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- 1 Escrow services provide a more secure way in which users can transact their digital currency without being scammed. Providing a secure and trustless transaction
- 2 Decentralized arbitration provides a decentralized court in which we can solve disputes that occur in cryptocurrencies.
We all understand how security is a necessity in cryptocurrencies. With the Escrow service, investors will have security in their crypto assets. How will the Escrow service provide security? Read on to learn how the service works.
What Is Escrow?
Cryptocurrency is one of the largest decentralized institutions. Therefore, providing the best is a priority for its users. They have several services in economics and finance, and today we will be revising one of these services, the Escrow service. In cryptocurrency, security is a subject matter, especially in their digital assets and digital coins. Therefore, an escrow service was established to provide secure safekeeping for their digital assets.
Being among the most commonly used custody services in cryptocurrency, the escrow service includes a third party that is not centralized by the participants who are involved in the custody of their properties; therefore, this provides adequate security and trust.
How Escrow Functions
So how does the Escrow service work? As I said earlier, third parties are involved in safeguarding these digital assets. Therefore, the third party is assigned a certain amount of money to safeguard. Escrow typically stores cryptocurrencies that are transacted between two parties; let’s say Ben and Joel are making a transaction. Ben will send his cryptocurrencies to an escrow service to safeguard the assets. Ben and Joel have to come to certain terms for Escrow to release these cryptocurrencies to Joel. The essence of this service is security, especially for those buying and selling cryptocurrencies online. It guarantees a secure and trusted transaction between the buyer and the seller.
Basically, Escrow is a service that allows two participants who have decided to make a transaction to choose an external agent to hold their digital money. This agent is a trusted agent who ascertains that the transaction is honest and transparent and that the two parties respect each other. Escrow service ensures that the two parties are fully pleased with the transaction and that no fraudulent activities have occurred during the transaction.
How Escrow Service Occurs in Peer-To-Peer Transactions
For instance, if a seller with cryptocurrencies is trying to make a transaction, let’s say he/she is exchanging Bitcoin for US dollars. The Bitcoin Escrow service becomes useful whereby the seller whose digital currency is transacted will be kept to himself until the buyer makes the transaction. Escrow will hold the seller’s cryptocurrencies until they settle their agreements. When the buyer sends the US dollars to the recipient, Escrow automatically releases the cryptocurrencies to the buyer.
Escrow guarantees secure transactions since both parties will be satisfied with the transactions. It also assures trust. The two parties will need to trust each other that their transactions will be honest and that no one will try to scam the other. Escrow ensures fast transactions due to its decentralized nature. Ensuring that no authority or participant will control the transactions.
Escrow’s essence was to provide trustworthy, honest, and secured transactions. Initially, the transaction service was hard to conduct due to the decentralized nature of cryptocurrencies. With the introduction of Escrow services, we have seen validated and secured transactions between parties. We can all attest that Escrow brought some advancements to cryptocurrencies, especially in terms of security, trust, and fast transactions.
Decentralized Arbitration
Traditional finance had a different way of tackling disputes that occurred in financial institutions. They would go to financial court and solve the issues. In cryptocurrencies, we don’t need to go to court for these disputes to be solved. Understanding that crypto is a decentralized system, disputes are solved in a centralized manner. Therefore, decentralized arbitration is a way that disputes are handled when errors and disputes arise in cryptocurrencies.
Disputes have been arising in cryptocurrencies; therefore, there have been advancements made for these disputes to be solved. The introduction of DDR (“Decentralized Dispute Resolution) technology was made to aid in solving Smart contract disputes. DDR is an innovation that solves disputes in private business with the help of decentralized technology, which handles disputes on blockchain.
Hackers and fraudsters have taken advantage, especially because cryptocurrency is a decentralized system. Its decentralized nature has attracted scammers, especially when transactions have happened. Commercial institutions have issues when transferring their cryptocurrencies. Money Laundering in cryptocurrencies has been a huge concern in the crypto market. How many times have you heard of hacking in the crypto market? Security should be a priority in this decentralized system. Therefore, the introduction of decentralized applications could be a match made in heaven for tackling these issues, or could it?
The decentralized system was able to come up with two decentralized courts that could handle these decentralized cases. They came up with Court Kleros and Court Aragon.
Court Kleros was introduced in 2017. It was the Ethereum decentralized court that helped the decentralized system encounter several cases that were presented by various institutions. It had settled more than 500 cases by the time of writing. This provided the court with more than $100,000 by 2020. The court usually solves disputes that were made through escrow transactions.
Argon Court was formed in 2019 to solve disputes that were decentralized. The court was providing attribution services to decentralized autonomous organizations.
Decentralized attribution was set up to solve completely complex disputes This was done to enable secured transactions in cryptocurrencies. This has helped in several ways, especially with the cryptocurrency’s reputation. The system has created a trustless system in the decentralized world. Imagine trusting some decentralized court that individuals do not know. But having trust in them means that whatever the case is, it will be handled in a trustworthy manner.
Conclusion
Having in mind that crypto’s main focus is to provide a secured finance system, we can all attest that crypto is taking over digital finance. The decentralized ecosystem has provided investors with a better way to make money online. We can see how the system is evolving. Imagine having a decentralized court that handles cases of insecurity in finance. A decentralized service that ensures that a secured transaction is happening. Therefore, the Escrow service and Decentralized arbitration have made major advancements in security.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
