Bitcoin Escrow Service

Bitcoin Escrow Service

366
Views

What is bitcoin escrow services? How does Two Party Escrow works? How can bitcoin multi-signature feature be used for online transaction security between sellers and buyers?

ExperienceAfricalocals team posted the article • 0 comments • 366 views • 2020-04-14 15:38 • data from similar tags

Decentralized & Anonymous

the Bitcoin network is used for payments. it is decentralized and anonymous.

Two-Party Escrow

The seller puts up a 1x price of the item as a deposit to a bitcoin multi-signature address, and the buyer puts up 1x price of the item as a deposit to the same bitcoin multi-signature address  + 1x for payment( the buyer can use PayPal, credit card, bank transfer, cash, etc). These deposited bitcoins can only be released when both agree on payment or refund. This keeps incentives aligned without the need for escrow agents or reputation systems.

 
Free, Open & Uncensored

Free client, Open-source code available on Github under an MIT license.
 
 
 Choice Of Two Party Escrow

To appreciate the value of the two-party escrow system and why it is so important for secure, private and middlemen free exchange, it is worth considering problems with the traditional approach of using a 3rd party escrow agent.

In a third party escrow system the buyer and seller ask a third trusted party (an escrow agent) to receive payment from the buyer before the item is delivered and to then release the payment to the seller after the item is delivered. If there is a dispute about the quality of the item or whether it was delivered, the third party acts as a mediator and decides whether to send the payment or refund the buyer. Some of the problems with this model include:
 
    •  Unless escrow agent receives the item before forwarding it to the buyer and has the expertise to verify the quality of the item, they have no means of fairly mediating a dispute. This problem becomes much worse when services are being exchanged. Proof of package delivery doesn't verify what was delivered or its quality and photos from the buyer could be of another item, etc.

     • Credit cards and centralized marketplaces seem like existence proofs of working escrow agents but they are non-anonymous, do not resolve disputes fairly (as most small merchants can tell you) and are known to break in markets with high fraud potential (e.g. third world countries, porn, etc).

     • Untrustworthy escrow agents who may steal escrow, fail to release escrow or collude with (or be) one of the parties.

     • Escrow agents with a strong reputation may be doing a long con to take off with or extort a large payment or group of payments.

     • Escrow agent expenses in the form of labor and risk are passed on to the buyer and seller.
 

 
 
Finding a trustworthy agent requires a reputation system and building reputation systems in anonymous networks remains an unsolved problem (see next section).


Fortunately, a two-party escrow made possible by Bitcoin's multi-signature transactions can solve all of these problems.
 
Where Reputation Systems Are Required

For transactions involving goods delivery of the size typical for a user's cash transactions, we suspect a two-party escrow will be sufficient to address the problem of trust. But there are classes of transactions where reputation systems seem to be required. Some examples include:

 • Larger transactions such as those of the size that typically involve debt (e.g. purchasing a car), where the necessary size of security deposits for two-party escrow may be prohibitive.

 • Transactions involving services where buyer and seller meet in person (e.g. taxis) pose a risk that either party may physically coerce the other into releasing the transaction or otherwise harm them.

 • Transactions where there is a significant cost for nondelivery beyond the price of the item (e.g. urgent medical supplies and services, critical parts, deadline-driven projects).

 • Transactions where quality is difficult to objectively assess or where the client may not have the expertise to assess it (e.g. professional services).

 • Transactions where a buyer has strong concerns about exposing their physical address to a potentially malicious seller.

Reputation System Failures

Although reputation systems are useful, there are many potential ways for malicious agents to attack them. Systems that do not address these may be worse than no reputation system at all as they can result in users extending trust to untrustworthy parties or unwittingly exposing their real identities. These attacks include:

 • Build false trust: Posting fake positive reviews by creating many identities and performing transactions and posting reviews between them.

 • Build false distrust: Posting fake negative reviews of competitors.

 • Long cons: completing in good faith many transactions in order to accumulate and then exploit trust extended for a large or large group of transactions.

• Trusted parties whose computers become compromised. This is not a threat with two-party escrow as economic incentives are aligned regardless of the trustworthiness of the parties.

 • Identity leaks via delivery: Attaching reviews or history information to identities in externally verifiable ways can leak information (e.g. timing analysis by combining real-world delivery records with online transaction and review times), particularly when gathered over time.

 • Identity leaks via network analysis: Combining known real-world connection data (e.g. social network, business or friend networks) with the reputation system's network of reviews and even a single exposed real identity may provide strong hints to the real identities to other relatively direct connections.
 
 

 
 
 
 
While the Bitcoin blockchain and cryptographic signatures could provide a means of externally verifying trade history, when trades where done and whether or not they were completed, it doesn't address the fake review problem and it makes the system potentially more vulnerable to identity leaks. As far as we know, there are no existing reputation systems that sufficiently address any of these issues.
 

Trust Network Challenges

The network of trust solutions, where users keep contact lists of other users they trust and potentially share reviews between them solve the fake review problem. However, the trade-off is having fewer available reviews and that comprising one user can leak the identities of all members of their trust network if the cryptographic identities are tagged with real names.

This problem can be addressed if the market only allows the tagging of a trusted reviewer's cryptographic identities with the user's trust level in them. This also requires a more proactive role for the user in requesting these identities from those they trust and doing so in a way that does not record the connection between cryptographic and real identities.



Choice Of Escrow Ratios

The current version of the www.bitcoinescrow.ga is configured to use a 1-1 deposit/price ratio. So for the sale of an item costing X, the buyer would put up 2X (1X for payment and 1X for deposit) and the seller 1X so a total of 3X would be locked in escrow.

the current fixed ratio was chosen to meet the requirements that:

 • Deposits are large enough that consistently malicious buyers or sellers will on average go bankrupt before destroying the market assuming their bankroll is small compared to the volume of the market.

 • Deposits are large enough incentives to ensure the seller will deliver an acceptable product and that the buyer releases escrow at the end of the transaction (signing a payment or refund request).

 • Deposits are small enough that parties are willing to accept losses in order to punish bad actors. The results of the Ultimatum game experiments provide evidence that this is likely for the sizes in which the people might make cash purchases.

 • Deposits are small enough that locking the funds over the period of the transaction wouldn't be a burden for either party in the sizes in which the buyer might make cash purchases.

 • Simple enough to be easily understood by users.

The 1-1 ratio seems to be the simplest choice which meets all of these requirements.
 
If a buyer and a seller both use bitcoin for deposit and payment for items. What will happen?
 
 

 

 
If a buyer and a seller both use bitcoin for a deposit, and the buyer use PayPal, credit card, cash for payment of items. What will happen? (in this case, x = item's price, the seller deposited 2x bitcoins and the buyer deposited 1x bitcoin. For example, if the item's price = 1000 US$, and time is April 14, 2020. The seller should deposit 0.3 bitcoins and the buyer should deposit 0.15 bitcoins to the same multi-signature address.)
 
 
 
 
If a buyer, a mediator and a seller both use  2 of 3 bitcoin multi-signature,  and the buyer using PayPal, credit card, cash for payment of items. What will happen?
 

 
 
 

 
 
2 of 3 Bitcoin Escrow service uses Bitcoin's multi-signature function. There are 3 participants in this escrow service. A buyer, a seller, and a mediator.

How to use 2 of 3 Bitcoin Escrow service (Bitcoin's multi-signature function)?
you can click here to check the whole tutorial step by step

 1. Anyone of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators' option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key, and a private key) using the  New Address tab.
 
2. To confirm the correctness, the redeem script can be verified here.

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer.

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minus the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction with the buyer.

7. The buyer signs the raw transaction using the signing tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using the Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction
  view all
Decentralized & Anonymous

the Bitcoin network is used for payments. it is decentralized and anonymous.

Two-Party Escrow

The seller puts up a 1x price of the item as a deposit to a bitcoin multi-signature address, and the buyer puts up 1x price of the item as a deposit to the same bitcoin multi-signature address  + 1x for payment( the buyer can use PayPal, credit card, bank transfer, cash, etc). These deposited bitcoins can only be released when both agree on payment or refund. This keeps incentives aligned without the need for escrow agents or reputation systems.

 
Free, Open & Uncensored

Free client, Open-source code available on Github under an MIT license.
 
 
 Choice Of Two Party Escrow

To appreciate the value of the two-party escrow system and why it is so important for secure, private and middlemen free exchange, it is worth considering problems with the traditional approach of using a 3rd party escrow agent.

In a third party escrow system the buyer and seller ask a third trusted party (an escrow agent) to receive payment from the buyer before the item is delivered and to then release the payment to the seller after the item is delivered. If there is a dispute about the quality of the item or whether it was delivered, the third party acts as a mediator and decides whether to send the payment or refund the buyer. Some of the problems with this model include:
 
    •  Unless escrow agent receives the item before forwarding it to the buyer and has the expertise to verify the quality of the item, they have no means of fairly mediating a dispute. This problem becomes much worse when services are being exchanged. Proof of package delivery doesn't verify what was delivered or its quality and photos from the buyer could be of another item, etc.

     • Credit cards and centralized marketplaces seem like existence proofs of working escrow agents but they are non-anonymous, do not resolve disputes fairly (as most small merchants can tell you) and are known to break in markets with high fraud potential (e.g. third world countries, porn, etc).

     • Untrustworthy escrow agents who may steal escrow, fail to release escrow or collude with (or be) one of the parties.

     • Escrow agents with a strong reputation may be doing a long con to take off with or extort a large payment or group of payments.

     • Escrow agent expenses in the form of labor and risk are passed on to the buyer and seller.
 

 
 
Finding a trustworthy agent requires a reputation system and building reputation systems in anonymous networks remains an unsolved problem (see next section).


Fortunately, a two-party escrow made possible by Bitcoin's multi-signature transactions can solve all of these problems.
 
Where Reputation Systems Are Required

For transactions involving goods delivery of the size typical for a user's cash transactions, we suspect a two-party escrow will be sufficient to address the problem of trust. But there are classes of transactions where reputation systems seem to be required. Some examples include:

 • Larger transactions such as those of the size that typically involve debt (e.g. purchasing a car), where the necessary size of security deposits for two-party escrow may be prohibitive.

 • Transactions involving services where buyer and seller meet in person (e.g. taxis) pose a risk that either party may physically coerce the other into releasing the transaction or otherwise harm them.

 • Transactions where there is a significant cost for nondelivery beyond the price of the item (e.g. urgent medical supplies and services, critical parts, deadline-driven projects).

 • Transactions where quality is difficult to objectively assess or where the client may not have the expertise to assess it (e.g. professional services).

 • Transactions where a buyer has strong concerns about exposing their physical address to a potentially malicious seller.

Reputation System Failures

Although reputation systems are useful, there are many potential ways for malicious agents to attack them. Systems that do not address these may be worse than no reputation system at all as they can result in users extending trust to untrustworthy parties or unwittingly exposing their real identities. These attacks include:

 • Build false trust: Posting fake positive reviews by creating many identities and performing transactions and posting reviews between them.

 • Build false distrust: Posting fake negative reviews of competitors.

 • Long cons: completing in good faith many transactions in order to accumulate and then exploit trust extended for a large or large group of transactions.

• Trusted parties whose computers become compromised. This is not a threat with two-party escrow as economic incentives are aligned regardless of the trustworthiness of the parties.

 • Identity leaks via delivery: Attaching reviews or history information to identities in externally verifiable ways can leak information (e.g. timing analysis by combining real-world delivery records with online transaction and review times), particularly when gathered over time.

 • Identity leaks via network analysis: Combining known real-world connection data (e.g. social network, business or friend networks) with the reputation system's network of reviews and even a single exposed real identity may provide strong hints to the real identities to other relatively direct connections.
 
 

 
 
 
 
While the Bitcoin blockchain and cryptographic signatures could provide a means of externally verifying trade history, when trades where done and whether or not they were completed, it doesn't address the fake review problem and it makes the system potentially more vulnerable to identity leaks. As far as we know, there are no existing reputation systems that sufficiently address any of these issues.
 

Trust Network Challenges

The network of trust solutions, where users keep contact lists of other users they trust and potentially share reviews between them solve the fake review problem. However, the trade-off is having fewer available reviews and that comprising one user can leak the identities of all members of their trust network if the cryptographic identities are tagged with real names.

This problem can be addressed if the market only allows the tagging of a trusted reviewer's cryptographic identities with the user's trust level in them. This also requires a more proactive role for the user in requesting these identities from those they trust and doing so in a way that does not record the connection between cryptographic and real identities.



Choice Of Escrow Ratios

The current version of the www.bitcoinescrow.ga is configured to use a 1-1 deposit/price ratio. So for the sale of an item costing X, the buyer would put up 2X (1X for payment and 1X for deposit) and the seller 1X so a total of 3X would be locked in escrow.

the current fixed ratio was chosen to meet the requirements that:

 • Deposits are large enough that consistently malicious buyers or sellers will on average go bankrupt before destroying the market assuming their bankroll is small compared to the volume of the market.

 • Deposits are large enough incentives to ensure the seller will deliver an acceptable product and that the buyer releases escrow at the end of the transaction (signing a payment or refund request).

 • Deposits are small enough that parties are willing to accept losses in order to punish bad actors. The results of the Ultimatum game experiments provide evidence that this is likely for the sizes in which the people might make cash purchases.

 • Deposits are small enough that locking the funds over the period of the transaction wouldn't be a burden for either party in the sizes in which the buyer might make cash purchases.

 • Simple enough to be easily understood by users.

The 1-1 ratio seems to be the simplest choice which meets all of these requirements.
 
If a buyer and a seller both use bitcoin for deposit and payment for items. What will happen?
 
 

 

 
If a buyer and a seller both use bitcoin for a deposit, and the buyer use PayPal, credit card, cash for payment of items. What will happen? (in this case, x = item's price, the seller deposited 2x bitcoins and the buyer deposited 1x bitcoin. For example, if the item's price = 1000 US$, and time is April 14, 2020. The seller should deposit 0.3 bitcoins and the buyer should deposit 0.15 bitcoins to the same multi-signature address.)
 
 
 
 
If a buyer, a mediator and a seller both use  2 of 3 bitcoin multi-signature,  and the buyer using PayPal, credit card, cash for payment of items. What will happen?
 

 
 
 

 
 
2 of 3 Bitcoin Escrow service uses Bitcoin's multi-signature function. There are 3 participants in this escrow service. A buyer, a seller, and a mediator.

How to use 2 of 3 Bitcoin Escrow service (Bitcoin's multi-signature function)?
you can click here to check the whole tutorial step by step

 1. Anyone of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators' option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key, and a private key) using the  New Address tab.
 
2. To confirm the correctness, the redeem script can be verified here.

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer.

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minus the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction with the buyer.

7. The buyer signs the raw transaction using the signing tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using the Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction
 
408
Views

How does 2 of 3 Bitcoin Escrow work?

ExperienceAfricalocals team posted the article • 0 comments • 408 views • 2019-12-17 18:40 • data from similar tags

In Simple Infographic Representation
 

 
 

 
 
 
 
Our 2 of 3 Bitcoin Escrow service uses Bitcoin's multisignature function. There are 3 participants in this escrow service. A buyer, a seller and a mediator. All the transaction online and through https://bitcoinescrow.ga/.

1. Any one of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key and a private key) using the  New Address tab.NOTE: Never share your Private Key to anyone else. If you do, you would lose your bitcoins! They can sign the transaction on your behalf and redeem all the coins to their address.

2. To confirm the correctness, the redeem script can be verified here   .

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer .

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minue the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction to the buyer.

7. The buyer signs the raw transaction using the sign tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction



 
 
 

  view all
In Simple Infographic Representation
 

 
 

 
 
 
 
Our 2 of 3 Bitcoin Escrow service uses Bitcoin's multisignature function. There are 3 participants in this escrow service. A buyer, a seller and a mediator. All the transaction online and through https://bitcoinescrow.ga/.

1. Any one of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key and a private key) using the  New Address tab.
NOTE: Never share your Private Key to anyone else. If you do, you would lose your bitcoins! They can sign the transaction on your behalf and redeem all the coins to their address.


2. To confirm the correctness, the redeem script can be verified here   .

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer .

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minue the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction to the buyer.

7. The buyer signs the raw transaction using the sign tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction



 
 
 

 
366
Views

What is bitcoin escrow services? How does Two Party Escrow works? How can bitcoin multi-signature feature be used for online transaction security between sellers and buyers?

ExperienceAfricalocals team posted the article • 0 comments • 366 views • 2020-04-14 15:38 • data from similar tags

Decentralized & Anonymous

the Bitcoin network is used for payments. it is decentralized and anonymous.

Two-Party Escrow

The seller puts up a 1x price of the item as a deposit to a bitcoin multi-signature address, and the buyer puts up 1x price of the item as a deposit to the same bitcoin multi-signature address  + 1x for payment( the buyer can use PayPal, credit card, bank transfer, cash, etc). These deposited bitcoins can only be released when both agree on payment or refund. This keeps incentives aligned without the need for escrow agents or reputation systems.

 
Free, Open & Uncensored

Free client, Open-source code available on Github under an MIT license.
 
 
 Choice Of Two Party Escrow

To appreciate the value of the two-party escrow system and why it is so important for secure, private and middlemen free exchange, it is worth considering problems with the traditional approach of using a 3rd party escrow agent.

In a third party escrow system the buyer and seller ask a third trusted party (an escrow agent) to receive payment from the buyer before the item is delivered and to then release the payment to the seller after the item is delivered. If there is a dispute about the quality of the item or whether it was delivered, the third party acts as a mediator and decides whether to send the payment or refund the buyer. Some of the problems with this model include:
 
    •  Unless escrow agent receives the item before forwarding it to the buyer and has the expertise to verify the quality of the item, they have no means of fairly mediating a dispute. This problem becomes much worse when services are being exchanged. Proof of package delivery doesn't verify what was delivered or its quality and photos from the buyer could be of another item, etc.

     • Credit cards and centralized marketplaces seem like existence proofs of working escrow agents but they are non-anonymous, do not resolve disputes fairly (as most small merchants can tell you) and are known to break in markets with high fraud potential (e.g. third world countries, porn, etc).

     • Untrustworthy escrow agents who may steal escrow, fail to release escrow or collude with (or be) one of the parties.

     • Escrow agents with a strong reputation may be doing a long con to take off with or extort a large payment or group of payments.

     • Escrow agent expenses in the form of labor and risk are passed on to the buyer and seller.
 

 
 
Finding a trustworthy agent requires a reputation system and building reputation systems in anonymous networks remains an unsolved problem (see next section).


Fortunately, a two-party escrow made possible by Bitcoin's multi-signature transactions can solve all of these problems.
 
Where Reputation Systems Are Required

For transactions involving goods delivery of the size typical for a user's cash transactions, we suspect a two-party escrow will be sufficient to address the problem of trust. But there are classes of transactions where reputation systems seem to be required. Some examples include:

 • Larger transactions such as those of the size that typically involve debt (e.g. purchasing a car), where the necessary size of security deposits for two-party escrow may be prohibitive.

 • Transactions involving services where buyer and seller meet in person (e.g. taxis) pose a risk that either party may physically coerce the other into releasing the transaction or otherwise harm them.

 • Transactions where there is a significant cost for nondelivery beyond the price of the item (e.g. urgent medical supplies and services, critical parts, deadline-driven projects).

 • Transactions where quality is difficult to objectively assess or where the client may not have the expertise to assess it (e.g. professional services).

 • Transactions where a buyer has strong concerns about exposing their physical address to a potentially malicious seller.

Reputation System Failures

Although reputation systems are useful, there are many potential ways for malicious agents to attack them. Systems that do not address these may be worse than no reputation system at all as they can result in users extending trust to untrustworthy parties or unwittingly exposing their real identities. These attacks include:

 • Build false trust: Posting fake positive reviews by creating many identities and performing transactions and posting reviews between them.

 • Build false distrust: Posting fake negative reviews of competitors.

 • Long cons: completing in good faith many transactions in order to accumulate and then exploit trust extended for a large or large group of transactions.

• Trusted parties whose computers become compromised. This is not a threat with two-party escrow as economic incentives are aligned regardless of the trustworthiness of the parties.

 • Identity leaks via delivery: Attaching reviews or history information to identities in externally verifiable ways can leak information (e.g. timing analysis by combining real-world delivery records with online transaction and review times), particularly when gathered over time.

 • Identity leaks via network analysis: Combining known real-world connection data (e.g. social network, business or friend networks) with the reputation system's network of reviews and even a single exposed real identity may provide strong hints to the real identities to other relatively direct connections.
 
 

 
 
 
 
While the Bitcoin blockchain and cryptographic signatures could provide a means of externally verifying trade history, when trades where done and whether or not they were completed, it doesn't address the fake review problem and it makes the system potentially more vulnerable to identity leaks. As far as we know, there are no existing reputation systems that sufficiently address any of these issues.
 

Trust Network Challenges

The network of trust solutions, where users keep contact lists of other users they trust and potentially share reviews between them solve the fake review problem. However, the trade-off is having fewer available reviews and that comprising one user can leak the identities of all members of their trust network if the cryptographic identities are tagged with real names.

This problem can be addressed if the market only allows the tagging of a trusted reviewer's cryptographic identities with the user's trust level in them. This also requires a more proactive role for the user in requesting these identities from those they trust and doing so in a way that does not record the connection between cryptographic and real identities.



Choice Of Escrow Ratios

The current version of the www.bitcoinescrow.ga is configured to use a 1-1 deposit/price ratio. So for the sale of an item costing X, the buyer would put up 2X (1X for payment and 1X for deposit) and the seller 1X so a total of 3X would be locked in escrow.

the current fixed ratio was chosen to meet the requirements that:

 • Deposits are large enough that consistently malicious buyers or sellers will on average go bankrupt before destroying the market assuming their bankroll is small compared to the volume of the market.

 • Deposits are large enough incentives to ensure the seller will deliver an acceptable product and that the buyer releases escrow at the end of the transaction (signing a payment or refund request).

 • Deposits are small enough that parties are willing to accept losses in order to punish bad actors. The results of the Ultimatum game experiments provide evidence that this is likely for the sizes in which the people might make cash purchases.

 • Deposits are small enough that locking the funds over the period of the transaction wouldn't be a burden for either party in the sizes in which the buyer might make cash purchases.

 • Simple enough to be easily understood by users.

The 1-1 ratio seems to be the simplest choice which meets all of these requirements.
 
If a buyer and a seller both use bitcoin for deposit and payment for items. What will happen?
 
 

 

 
If a buyer and a seller both use bitcoin for a deposit, and the buyer use PayPal, credit card, cash for payment of items. What will happen? (in this case, x = item's price, the seller deposited 2x bitcoins and the buyer deposited 1x bitcoin. For example, if the item's price = 1000 US$, and time is April 14, 2020. The seller should deposit 0.3 bitcoins and the buyer should deposit 0.15 bitcoins to the same multi-signature address.)
 
 
 
 
If a buyer, a mediator and a seller both use  2 of 3 bitcoin multi-signature,  and the buyer using PayPal, credit card, cash for payment of items. What will happen?
 

 
 
 

 
 
2 of 3 Bitcoin Escrow service uses Bitcoin's multi-signature function. There are 3 participants in this escrow service. A buyer, a seller, and a mediator.

How to use 2 of 3 Bitcoin Escrow service (Bitcoin's multi-signature function)?
you can click here to check the whole tutorial step by step

 1. Anyone of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators' option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key, and a private key) using the  New Address tab.
 
2. To confirm the correctness, the redeem script can be verified here.

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer.

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minus the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction with the buyer.

7. The buyer signs the raw transaction using the signing tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using the Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction
  view all
Decentralized & Anonymous

the Bitcoin network is used for payments. it is decentralized and anonymous.

Two-Party Escrow

The seller puts up a 1x price of the item as a deposit to a bitcoin multi-signature address, and the buyer puts up 1x price of the item as a deposit to the same bitcoin multi-signature address  + 1x for payment( the buyer can use PayPal, credit card, bank transfer, cash, etc). These deposited bitcoins can only be released when both agree on payment or refund. This keeps incentives aligned without the need for escrow agents or reputation systems.

 
Free, Open & Uncensored

Free client, Open-source code available on Github under an MIT license.
 
 
 Choice Of Two Party Escrow

To appreciate the value of the two-party escrow system and why it is so important for secure, private and middlemen free exchange, it is worth considering problems with the traditional approach of using a 3rd party escrow agent.

In a third party escrow system the buyer and seller ask a third trusted party (an escrow agent) to receive payment from the buyer before the item is delivered and to then release the payment to the seller after the item is delivered. If there is a dispute about the quality of the item or whether it was delivered, the third party acts as a mediator and decides whether to send the payment or refund the buyer. Some of the problems with this model include:
 
    •  Unless escrow agent receives the item before forwarding it to the buyer and has the expertise to verify the quality of the item, they have no means of fairly mediating a dispute. This problem becomes much worse when services are being exchanged. Proof of package delivery doesn't verify what was delivered or its quality and photos from the buyer could be of another item, etc.

     • Credit cards and centralized marketplaces seem like existence proofs of working escrow agents but they are non-anonymous, do not resolve disputes fairly (as most small merchants can tell you) and are known to break in markets with high fraud potential (e.g. third world countries, porn, etc).

     • Untrustworthy escrow agents who may steal escrow, fail to release escrow or collude with (or be) one of the parties.

     • Escrow agents with a strong reputation may be doing a long con to take off with or extort a large payment or group of payments.

     • Escrow agent expenses in the form of labor and risk are passed on to the buyer and seller.
 

 
 
Finding a trustworthy agent requires a reputation system and building reputation systems in anonymous networks remains an unsolved problem (see next section).


Fortunately, a two-party escrow made possible by Bitcoin's multi-signature transactions can solve all of these problems.
 
Where Reputation Systems Are Required

For transactions involving goods delivery of the size typical for a user's cash transactions, we suspect a two-party escrow will be sufficient to address the problem of trust. But there are classes of transactions where reputation systems seem to be required. Some examples include:

 • Larger transactions such as those of the size that typically involve debt (e.g. purchasing a car), where the necessary size of security deposits for two-party escrow may be prohibitive.

 • Transactions involving services where buyer and seller meet in person (e.g. taxis) pose a risk that either party may physically coerce the other into releasing the transaction or otherwise harm them.

 • Transactions where there is a significant cost for nondelivery beyond the price of the item (e.g. urgent medical supplies and services, critical parts, deadline-driven projects).

 • Transactions where quality is difficult to objectively assess or where the client may not have the expertise to assess it (e.g. professional services).

 • Transactions where a buyer has strong concerns about exposing their physical address to a potentially malicious seller.

Reputation System Failures

Although reputation systems are useful, there are many potential ways for malicious agents to attack them. Systems that do not address these may be worse than no reputation system at all as they can result in users extending trust to untrustworthy parties or unwittingly exposing their real identities. These attacks include:

 • Build false trust: Posting fake positive reviews by creating many identities and performing transactions and posting reviews between them.

 • Build false distrust: Posting fake negative reviews of competitors.

 • Long cons: completing in good faith many transactions in order to accumulate and then exploit trust extended for a large or large group of transactions.

• Trusted parties whose computers become compromised. This is not a threat with two-party escrow as economic incentives are aligned regardless of the trustworthiness of the parties.

 • Identity leaks via delivery: Attaching reviews or history information to identities in externally verifiable ways can leak information (e.g. timing analysis by combining real-world delivery records with online transaction and review times), particularly when gathered over time.

 • Identity leaks via network analysis: Combining known real-world connection data (e.g. social network, business or friend networks) with the reputation system's network of reviews and even a single exposed real identity may provide strong hints to the real identities to other relatively direct connections.
 
 

 
 
 
 
While the Bitcoin blockchain and cryptographic signatures could provide a means of externally verifying trade history, when trades where done and whether or not they were completed, it doesn't address the fake review problem and it makes the system potentially more vulnerable to identity leaks. As far as we know, there are no existing reputation systems that sufficiently address any of these issues.
 

Trust Network Challenges

The network of trust solutions, where users keep contact lists of other users they trust and potentially share reviews between them solve the fake review problem. However, the trade-off is having fewer available reviews and that comprising one user can leak the identities of all members of their trust network if the cryptographic identities are tagged with real names.

This problem can be addressed if the market only allows the tagging of a trusted reviewer's cryptographic identities with the user's trust level in them. This also requires a more proactive role for the user in requesting these identities from those they trust and doing so in a way that does not record the connection between cryptographic and real identities.



Choice Of Escrow Ratios

The current version of the www.bitcoinescrow.ga is configured to use a 1-1 deposit/price ratio. So for the sale of an item costing X, the buyer would put up 2X (1X for payment and 1X for deposit) and the seller 1X so a total of 3X would be locked in escrow.

the current fixed ratio was chosen to meet the requirements that:

 • Deposits are large enough that consistently malicious buyers or sellers will on average go bankrupt before destroying the market assuming their bankroll is small compared to the volume of the market.

 • Deposits are large enough incentives to ensure the seller will deliver an acceptable product and that the buyer releases escrow at the end of the transaction (signing a payment or refund request).

 • Deposits are small enough that parties are willing to accept losses in order to punish bad actors. The results of the Ultimatum game experiments provide evidence that this is likely for the sizes in which the people might make cash purchases.

 • Deposits are small enough that locking the funds over the period of the transaction wouldn't be a burden for either party in the sizes in which the buyer might make cash purchases.

 • Simple enough to be easily understood by users.

The 1-1 ratio seems to be the simplest choice which meets all of these requirements.
 
If a buyer and a seller both use bitcoin for deposit and payment for items. What will happen?
 
 

 

 
If a buyer and a seller both use bitcoin for a deposit, and the buyer use PayPal, credit card, cash for payment of items. What will happen? (in this case, x = item's price, the seller deposited 2x bitcoins and the buyer deposited 1x bitcoin. For example, if the item's price = 1000 US$, and time is April 14, 2020. The seller should deposit 0.3 bitcoins and the buyer should deposit 0.15 bitcoins to the same multi-signature address.)
 
 
 
 
If a buyer, a mediator and a seller both use  2 of 3 bitcoin multi-signature,  and the buyer using PayPal, credit card, cash for payment of items. What will happen?
 

 
 
 

 
 
2 of 3 Bitcoin Escrow service uses Bitcoin's multi-signature function. There are 3 participants in this escrow service. A buyer, a seller, and a mediator.

How to use 2 of 3 Bitcoin Escrow service (Bitcoin's multi-signature function)?
you can click here to check the whole tutorial step by step

 1. Anyone of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators' option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key, and a private key) using the  New Address tab.
 
2. To confirm the correctness, the redeem script can be verified here.

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer.

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minus the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction with the buyer.

7. The buyer signs the raw transaction using the signing tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using the Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction
 
408
Views

How does 2 of 3 Bitcoin Escrow work?

ExperienceAfricalocals team posted the article • 0 comments • 408 views • 2019-12-17 18:40 • data from similar tags

In Simple Infographic Representation
 

 
 

 
 
 
 
Our 2 of 3 Bitcoin Escrow service uses Bitcoin's multisignature function. There are 3 participants in this escrow service. A buyer, a seller and a mediator. All the transaction online and through https://bitcoinescrow.ga/.

1. Any one of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key and a private key) using the  New Address tab.NOTE: Never share your Private Key to anyone else. If you do, you would lose your bitcoins! They can sign the transaction on your behalf and redeem all the coins to their address.

2. To confirm the correctness, the redeem script can be verified here   .

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer .

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minue the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction to the buyer.

7. The buyer signs the raw transaction using the sign tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction



 
 
 

  view all
In Simple Infographic Representation
 

 
 

 
 
 
 
Our 2 of 3 Bitcoin Escrow service uses Bitcoin's multisignature function. There are 3 participants in this escrow service. A buyer, a seller and a mediator. All the transaction online and through https://bitcoinescrow.ga/.

1. Any one of the three participants can generate an escrow address (and a redeem script) by adding the public key of all three participants. The mediator's public key can be selected from the list of mediators option. Alternatively, you can leave this whole process to the mediator for a smooth transaction.

If you don't have a public key, you can generate your own key combination (an address, a public key and a private key) using the  New Address tab.
NOTE: Never share your Private Key to anyone else. If you do, you would lose your bitcoins! They can sign the transaction on your behalf and redeem all the coins to their address.


2. To confirm the correctness, the redeem script can be verified here   .

3. Once the redeem script is verified, the seller can send the Bitcoins to the newly generated escrow address.

4. Once the coins are received into the escrow address, it means the coins are locked into the escrow (meaning, it cannot be released without any of the 2 participants signing the transaction). To confirm if the coins are received in the escrow address, simply check the balance in any Blockchain Explorer .

5. Now that the coins are locked, the buyer can transfer the money and share the details of the same to the mediator and the seller. The seller confirms the completion of the money transfer.

6. The mediator then initiates the unsigned raw transaction using the Transaction tab here by loading the redeem script, adding the total amount (minue the network fee) and entering the Bitcoin address where the buyer wishes to receive the coins. The mediator then shares the unsigned raw transaction to the buyer.

7. The buyer signs the raw transaction using the sign tab with his/her private key. This generates a new 1st signed raw transaction. The buyer then shares the 1st signed raw transaction with the seller/mediator for their signature. Now either the seller or the mediator can sign the 1st signed raw transaction by repeating step 7. This will generate the 2nd signed raw transaction.

8. The 2nd signed raw transaction can then be broadcast to the main network using Broadcast tab which will generate a new Transaction ID (TX ID). You can use Blockchain Explorer to check the status of the Transaction. This confirms the completion of the escrow transaction