How Escrow Works With Peer-to-peer Trading Platforms

Posted: Feb 21 2019, 4:12am CST | by , in Technology News

 

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How Escrow Works With Peer-to-peer Trading Platforms

When bitcoin was first invented, no one really knew what it was. That meant that the advantages and disadvantages of bitcoin were still a little blurred. Now that we’ve given it more time to evolve, the picture is starting to get clearer and we’re starting to see the many benefits that bitcoin can give to our individual lives and to the financial community. It has become clear that the original purpose of bitcoin, peer-to-peer trading, is now realizing itself via peer-to-peer marketplaces.

Peer-to-peer marketplaces have taken the world by storm because of their wide variety of payment options. Platforms like Paxful, with over 350 payment methods, make it incredibly easy to buy bitcoin. They also present several benefits from selling bitcoin (like being able to get discounted gift cards).

How Peer-to-peer Platforms Work

On peer-to-peer platforms, buyers and sellers are connected and they get to complete the trades themselves. This allows vendors to set their own trade preferences such as payment method (how you’re going to be paid), profit percentage (how much profit you would make on each trade), location (choosing offers near you), payment window (how long the trade should last), and much more. In turn, this allows vendors to choose offers based on their personal preferences. Peer-to-peer platforms add a personalized touch to the trading process and it could mean both good and bad things for bitcoin trading.

The good thing about the personalized touch is that buyers and sellers have more control over who they trade with. If you’ve done the proper research and/or have a lot of trading experience using peer-to-peer platforms, then it’ll be easy to filter out scammers. Although there are users out there who are trying to take your coins, peer-to-peer seems to attract people who really want to make a great profit from trading bitcoin.

There are several ways to combat the number of scammers. As said earlier, you can do your research on the platform and find out what the red flags are. This’ll help you know right away if a potential trade partner looks suspicious or not. Another way to ward off these scammers is to take all the necessary security precautions. This includes enabling account’s 2FA, coming up with a strong password, and caution when it comes to selecting the right trade partners. The last option of keeping yourself safe is done by the platform itself. It’s called escrow. Though not all peer-to-peer platforms use escrow they may have another version of it.

The Security System Known as Escrow

Escrow is defined by Investopedia as “a legal concept in which a financial instrument or an asset is held by a third party.” If that’s a little too complicated a definition for you, let me break it down into bitcoin terms.

Let’s say you’re trading on a peer-to-peer platform and you’re looking to buy some bitcoin. You find a potential trade partner who’s willing to give you some bitcoins in exchange for an Amazon gift card. You follow all the requirements and submit all the pertinent information regarding the gift card as payment. Who is to stop the seller from just running off with the information of your gift card? This is where escrow comes in. On peer-to-peer platforms, when trades begin, the bitcoins that are promised to the buyer are taken from the seller and put into escrow. The buyer then gives a specific amount of time to pay (a.k.a. give all the requirements of the seller). Once the buyer has given all the information needed, he/she will click a button that states that he/she has paid and is waiting for the seller to verify the payment (at this point, the trade can no longer expire). After verifying the payment, the seller should then release the bitcoins from escrow and both parties are paid and happy.

Did you see what escrow did there? It prevents the seller from running away with the payment of the buyer and it prevents the buyer from just running away with the bitcoins (without having to pay). Basically, escrow is a security system that holds the bitcoins until both parties are happy. Going back to the definition of Investopedia, escrow is the “third party” that holds the “asset” and at this scenario, it’s bitcoin.

Escrow is There For Our Own Good

For those of us that prefer peer-to-peer marketplaces over traditional bitcoin exchanges, escrow is like our guardian angel. It protects us from all the potential evil around us except in this sense, “evil” refers to the scammers. Thanks to escrow, buyers and sellers on peer-to-peer platforms can feel that their money is secure on the platform.

This story may contain affiliate links.

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The Author

<a href="/latest_stories/all/all/2" rel="author">Luigi Lugmayr</a>
Manfred "Luigi" Lugmayr () is the founding Chief Editor of I4U News and brings over 25 years experience in the technology field to the ever evolving and exciting world of gadgets, tech and online shopping. He started I4U News back in 2000 and evolved it into vibrant technology news and tech and toy shopping hub.
Luigi can be contacted directly at ml[@]i4u.com.

 

 

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