An escrow is a contractual arrangement in which two people who do not know each other, and therefore cannot trust each other, do business through a third-party who they both trust.This trusted third-party is known as an ‘escrow agent’.Their job is to make sure that neither party tries to cheat the other, and to provide impartial arbitration in the event of any disagreements between the two.The use of escrow is important in any peer-to-peer market, where it is common for trades to occur between individual users who do not know each other.It is also commonly used by digital currency users, who cannot reverse or ‘charge back’ payments as you can with credit cards and other banking services, to provide a similar level of consumer protection that these reversed transactions offer.Many dark web marketplaces, or ‘dark markets’ use this system, with the website’s administrator providing the escrow service.A Typical Example of the Escrow Process Alice would like to buy something from Bob over the internet.

She is worried that if she sends Bob a payment for the product or service, he may just ‘take the money and run’.To ensure that Bob provides the product as advertised, she engages John as an escrow agent.bitcoin is heading toward a new highInstead of paying Bob directly, Alice sends the payment to John.litecoin fastest cpu minerJohn tells Bob that the payment has been sent and that he should deliver the product.bitcoin risk factors for insuranceOnce Alice confirms that she has received the product, John makes the payment to Bob – usually after taking a small fee for providing this service.diamond circle bitcoinIf Alice never receives the product or service, or if she believes that it does not meet the required standard, she may instruct the escrow agent to return her payment.bitcoin börsen deutschland

In this situation the escrow agent must gather whatever information they can in order to assess the situation, and then make a judgement over who should receive the funds.bitcoin expo 2014A good agent will have clear policies outlined in advance so that both parties know how a judgement will be reached.Dangers and Limitations of Using Escrow It is important when doing business in this way that both parties involved feel comfortable trusting the escrow agent.It is possible for a dishonest escrow agent to collude with one side against the other, to demand a bribe in return for releasing the money (and therefore to make payment to whoever pays the biggest bribe rather than who rightfully deserves to get the payment), or simply to disappear with the funds in what is known as an ‘exit scam’.In some cases it may also be very difficult for the agent to correctly reach a judgement.For example, if a vendor claims to have posted a package and a buyer claims that they have not received it – unless the buyer paid for a delivery option with parcel tracking there is really no way for the agent to find out who is telling the truth (or whether they both are and the package got lost in the post).

In cases such as this the agent is often forced to simply side with whoever has the best reputation and history on the site – which is almost always the vendor.Alternatives to Traditional or Centralized Escrow In many peer-to-peer online marketplaces the site’s admin provides an escrow service.Because this involves a single person providing the service to all users, it is sometimes known as a ‘central’ or ‘centralized’ escrow.Modern digital currency is able to provide an alternative to this kind of traditional centralized escrow through the use of smart contracts.Two of the most popular methods are multi-sig transactions – which use a third-party to arbitrate but make it impossible for them to run away with the money themselves, and double deposit escrow, which does not require a third-party but which does require an additional up-front deposit from both parties.Finding a Bitcoin Escrow Agent or Becoming One Yourself Due to the popularity of escrow services amongst users of Bitcoin and other digital currencies, a vibrant market has emerged for agents competing on reputation and cost.

One place I recommend for people looking to find the right escrow agent is BitRated, a website which provides an independent trust platform for Bitcoin escrow agents.You can find a wide range of agents with different costs, terms, areas of expertise, and methods for reaching a judgement.You can even sign up to create a profile and start building a reputation yourself!« Back to Glossary IndexTL;DR: It's possible to do 2-of-3 party escrow in Lightning, functionally the same as the use case for on-chain "2-of-3 multisig" escrow systems (without the 3rd party escrow being a custodian for any funds!Or anyone else holding custodial ownership of coins for the matter).As Lightning uses Bitcoin transactions and scripts (using Bitcoins, not 3rdPartyCoins), it'll be possible to do nearly *instant* *offchain* multisig "escrow" on decentralized Lightning!This is useful for payments for goods and services which needs a 3rd party mediator.By making multiple R-value hashes supported in HTLCs, you can do something equivalent to "multisig" where payments are conditional upon 2-of-3 parties agreeing.

This is to support conditional multiparty payments, e.g.2-of-3 "escrow", which is one of the biggest use cases of bitcoin scripting today.An example use case is a 3rd party escrow verifies whether a seller should be paid.This design is such that the escrow is not a traditional custodial escrow, but instead determines who should get the money in the event of non-cooperation.See the Bitcoin Script below for details.There isn't message integration for 2-of-3 yet, but can work with *very* minimal changes.Arbitrary N-of-M can be supported with M values higher than 3 and lower than max script size, but let's keep this simple for now!How it works: Require 2-of-3 R-value preimages (from 3 hashes) in order for the HTLC to be fulfilled.For each hop in the payment, it requires this 2-of-3 condition.The timeout minimum for each hop in the path is at least the minimum agreed contractual escrow timeout.The timeouts should be fairly long compared to straight payments for security and giving enough time for the escrow service.

This means each hop consumes a higher amount of time-value (due to much longer timeouts along all channels in the path, and possibly higher fees to pay for larger scripts and greater time-sensitivity for transaction inclusion), which does have greater pressure towards lower hop-distances, compared to straight payments where it matters a whole lot less.This is a slightly different way of thinking about things.It's not signatures that the escrow produces (or for that matters any of the 3-parties in the 2-of-3 after the actual Commitment is signed).It's some secret which is revealed to authorize payment.So if the escrow wants the payment to go through without cooperation of the sender, they disclose the secret (R-value) to the recipient.If the recipient is unable to produce 2-of-3, after the agreed timeout, the sender will be refunded.Sender and receiver can agree to authorize payment in most cases where there is cooperation, escrow is only contacted if there is non-cooperation.

Assume the order in the stack is Sender, Escrow, Recipient.For PAID 2-of-3 Escrow+Recipient, the HTLC stack is: <0> <0> If it's REFUND because 2-of-3 has not been redeemed in time: <0> <1> Bitcoin Script (Alice's, we use OP_1/OP_0 to distinctly show computed true/false.0/1 is for supplied data as part of the sigScript/redeemScript stack): ------------------------------------------------------------------------ //Paid OP_IF OP_DROP OP_CSV //under rusty's CSV style //Stack: <0> //Recipient must agree to receive funds.OP_HASH160 OP_EQUALVERIFY //Stack: <0> //Either the Sender or Escrow must consent for payment OP_HASH160 OP_EQUAL //Stack: <0> OP_SWAP //Stack: <0> OP_HASH160 OP_EQUAL //Stack: OP_BOOLOR //Stack: OP_VERIFY //Stack: //Refund OP_ELSE //Stack: <0> OP_HASH160 OP_DUP OP_EQUAL OP_NOTIF OP_DROP OP_CSV OP_ENDIF OP_DROP OP_CLTV //Stack: //Stack: OP_ENDIF OP_CHECKSIG ------------------------------------------------------------------------ Note: It is possible that Alice and Bob may not be Sender, Recipient, nor Escrow!

They could be nodes along the routing path.Script might have a typo or two or might be able to be optimized a couple bytes smaller maybe?Also, the script would be a bit different depending upon is broadcasting due to the revocations/R-HASH.We can do 2-of-3 escrow payments which refund to the sender after a timeout!The Sender and Recipient can agree to redeem and they only need to go to the Escrow if there's a dispute.All nodes along the path gets paid or refunded atomically, the same as a single-HTLC payment on Lightning.Escrowed payments can be nearly instant and off-chain (but enforced/net-settled ultimately using the blockchain).Proposed HTLC wire message for the uint8 (two 4-bit N-of-M) determining type: 0x11 (00010001): 1-of-1 0x22 (00100010): 2-of-2 0x23 (00100011): 2-of-3 [with Recipient being 1 of the two N parties] 0x33 (00110011): 3-of-3 I think the only ones that really matter are 1-of-1, 2-of-3, and 2-of-2.

1-of-2 and 1-of-3 doesn't make sense if the recipient must consent to receiving funds anyway (pushing funds w/o consent is tricky due to pay-to-contract-hash) so that's basically a 1-of-1.Possible Resolution States: * Recipient paid: Recipient and Sender provide R-values * Recipient paid: Recipient and Escrow provide R-values * Sender refunded via timeout: Sender is refunded if Recipient cannot convince Escrow or Sender to disclose their R-value before HTLC timeout * Payment immediately cancelled and Sender gets refunded: Payment sent in the opposite direction enforced by same R-values (if there is sender & receiver consent/cooperation to cancel payment) Sender+Escrow isn't going to want to push funds w/o cooperation of Recipient.However, it's possible to construct a script that way.Escrow is only contacted if the recipient needs to redeem and the sender is uncooperative so this is still true to the "lazy escrow service" in Bitcoin multisig.