An Escrow Account Is An Account That Acts As An Intermediary Between The Parties To A Contract—these Types Of Accounts Guarantee Trust Between The Parties To The Transaction.
The pervasiveness of the Chinese blockchain and digital currencies has led to the expansion of international financial and economic relations on a smaller scale, and this expansion is exposing people to new terms and concepts. Previously much of the so-called digital currencies are widely used in the field pointed out. In this article, we are going to discuss the concept of the escrow account.
Escrow is a group of financial and economic terms that existed before the Chinese blockchain and digital currencies and was used in financial mechanisms. Stay tuned to Zomit to learn more about these types of accounts.
What is an Escrow Account?
An Escrow Account is a legal concept used to describe a financial instrument in which a certain asset or amount of money is held by a trusted third party (intermediary). The trust account may include a fee, and the person who keeps the money until the contract is completed and the parties fulfill their obligations may receive a small percentage as a fee. Cash, securities, and any other financial assets can deposit in a trust account.
The use of a trust account is important when the two parties to a transaction are uncertain about the fulfillment of obligations by the other party. This financial mechanism reassures them that they have the support to exercise their right.
Trust accounts are used in online transactions, banking, intellectual property, real estate, law, and many more.
Suppose a company intends to ship its products internationally to buyers. The company needs to guarantee that it will receive the agreed amount after the goods reach the buyer’s destination. On the other hand, the buyer is satisfied with the transaction only if he receives the goods first; Therefore, the buyer leaves the agreed amount to the Escrow operator trusted by the parties until the payment is completed when the shipment arrives.
Trust account applications
Escrow accounts commonly use in real estate and stock market transactions in the past; Thus, the buyer of the property, by depositing money in the Escrow account, in addition to completing the argument for buying it and reassuring the seller, has the necessary opportunity to examine and make the necessary legal inquiries carefully, and then to complete the payment only the custodian must pay. Transfer to seller account.
In stock and stock trading, the trust account is more efficient. In general, stocks are often offered as securities. And in this case, although the capitalist is the real owner of the shares, there are restrictions on access to stock.
For example, managers who receive a certain amount of stock as interest on a loan are not allowed to sell shares for a certain period of time. Stock interest is a tactical loan to retain senior executives.
Internet and e-commerce trust accounts are also very efficient.
An online platform that serves as an interface for selling products online can allow the buyer to transfer the required amount to an Escrow account such as escrow.com by connecting to the escrow account service.
They will keep the money until the product is sold delivered. Once the buyer has delivered and approved, the online Escrow account completes the transaction by paying the seller. This payment method is not commonly used and is a mechanism used for special and expensive purchases such as jewelry or valuable works of art.
Application of trust account in China block
Benefiting from a trust account and Escrow account services is a boon in the Chinese blockchain world, despite a third party managing digital currency payments. You must have heard the phrase “silent money” about Fiat money, and you must know that the payments made through digital currency are untraceable; As a result, it may be possible to use the term “invisible money” for digital currencies such as bitcoin, which not only have no language but no one can even see them physically.
On the other hand, due to the decentralized nature of these types of assets, their spending and transfer are more sensitive; Thus, the concept of a trust account or an Escrow account introduces into the Chinese blockchain to facilitate trust between the parties to a transaction.
A bitcoin Escrow account acts as an intermediary that keeps money or bitcoin transactions between two strangers in a safe place so that the bitcoin or purchased goods can be delivered to the buyer and then complete the purchase process. In other words, a Bitcoin Escrow account can be considered the first type of smart contract in the ethereum China blockchain.
In the smart contract, which has been introduced in the Atrium platform, the parties, by concluding the contract, leave the review and implementation of the provisions of the contract to the Chinese blockchain network.
There are a variety of wallets for Bitcoin that offer an internal Escrow account service. Many of them have been convenient and effective enough to gain legitimacy and popularity among the Bitcoin network community members. The difference between Escrow Account Services and Bitcoin Escrow Account with other domains is that only Bitcoin is used in Bitcoin Trust Account; While other cases work with Fiat money.
Bitcoin trust account is beneficial for transactions with high amounts; But in the traditional banking system, due to legal issues, access to Escrow account services is difficult; Therefore, using a Bitcoin trust account eliminates the need for a lawyer and the intervention of legal authorities, which in turn, reduces the cost of hiring a lawyer and saves time.
Because the Bitcoin Escrow account is based on the Chinese blockchain, it has optimized costs and charges lower fees than a traditional trust account; With the help of a Bitcoin trust account, transactions can do it worldwide without any change in costs.
How does a Bitcoin Escrow account work?
The first step, the initial agreement between the seller and the buyer: To start the transaction, both parties to the transaction must register on the platform of the Escrow account service provider and confirm the necessary agreements for the transaction using a multi-signature. Multiple bitcoin signatures are a method that requires several private keys to authenticate a bitcoin transaction.
Second, the buyer pays for the Bitcoin Escrow account service: After explaining and agreeing on the contract terms, the buyer pays the bitcoin to cover the amount required for the account. After the Bitcoin payment is validated, a notification is sent to the seller to let them know that the paid fee has been credited to the Bitcoin deposit account.
The third step is for the buyer to receive the desired product or service from the seller. After receiving the payment confirmation notice, the seller must provide the traded product or service to the buyer according to the agreement.
Step 4, the product or service is delivered by the buyer. After delivery of the service, a notice will send to the seller.
Step 5, Complete the Bitcoin payment from the trust account. After completing all the steps of the agreement, the trust account finalizes the payment of Bitcoin to the seller.
Bitcoin trust account usually requires the participation of three parties for each transaction:
the custodian, the recipient of the transaction, the payer of the transaction who deposits the money. The contract is designed so that each party has a private key, and sending each transaction requires at least two keys.
It is important to note that if either party does not complete each clause of the agreement to the transaction, the Bitcoin trust account reserves the right to decide on the next step; Therefore, there are different types of cryptocurrency-based trust accounts on the Internet, each of which covers one or more different models of services based on the cryptocurrencies that can support and the needs of users.
Regarding the cost of using a Bitcoin Escrow account, it should say that most Bitcoin trust accounts charge a fee of 0.5% of the total transaction.
Bitcoin Security Account Security
Cryptography and mathematical formulas form the basis of Escrow account security. Mathematical and cryptographic experts have developed algorithms to ensure the security of this mechanism by studying important security issues of the trust account. Much research has been done to prove the security of these algorithms to prevent collusion, and others can block other people’s decisions. If either party attempts to defraud the transaction process, there is a way to destroy the plan. Also, there is no need to change the key if someone loses access.
Disadvantages of Bitcoin Escrow Account
There are two major problems with a Bitcoin Escrow account.
The first issue is that you still have to send bitcoins to an anonymous person. When you use the Bitcoin Escrow Account service, the main problem of sending passwords to an anonymous person remains unresolved. In fact, just as you do not transfer money to the seller due to lack of trust and anonymity, you do not know who is behind the trust account website to trust him.
The second issue, on the other hand, is the lack of a well-known bitcoin trust account. Most Escrow account service provider websites do not have a negative or positive reputation. Most are newly launched, and not much information is available about other people’s feedback about them.
Introducing Bitcoin Trust Account
Among the various Bitcoin Escrow account services, we can mention two Escrow service providers, for example.
Colbert Low has been in the Bitcoin business since 2013 and has launched the BTC Asia Bitcoin Trust Account Service. You can visit the LocalBitcoins website to validate the performance of this service.
The IBC Group website is a blockchain fundraising service that also supports Bitcoin trust accounts. There seems to be a lot of daily traffic on this website; Unfortunately, its popularity is still unclear. Of course, the website members on the “About Us” page of the website express their opinions about the services received.
Another way to find an Escrow service is to go to the Escrow section of the BitcoinTalk website. In this section, users who provide Escrow account services are introduced. All reported users have high confidence and do not think of fraud; Of course, you still have to be careful.
Bitcoin multi-signature wallet
Another safe method is to use a multi-signature cryptocurrency wallet, which of course, also has the ability to support a trust account. These applications include Armory, CarbonWallet, CoPay, Bitgo, Electrum, and many more.
It should remember that participation in the transaction and the establishment of trade relations in the first place is something that will be based on trust; But “you can’t hit the water,” and caution must exercise. An Escrow deposit account can not be considered the safest way; However, using this mechanism greatly reduces the probability of fraud and can greatly ease the parties’ minds to the transaction.
What do you think about the mechanism of trust accounts? We look forward to hearing from you and others about your use of the trust account.