The old adage “buyer beware” is arguably the top tip consumers should heed when completing transactions online, and probably even exponentially more-so when that purchase entails the use of Bitcoin or altcoins.
Unlike mainstream retailers, auction sites, and payment platforms such as Paypal that have refund and dispute policies in place specifically designed to protect buyers, Bitcoin transactions are final and non-refundable. Which unfortunately, many consumers are still finding out the hard way.
While in most cases various government agencies and police forces have ways to determine the owner of a Bitcoin account, in reality, it requires a lot of investigative work. Law enforcement is highly unlikely to open a lengthy, complex, and expensive investigation that requires court orders and warrants for what amounts to a misdemeanor or low-class felony. This means that the chance of unscrupulous sellers, buyers, and scammers getting caught is slim to none, and they’re very well aware of this.
Once those digital dollars leave your wallet there’s no getting them back, and at that point there’s really nothing that guarantees delivery of your purchase. The seller gets their Bitcoins and you’re left depending on their reputation and reviews, assuming you took the time to at least look into them a little, while you wait with growing trepidation.
That is, unless you utilize an escrow service.
Escrow is a legal concept whereby an asset or financial instrument is held by a third party on behalf of two other parties that are in the process of completing a transaction. In other words, a trusted third party holds the Bitcoin and once the seller and buyer meet predetermined conditions, the Bitcoin is released.
Step-by-step:
- The Buyer deposits the required Bitcoin into the escrow account.
- Seller is notified about the deposit.
- Seller processes delivery of goods/services.
- If Buyer accepts delivery, the funds are released to Seller.
- If Buyer doesn’t accept delivery, the escrow provider serves as mediator and attempts to get both sides to reach an agreement.
- If no agreement can be made, the escrow provider considers each party’s evidence and makes the final determination of what happens with the funds.
This provides protection to both the Buyer and Seller.
The Buyer deposits the required Bitcoins but they aren’t released to the Seller until delivery is accepted, ensuring that their hard earned Bitcoins are safe.
The Seller receives verification of funds from the Buyer before shipping the product or dispatching service and because time limits are generally placed on transactions, escrow also helps protect them against lazy or unresponsive buyers.
There are several organizations that offer Bitcoin escrow services, with varying fees of course, and as with any cryptocurrency-related transactions or services, save yourself some headache and do a little homework before depositing your coins.
