The world is plagued with fraudulent parties, no matter where you go. And unlike traditional currencies, crypto isn’t backed or insured by the government. If your cryptocurrency gets misplaced or hacked, there really is no obligation for these parties to step in unless you are working with a private company that prioritizes your customer experience. Does that mean you should avoid using cryptocurrency altogether? Definitely not! There are still many benefits to using digital currency if you are careful. Such as you wouldn’t shop online from an untrustworthy retailer, you wouldn’t take unnecessary risks when you make a purchase with bitcoin.
This is why many retailers will recommend you use a Cryptocurrency Escrow Service to make purchases online. Below we explain the concept of an escrow service and how it benefits both buyers and sellers in the sales process, even with cryptocurrencies.
Escrow services defined
For those new to the term, an escrow service provider will safely keep funds in a deposit account to protect the buyer and the seller. Since the money is placed in the control of an independent party, transactions are deemed to be more secure as neither party is in control of the funds until the terms of the agreement are met. As a result, escrow services are commonly used for large transactions when the other party is unknown.
With payments in escrow, transacting parties can safely navigate the ins and outs of a sale without fear of lost funds or scams. Without the need for a formal contract, the process is still kept to a quick buy and sell transaction. Since using these services comes with a cost, which, although fair, may warrant some explanation.
Five benefits of using escrow
Escrow services solve five main use cases. Let’s consider them in more detail.
Eliminating the promise to pay
When transactions cannot be done in person and with cash, buyers and sellers will run into a slight problem. Either the buyer will need to send funds ahead of time and run the risk the seller will never send the product, or the seller will have to send the product and hope they get paid. The majority of the time, payments cannot be reversed, especially if it is done using cryptocurrency. An escrow service eliminates the concept of “promising to pay” by allowing funds (whether fiat or crypto) to be held by a third party in a secure escrow account, only releasing them when the product is sent.
In a buyer-seller arrangement, it is not uncommon to get into a he-said, she-said argument about the quality of the product or how quickly one party is getting paid. Without a proper contract, these agreements can get frustrating and leave little room for a solution. Since escrow services rely on a trusted third party or arbitrator, the buyer and seller agree the independent party has the authority to award funds as the result of a disagreement. Arbitrators are trained professionals that are given clear instruction on how to evaluate transaction details and make fair decisions.
Cost-effective alternative to lawyers
With large ticket transactions, many buyers and sellers will agree to go through a lawyer who will be able to draw up a legal contract that can hold up in court if a disagreement occurs. It is true, this is likely the safest way to conduct a transaction, but it is also expensive. A good lawyer will often come with a large price tag that may not be affordable in all cases. In comparison, escrow services will typically charge a small percentage of the cost of the goods sold.
Buyers receive an inspection period
Especially in the case of purchasing goods online, buyers won’t normally have an opportunity to inspect products and evaluate if the quality matches the posted ad. Escrow services recognize this and allow buyers to have an inspection period where they or another party may test the product. If, after this inspection, the product is deemed to be not up to the standard presented, the buyer may reject the item and ship it back to the seller. Since funds are being held by a third party, buyers can rest assured that the escrow agent will return their funds.
Sellers have confidence they will get paid
At the other end of the sale, sellers often worry that the buyer may not have the funds they claim they do. An escrow agent will ensure the buyer transfers the funds early on in the transaction process, confirming the legitimacy of the payment. Sellers can proceed through the transaction, knowing their time is not being wasted and they will be paid for their efforts.
For these reasons, platforms will recommend cryptocurrency escrow services for online purchases. As a result, a growing number of online marketplaces are starting to offer these services as part of their checkout process.