The pros, cons, highs and crashes of cryptocurrencies are well-documented – as is blockchain, the platform that makes cryptos possible. But far less is known about blockchain escrow services, the latest trend that aims to make cryptocurrency trading fairer, safer and more secure.

Fundamentally a legal concept, escrow enables a third party to hold financial instruments or assets while regulating the funds required for two parties involved in a given transaction.

During online shopping transactions, for example, buyers prefer paying the seller upon receiving the goods, whereas the seller prefers the opposite.

This situation means the transaction and delivery are unable to take place at the exact same time and reach the desired mutual fairness. The common solution is using Trusted Third Parties (TTP) – such as Alipay and Paypal – to escrow capitals.

In the event of a dispute, these TTPs launch embedded arbitration services to keep impartial fairness and facilitate a solution.

Cryptocurrency trading

Trading digital currencies can be trickier than traditional online transactions.

Blockchain technology has revolutionised fair exchange protocols and, now, TTPs aren’t always the best solution for these transactions because of ethical issues and security risks.

Many of the coin exchange platforms and online markets have been prone to hackers. In January this year, Japan-based cryptocurrency exchange Coincheck had to refund customers approximately $400m (£282m) stolen by hackers in what is now known as one of the biggest digital funds thefts.

Escrow transactions are one of the most reliable ways to overcome cryptocurrency volatility, which can see a cryptocurrency’s value fluctuate significantly in the time it takes to complete a transaction. Escrow services ensure trades are executed in a secure and timely manner.

Examples of blockchain escrow services:

Themis

Themis is a blockchain-based fair exchange system for digital currencies, providing a decentralised escrow service for digital currencies and solving the problems of fair exchanges using digital currencies as a medium.

It can be applied in P2P payments of digital currency, OTC trading of digital currency and more.

Alex Khawaja, Chief Marketing Officer at Themis (UK) said:

3 Things That Will Change the World Today

“Themis is the first in the market to address the fair exchange problem, which helps eliminates counterparty risk making it the widely viewed Alipay of the blockchain.”

How does Themis do this? They leverage a novel escrow protocol, along with threshold encryption, anonymous reputation mechanisms, non-interactive zero-knowledge proof, and high-performance digital signature algorithms.

Effectively, Themis is able to mitigate denial of service (DoS) attacks and provide privacy for all peers.

MarketPay

MarketPay enables escrow payments in a sharing economy. Specifically, MarketPay uses agile escrow contract rules, end-to-end payment providers, and has a built-in second ledger (operating via Blockchain) to ensure maximum transparency and security.

Presumably, a second ledger isn’t actually required. However, including this gives an extra public record on an open blockchain.

IBC Escrow Service

The IBC platform uses smart contracts as a thirty party to enable transfers. Specifically, IBC restricts the buyer to a time limit to fund the transaction via its escrow platform.

Upon receiving the funds from the buyer, IBC releases the product or service purchased by the buyer.

The buyer must signal receipt and satisfaction with the product in order for the funds to be released to the seller. IBC also boasts that it is a licensed escrow provider that strictly adheres to Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines set forth internationally.