When a Buyer and Seller do not know each other, they may choose to engage with a bitcoin escrow service. However, transactions that involve cryptocurrency add a layer of complexity in that the blockchain is not immutable. So, if a good isn't received as specified or the seller never sends the product, the money has already been sent and validated in the blockchain ledger and cannot be easily recovered. As a result, bitcoin escrow have become increasingly popular, especially in these use cases:
More and more freelance services such as website designers, copywriting, or virtual assets accept payment through cryptocurrency. The only problem? In contract-based work where completion of a deliverable is subjective, it can be hard for the individual purchasing these services to know when is the right time to issue payment. Some common examples are a multi-step website that involves many hours of work and several landing pages to be produced. Other times, businesses may engage a copywriter to write several long-form content pieces that require significant research. Labor services such as renovations may also require an escrow service if the homeowner is not present on site.
The concern stems from the contractor never providing the services if they are paid upfront. Alternatively, a subpar effort may be put forth, and agreed-upon edits or revisions may not be completed. Alternatively, the contractor may provide their services only to have the payment issuer decide their work isn't worth the price. For these reasons, bitcoin escrow services can ensure that they disburse the funds to the rightful party based on the agreement's terms.
Real estate transactions
People often use escrow services in real estate transactions. Placing the funds in an escrow account can guarantee that a large asset's sale will go through, and the seller won't have to worry about financial conditions. They are also commonly used so that the buyer can perform the necessary due diligence on the housing purchase. Any conditions attached to the sale, such as a house inspection or the use of appliances, can also be incorporated into the escrow agreement.
With bitcoin deposited in the secure escrow account, the seller can proceed with house inspections and other conditions with confidence that the deal will go through. Once the Buyer and Seller meet the conditions, the escrow service provider transfers funds to the seller.
An escrow can also refer to the account financial institutions create when closing a mortgage. The owner uses funds in this account for house insurance, property tax payments and a portion of the monthly mortgage. Although this is not a requirement for all lenders, it is for some and can provide some peace of mind that yearly premiums and bills will not need to be paid (as they technically already have been). Many financial institutions are already considering what this process will look like with bitcoin.
An online bitcoin escrow service protects both transacting parties from fraud, nonpayment or poor quality merchandise. When escrow services act as the middleman for online purchases, buyers can send associated funds to the escrow service rather than the seller themselves. Funds are then held in an escrow account until the product is received and deemed acceptable to the standards specified. Meeting the agreements is especially important if a company sells products internationally since a delay exists between shipping and receiving. Although a wait is normal, in this situation, it can be significantly longer than with wholesalers in close proximity.
There is no specific product category that specifically requires escrow services. However, in most cases, they are only engaged in luxury goods like designer watches or high-ticket items like real estate. This is because escrow services charge a small fee for their services which may not be necessary if the item for purchase is also low cost.
Compensation for employees
Another opportunity to use escrow is in transactions involving alternative compensation. In this example, the shareholder is the real owner of the digital currency but has limited rights if they want to sell the asset early. This is true when employees are partly compensated with shares of the company, tokens, or cryptocurrency and may need to wait a predetermined period of time (or escrow period) before selling their assets.
Purchasing gift cards with bitcoin
More recently, consumers have been looking for creative ways to purchase products or services with their bitcoin. Since some retailers do not yet accept cryptocurrency as a valid payment form, many consider buying gift cards for these stores with bitcoin. Unfortunately, once a user sends bitcoin, there is nothing a party can do to reverse it, and the seller may continue to hold on to the gift card.
Bitcoin escrow services continue to gain in usage as Buyers and Sellers transact with parties across the globe. Most people consider escrow as beneficial for protecting both the Buyer and Seller in any online transaction, including paying a phone bill or purchasing a gift for a family member.