What is crypto escrow and how does it work?

Crypto escrow is an arrangement that holds cryptocurrency until both sides of a deal have done what they agreed. Depending on the setup, the lock is managed by a trusted company, by several key holders, or by code on the blockchain.

What is bitcoin escrow?

Bitcoin has no escrow button, but its scripting allows one through a multisig wallet. The Bitcoin developer guide describes a classic case. A buyer, a seller and an arbitrator each provide a public key, and the buyer pays into an address that needs any two of the three signatures to spend.

If the deal goes smoothly, buyer and seller sign together and the seller is paid. If there is a dispute, the arbitrator reviews the evidence and signs a transaction splitting the funds, which one of the other parties co-signs. If the arbitrator proposes something unfair, buyer and seller can jointly move the funds to a new address with a different arbitrator.

What is blockchain escrow and XRP escrow?

Blockchain escrow means the network itself enforces the lock. The XRP Ledger has escrow built into its protocol. According to XRPL.org, an escrow can release funds after a set time, when a cryptographic condition is fulfilled, or both. A FinishAfter time sets the earliest release, and an optional CancelAfter time lets the funds return to the sender if the escrow is not finished in time. The feature has been extended to some tokens as well as XRP.

When people search for XRP escrow, they often mean Ripple's own holdings. In December 2017, Ripple explained that it had placed 55 billion XRP into a series of on-ledger escrows that release up to 1 billion XRP a month, with any unused amount moved into a new escrow. More on the company and the coin is in XRP vs Ripple.

On Ethereum, escrow is usually a smart contract that pays out by its rules.

What is an escrow wallet?

An escrow wallet is any address that holds funds on behalf of a deal rather than one person. On peer-to-peer platforms, it is often the exchange's own holding account. Binance describes its P2P escrow as a temporary deposit that holds the seller's crypto until the buyer's payment is verified. If the seller does not release the coins after being paid, the buyer can open an appeal.

How do you check crypto escrow companies?

Some escrow firms handle crypto deals for a fee, especially for large or business transactions. Scammers copy them. As far back as 2003, the FTC described a fraud ring that insisted on its own fake escrow site, which existed only to take payments. California's financial regulator, the DFPI, has warned about a lookalike crypto escrow website that cost one victim about $150,000 through a chain of fees and claimed taxes, and urges extreme caution with any site offering crypto escrow.

Common checks include confirming a license with the relevant state or national regulator, avoiding any escrow service that the other party insists on, and treating repeated new fees to release funds as a red flag.