Escrow

What is an escrow?

Someone who helps two parties trade by solving the problem of trust is termed as an escrow. The term escrow is generic and informally in some places also referred to as a middleman since the person or group acts in the middle of a trade. The need for escrow arises in situations where the seller and buyer want to execute a particular deal but neither of them has faith in each other and no prior data to rely on.

In which cases is an escrow required?

Exchanges: It might be fiat trades or crypto or any kind of trades but there has to be someone who would send first and always risks getting scammed. In such situations, an escrow can accept the funds from both parties and send them to respective parties.

Direct Purchases: If you find a good deal somewhere but you aren’t sure of the authenticity and legitimacy of the product, you will simply hire an escrow to avoid any problems. Once the seller has shipped the items and you approve the quality and quantity, the escrow will then release the money to the seller.

Services: Employers may hire hard-working employees and reject their payment after the work is done or vice versa may happen where the employee takes money and never accomplishes the task. To avoid such problems an escrow can be hired who would verify the work and release the payment.

Advantages

• Security of funds and better conversion rate for deals to go through
• Keeps the seller and buyer’s identity secure
• A reputed escrow may add suggestions within the deal to make it robust

Disadvantages

• Takes longer than usual to complete the trade
• Additional and unwanted fees
• If the terms are not clear, there might be disputes and confusion

What are the things to keep in mind when hiring an escrow provider?

Before hiring an individual or company as an escrow for your trade, you must take care of some important points. An ideal escrow would tick most of the points below.

• Reputation & Track Record
• Fee charged by the escrow
• Turnaround time and experience for the particular type of trades
• Dispute handling ability
• Well written agreement between all the parties involved

See also: Know Your Customer (KYC), Coin Mixer.