Escrow mediates fund transaction between a buyer and a seller. Whereas the escrow may be a third party admin. Nowadays smart contracts have replaced the need of admins.

In tradtitional bitcoin trading/exchange/ transaction a buyer may request a seller to send bitcoins for the money which he/she has. The seller receives money from the buyer through a medium, and he provides a product, service or bitcoin to the buyer after verifying the received payment.

In some exceptional cases, the seller may abscond after receiving payment, and in some cases, the buyer may abscond without sending the payment. If this happens, outside of an exchange both sides may be left as helpless and will result in huge losses also they can’t legally pursue a case as bitcoin is decentralized.

The above scenario may happen while purchasing a product from an e-commerce store, booking tickets online or any bitcoin centric transactions. 

So, how a bitcoin escrow may safeguard buyer and  seller, Let’s see below,

While transacting bitcoins there will be two mandatory processes,

1. Buyer sends payment (bitcoin) to the seller in order to get a service/product

2. Seller sends product or maybe bitcoin for the received payment.

Here the two main people are buyer and seller, and at any time any of them may become a scammer. So let’s see how bitcoin escrow resolves it.

Here bitcoin escrow will break the two process into three as below,

1. Buyer & Seller signs in an agreement to send payment to via a third party escrow

2. The escrow admin verifies the payment from the buyer and the bitcoin from the seller.

3. The escrow admin releases bitcoin to the buyer after he gets a confirmation from the seller.

The admin will not release bitcoin without proper confirmations. So the buyer gets what he thought to buy, and the seller receives money for what he sent to the customer

The Escrow Works as Below

1. Buyer and seller signs an agreement in the governance of admin for what they are going to transact with each other.

2. The agreement would consist of every single detail about the transactions, which includes money, time and etc.

3. After the agreement processed, The seller sends bitcoins to the admin wallet.

4. And the buyer will be notified via email or a message about the seller have deposited bitcoins.

5. After the notifications received buyer sends payment to the seller.

6. The seller checks payment and will instruct the admin to release funds to the  buyer

7. The contract gets closed after the buyer receives bitcoin from the escrow admin

Now you may ask three questions…

1. What if the escrow admin steals my bitcoin as we are storing bitcoins inside a third party wallet?

2. The above scenario and workflow is for buying bitcoins from the seller, So what if the buyer purchases a product from an online shopping store. The above escrow flow powers the seller side alone, as he made the final decisions to release bitcoins. If the buyer receives product/service from online store by sending bitcoins then who has the high authority to make decisions and how escrow will secure a buyer?

3. How escrow will help both sides if the received service/ product is not the same as mentioned in the contract/agreement

Get clear explanation for the above questions at

Refer : Bitdeal Escrow Script To Start Bitcoin Escrow Service As A Business


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