What is a Bitcoin Escrow Service?

Large bitcoin (BTC) transactions can be daunting. After all, in many cases, a lot of money is on the line and failure to execute properly may be costly. To ensure smooth transactions, in which the other transacting party adheres to the terms of an agreement and large payments are processed quickly, many have decided to use a bitcoin escrow service.

In comparison to other assets, cryptocurrency transactions are irreversible and need to be executed properly the first time. Therefore, the concept of a cryptocurrency escrow service is now becoming increasingly common. In fact, many traders have already used one, even if they don’t know it. So how exactly does it work?

Escrow Services Explained

An escrow service can be used when two parties wish to conduct a transaction and are primarily used to protect buyers from fraudulent sellers. To do so, an escrow service acts as a trusted third party that requires the asset to be deposited upfront to ensure the assets can be released to a seller when the time comes. The escrow then regulates the payment that is required in the transaction until both parties have confirmed that their terms of the transaction have been met. Once this has been confirmed, the escrow service provider can authorize the payment.

If a dispute arises, the escrow service takes on an arbitrator’s role to decide who receives the assets in holding. Therefore, it is important to thoroughly review the terms and conditions to avoid accidentally leaving your funds to the action of the escrow service.

A bitcoin escrow service operates in a similar manner to that of any other escrow service. However, the main difference is that the escrow is put in charge of the holding and transferring of a user’s public and private keys. In contrast to a traditional banking system, escrow services for bitcoin eliminate the need for a lawyer and the costs associated with hiring one.

Bitcoin Escrow Services in Practice

In practice, consider how an escrow service is performed on a peer-to-peer trading platform. First, a buyer will find a seller, and they will decide to enter a trade. The trading platform will hold the seller’s bitcoins in safe storage on a temporary basis (funds are said to be held in escrow). Once the buyer has sent the amount agreed upon in the agreement, the bitcoin held in escrow will be released to the buyer. Both parties must register on the escrow platform and agree to a set of terms for the next steps to occur.

While many peer-to-peer exchanges offer escrow services such as LocalBitcoins, traders may now find dedicated escrow providers as well. These providers will typically charge a small commission fee to conduct these transactions. A few examples of bitcoin escrow services include:

IBC Group

The IBC Group is primarily a blockchain fundraising service but also offers a Bitcoin escrow service. The website assures traders that they handle large transactions and has their team members listed on the About Us section. Although minimal information is available about the site, investigating the founders might be a good place to start.


CryptoExchange is one of the only dedicated cryptocurrency escrow services and marketplaces available today. The website states that they are equipped to help traders execute transactions of any size.

Escrow Agent

Alternatively, traders who do not want to use any of the escrow providers suggested may opt for an escrow agent. On BitcoinTalk, users can search for the escrow thread. The thread has many users that will offer their escrow services if requested. Trust ratings are provided on each party to ensure the individual you choose is trustworthy.

Create Your Own Bitcoin Escrow Service

Another option is creating your own escrow service by using a special bitcoin wallet known as a multi-signature wallet. This type of wallet is unique since it requires the private keys of the transacting parties to be “signed.” The added verification simulates the same concept of a third-party escrow service.

Is it safe to use an escrow service?

Using an escrow service is often seen as the primary choice for mitigating risk when entering a financial agreement involving bitcoin. That said, like any financial decision it is not a completely risk-free solution. Although the risk of transacting with an unknown party is virtually eliminated, traders must still put their trust in a third-party service. If the escrow service is one, they have not transacted with previously, some risk still exists that the platform is fraudulent. Therefore, traders should stick to regulated escrow services that are reputable. To build trust, some research may be done on the platform, the founders and even the reviews of other cryptocurrency enthusiasts.

Although there aren’t many options for Bitcoin escrow services, there are still a handful of choices a trader can choose from.

intelligent crypto
How are  regular people making returns of as much as 70% in a year with no risk?  By properly setting up a FREE Pionex grid bot - click the button to learn more.
Crypto arbitrage still works like a charm, if you do it right! Check out Alphador, leading crypto arbitrage bot to learn the best way of doing it.

CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com

Rene Peters
Rene Peters

Rene Peters is editor-in-chief of CaptainAltcoin and is responsible for editorial planning and business development. After his training as an accountant, he studied diplomacy and economics and held various positions in one of the management consultancies and in couple of digital marketing agencies. He is particularly interested in the long-term implications of blockchain technology for politics, society and the economy.

We will be happy to hear your thoughts

Leave a reply