Crypto Escrows - Propelling Transactions and The Economy
What is Crypto? - Short Explainer
Crypto is a modernly popularised abbreviation of “cryptocurrency”, which refers to digital or virtual currency that functions through cryptography. Cryptography is the act and practice of using digital code to create something. Cryptocurrency is, therefore, a coded currency that one can be own, operate, and monitor digitally.
Most cryptocurrencies are based on blockchain technology. Blockchain is a method in which a particular set of data and/or information is stored digitally to prevent hacking, intervention, or interference with the data set. Each block is essentially a “data block”, and is a part of a network of such blocks called the “blockchain”. These blocks store a particular number of transactions, and are connected to multiple ledgers of different users using the blockchain. Every user whose ledger is connected with this chain would become aware about any new transactions along the chain.
Cryptocurrency is a decentralised currency that is not governed or controlled by any monopolistic entity (including the government). Blockchain technology thus helps ensure transparency and accountability in crypto trades. Initially, ‘Bitcoin’ kickstarted this transaction mode, which is still perhaps the most famous cryptocurrency today. However, many other virtual currencies inspired by Bitcoin have come up nowadays. Some of these have gained tremendous popularity and traction, like Dogecoin and Ether. These currencies are known as ‘alt coins’.
How Do Crypto Transactions Work?
When it comes to crypto, transactions involve a three-pronged process- the transaction input, the transaction output, and the transaction amount. The transaction input refers to the digital address of the sender – this means that the digital point (or ledger) of the user initiating the transaction or sending payment to another user is recorded as “input”. Accordingly, transaction output refers to the digital ledger of the user who is receiving the payment or money. Finally, the amount is self-explanatory.
Every time a user initiates a crypto transaction, all ledgers associated on the blockchain record the quintessential transaction information.
How Are Escrows Modeled
Escrows are agreement-based accounts that involve a neutral third party to facilitate the transfer of funds and deliverables in a secure manner. Involving an unbiased party to oversee the transactions protects the interests of the main transacting parties. Traditionally escrow services are provided by banks. However, these are often riddled with problems related to tedious documentation, substantial costs, and a lengthy turnaround time for processing the transactions. With increasing innovation, digital escrow platforms are actively tackling these problems. A typical digital escrow process follows a trajectory that is more or less similar to this-
Buyer and seller get eKYC’d and form their terms of agreement.
The transacting parties create a digital escrow account.
The buyer deposits the purchase consideration in the escrow account.
The seller delivers the product to the buyer. If the buyer is satisfied, payout is initiated to the seller according to the terms of agreement.
If the buyer is not satisfied, the product is returned to the seller and the purchase consideration is returned to the buyer from the escrow account according to the terms of agreement.
This a generic use-case – normally, digital escrows accommodate a range of diverse use-cases spanning multiple industries. They can be used for transactions related to lending, real estate, software, shares, and much more.
Digital escrow companies promise maximum security in every transaction. To achieve this, they partner with licensed banks to safeguard their clients’ funds. Castler goes the extra mile by forming associations with certified trusteeship companies for increased security. In addition to this, we also follow a unique multi-party approval protocol. This solution helps our enterprise clients decide who will initiate transactions, who will authorise/verify them, and how many levels of verification they would like to add. Crypto escrows are an exciting prospect for us to think about in light of how much added security we can offer in crypto exchanges.
What Would An Escrow For Crypto Be Like?
Currently Indian financial regulations don’t support blockchain transactions through escrow, but we’re excited about the prospect. The seamlessness of exchanging cryptocurrency and the sheer amount of high-value transactions we will be able to accommodate are definitely worth the hype. By extension, of course, this means that the Indian economy will feel encouraged to carry out more and more crypto transactions. Consequently, rapid high-value exchanges are sure to act as a catalyst for the economy’s growth as well.
Added to this is the fact that normally, any apprehensions related to crypto investments and exchanges arise from a lack of regulations governing crypto economies. Therefore, people generally feel less confident about accountability in blockchain ecosystems, even though crypto is highly transparent.
Escrows can help counter this lack of faith. As was highlighted, digital escrow companies bank on trust and security for carrying out transactions. With our multiple levels of authorization, security is ensured like a breeze. In addition to this, only thoroughly KYC’d parties can transact through our portal. Therefore, parties can deposit crypto coins in digital escrow accounts according to the agreed upon terms between them.
In order to give shape to this escrow service, digital escrow companies would partner with firms offering a special wallet that helps users hold crypto. The keys of various users would be deposited in this wallet, which is called a “multi-signature wallet”. Some of the best crypto wallets in India are WazirX, Zebpay, Coinbase, Unocoin, Trust Wallet, Guarda, and BuyU.
This means that in escrow transactions for crypto coins, different parties would buy or sell different assets by exchanging cryptocurrency.
Crypto Escrow Process
The process is not too complicated in and of itself, as the exchange medium is the only aspect different from a generic escrow transaction using regulated money. In fact, escrows promise a lot of flexibility in what medium you choose for transacting – some people use escrows to transfer source codes and API docs too. Some others use it for gold bullion exchanges. The following steps would give shape to a crypto transaction-
The Buyer and Seller form an agreement and get eKYC’d.
The parties open a digital escrow account with a company like Castler.
Buyer transfers the crypto coins to the escrow account (Bitcoin is the most popular, but nowadays people diversify their portfolio with Dogecoins, Ether, and others. A combination of different coins can be transferred too).
The Seller delivers the goods to the Buyer.
Upon inspection and approval by the Buyer, the crypto coins are released to the Seller according to the terms of agreement.
One truly interesting aspect of crypto transactions through escrow is that the virtual currency is protected from volatility till the time it remains in escrow. This means that any external factors which are beyond the control of the transacting parties would not impact the transaction in any way. We believe this would further encourage people to adopt and embrace cryptocurrency as a real currency. Increased trust is what people hound.
The future of anything transparent, easy, and digital is incredibly bright.The formidable shadows of doubt that currency-based nanotechnology faced in the earlier days of its inception are fresh in the minds of people. Overtime, however, people are increasingly realising the monetary surge they can experience if they invest – slowly yet steadily – in cryptocurrency. Its free nature is attractive to many who detest governmental intervention for stabilising economies.
A product like digital escrow not only adds faith and trust in transactions (a very humane and essential thing to ingrain in business, we feel), but gives a user the confidence to regulate their funds in the economy. This acts as a force multiplier and propels industrial growth in a nation state. And since anything revolutionary needs some stringent measures for control, crypto is no exception. Nevertheless, as we have highlighted in this blog, small solutions go a big way sometimes, and we’re hopeful.
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