Cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH) allow anyone in the world to transact with one another regardless of who they are, where they are, or when they make or receive the transaction. Crypto opens up a whole realm of possibilities when it comes to sending or receiving value in a fast, secure, and inexpensive manner.
However, unlike traditional means of foreign exchange such as credit cards, bank transfers, PayPal, and others, crypto transactions are irreversible. Meaning once you send a payment in Ethereum, for example, you cannot recover your money.
Therefore, it’s of the utmost importance to use an Ethereum escrow service when transacting with an untrusted party so that both the buyer and seller (sender and receiver) can feel confident in the transaction taking place.
What Is an Ethereum Escrow Service?
An Ethereum escrow service acts as a neutral third party between buyer and seller to protect both parties from potential fraudulent actions of the other.
When using an escrow service to send an Ethereum payment, the payment is put into escrow (on hold) before it is delivered to the seller/receiver. Basically, an Ethereum escrow service is a trusted third party that holds the transacted Ethereum or ERC-20 token and releases it only when certain conditions are met by both parties in the transaction.
Whether you’re an advent retail crypto spender or a working professional in the crypto industry, an Ethereum escrow service is key for any type of transaction with untrusted parties.
How Does Ethereum Escrow Work?
An Ethereum escrow service protects the seller by requiring the buyer to deposit any required funds upfront. That way they cannot back out of the deal once the seller delivers their product or service.
As for buyer protection, if the seller does not deliver their product or service, the funds are then returned to the buyer.
In the event that there is a dispute between the two transacting parties, the Ethereum escrow service will act as the arbitrator and determine who should receive the funds in escrow. Therefore, it’s critical that the Ethereum escrow service being used is reputable and can be trusted.
Choosing an Ethereum Escrow Service
This last part cannot be stressed enough. After all, the whole idea behind using an Ethereum escrow service is to protect your money when transacting with a stranger. However, any cryptocurrency escrow service itself is essentially a stranger too. You have no idea who’s behind the escrow site and whether or not they can be trusted.
Therefore, it’s of the utmost importance to choose a reliable and reputable service. Unfortunately, there are not many reputable Ethereum escrow services, as most are run by centralized companies who cannot necessarily be trusted.
However, a decentralized, blockchain-based Ethereum escrow service with open-sourced arbitrators that are trusted and verified could be the solution.
This is where Kleros comes in.
The Kleros Ethereum Escrow Service, What Is It?
Kleros is a fully decentralized blockchain dispute resolution protocol that offers a trust-backed escrow system to weed out bad actors and scammers from legitimate offerings.
Unlike the majority of centralized Ethereum escrow services, Kleros offers businesses and individuals in the crypto ecosystem a truly decentralized and unbiased dispute resolution process.
Using the Kleros escrow dapp, users can transact in the blockchain ecosystem for services, products, and assets with an easy-to-use escrow solution that offers an unparalleled level of trust not yet known among other Ethereum escrow services.
With Kleros, the transacted Ethereum is put in escrow and released once certain conditions are met, just like any other escrow service. However, if a dispute happens, it will be adjudicated by crowdsourced jurors selected and incentivized by the Kleros protocol.
These crowdsourced jurors will review all of the attached evidence that’s been recorded and stored on the blockchain, and then cast their votes as to who should win the dispute. The jurors have an incentive to vote honestly by being awarded the platform’s native cryptocurrency, the Pinakion Token (PNK). Jurors trying to game the system will lose money.
This dispute resolution process differs from other Ethereum escrow services because in the event of a dispute, instead of the parties relying solely on the reputation of the escrow service, they rely on crowdsourced jurors who are incentivized to be honest by the Kleros protocol.
How Does Kleros Work?
Kleros is an escrow solution for anyone transacting crypto with an untrusted party, because both parties benefit from a non-biased smart contract which can hold one side of the agreement’s funds securely.
For instance, say you want to do business with a service provider and pay them in Ethereum, but you’re not sure if you can trust the service provider and they’re not sure they can trust you.
In this case, you both decide to use the Kleros escrow platform to enter a secure and trusted agreement. First, you create a new payment with the terms of the agreement and deposit your payment into the Kleros escrow contract.
The contract is then sent over to the service provider where they review the terms of the agreement. If they agree to the terms, the service provider completes their service and delivers the agreed-upon service to you.
Then, if you are satisfied with the service, you release the full payment to the service provider.
If you are only partially satisfied with the service, you can release a partial payment to the service provider. If the service provider agrees to accept a partial payment, the rest of the payment in the escrow contract will be returned to you.
If the service provider believes they delivered the agreed-upon service, they can refuse the partial payment and raise a dispute. Then, the crowdsourced Kleros jurors will evaluate the case and decide the dispute. Whoever wins, receives the money from the escrow contract.
A flow chart of the scenario described above can be seen below.
Changing the Future of Blockchain Payments
Kleros is bringing trust to blockchain transactions by providing a safe and easy-to-use escrow platform that enables users to transact with one another in a trustless manner.
The platform allows users to transact confidently with one another due to specific, agreed-upon requirements in the escrow smart contract.
If there is a dispute, Kleros’ dispute-backed escrow service utilizes blockchain technology for the integrity of evidence and crowdsourced jurors to adjudicate disputes in a fast, secure, transparent, and affordable manner.
By using crowdsourced jurors instead of a centralized entity to solve disputes, both parties benefit from a global pool of jurors who are incentivized by the Kleros protocol to conduct honest rulings.
All in all, the escrow service offered by Kleros is revolutionizing the way individuals and businesses conduct blockchain transfers, and it’s poised to forever change the payments industry.