still didn’t feel very comfortable sending out a few thousand US dollars without the insurance that I will get what I paid for. Also the BTCrow user on Bitcoin talk was idle at the time and didn’t seem to be responding to any BTCrow related threads.
Other Bitcoin escrow sites don’t have any reputation (good or bad) so there’s no way of knowing if they’re legit other than trying out their service.
Escrow My Bits
Formed around 2 years ago Escrow My Bits is another Bitcoin escrow service you may want to consider. The site has 4 different types of escrows:
Regular Escrow – You deposit your funds into a bitcoin address controlled by the site and the funds are forwarded to cold storage.
Regular Escrow pegged to fiat value – You deposit into a bitcoin address controlled by Coinapult and Coinapult pegs the value to a fiat or asset value.
Mutli-Signature Escrow – Your funds are kept in a secure 2 of 3 multi-signature transaction where the site holds only one key.
Multi-Signature Escrow pegged to a fiat value – Your funds are kept in a secure 2 of 3 multi-signature transaction using Omni (mastercoin) or Nubits to peg the value.
The upside of Escrow my Bits is that if the transaction takes a long time to go through you can still peg it to a dollar value and you won’t be affected by the exchange rate. The site takes 1% of the transaction cost for the service. Here’s a short video about the service:
What if I don’t want to use a 3rd party site?
Fortunately not all is lost. There are still some viable options that will allow you to conduct a Bitcoin transaction through Escrow. If you just want to eliminate the reputation issue you can use the escrow thread on BitcoinTalk which has multiple users that supply escrow services. These users all have extremely high trust rankings and will probably not scam you (use at your own risk, this is just my own advice).
Another option, which I personally prefer is using a multisig service like Bitrated. Bitrated isn’t an escrow service, it’s a multisig wallet that allows 2 out of 3 people to complete the transaction. Let me explain.
A multisig wallet is a shared wallet that requires a certain amount of signatures in order to transfer funds from it. For example, the wallet can be shared by 3 people and when any 2 out of the 3 decide to send the money, the order is executed.
BItrated is basically a platform which introduces buyers and sellers with arbitrators. It then creates a multisig wallet shared by all three parties, that requires only two signatures to release the funds. So if both seller and buyer agree that the transaction is complete the arbitrator isn’t needed. If the seller or the buyer believe a dispute needs to be made then the arbitrator’s job is to decide where to send the money to.
Of course arbitrators usually charge a fee for their services but it’s usually a very decent one. The fees change depending on whether the arbitration is ultimately needed or not. One last thing to keep in mind is that the system is set up so that the seller will always be the one who pays the arbitration fees.
The major upside of this platform is that you’re not sending your money to strangers, you’re just depositing it inside a multisig wallet which you have certain control over. Bitrated itself, doesn’t hold the private key to the wallet and can not steal the funds.
My personal lesson from Bitrated…
Not too long ago I conducted another large Bitcoin transaction, this time through Bitrated. I have to say that even though the system is lacking some basic functions (e.g. edit a trade, message users, etc) it works pretty smooth. The only issue I had was that I actually lost my 2fA password for the account (but that’s just me being stupid).
Since Bitrated has no way of accessing the multisig wallet I had to use the arbitrator’s service in order to release the money to the seller. Fortunately everything went pretty smooth. All in all I can say I was pretty impressed with Bitrated’s service. At the time of writing this post the system itself doesn’t charge you any fees – you’ll only have to pay arbitration fees.
The system also supplies a very basic feedback mechanism that allows you to see who are the top rated users and arbitrators on the site.
Before I sign off keep in mind that if you’re only dealing with the transfer of money (i.e. buying/selling Bitcoins), many exchanges have their own escrow service built in (e.g. LocalBitcoins).
So these are basically your options: Going with a “traditional” bitcoin escrow services, using a BitcoinTalk mediator or using Bitrated. Personally I prefer Bitrated, if you have any other bitcoin escrow solutions feel free to share them in the comment section below this post.