Escrow and its evolution to a decentralized escrow

If you carefully consider the "course of action" of today's Internet giants - such as Google, Facebook, Twitter, Uber or Airbnb - you can see that they all share one thing in common: the value of these platforms is directly related to user engagement. Over the past 20 years, the economy has gradually moved away from the traditional model of centralized organizations, where large operators, often dominant, were responsible for providing services to a group of passive consumers. Today, we are moving towards a new model of increasingly decentralized organizations, where large operators are responsible for aggregating the resources of a group of people to provide services to a much more active group of consumers. This shift marks the emergence of a new generation of “dematerialized” organizations that do not need physical offices, assets, or even employees.

In this article we will look at how decentralization can transform one of the oldest financial instruments used in transactions - here we are, in particular, interested in the issue of security when investing in ICO projects and how this tool can be used for this purpose. It's about service.

What is escrow

Escrow in the classical sense of Anglo-Saxon law is a third party account. Pure escrow, or escrow, means withholding funds when conducting transactions by a trusted third party until all their conditions are met. The word comes from the old French word escroue, which translates as “piece of paper” or “parchment scroll”, which indicates an action that is performed by a third party before the transaction is completed. The escrow agent literally holds the decision to pay.

Escrow is a very important technology that provides trust between the parties, and in some countries has become the standard of quality service. Thanks to this mechanism, control over money transfers from the buyer to an independent agent. Independent agent, i.e. the holder of the deposit account ensures that the allocations are made in accordance with the terms and conditions agreed between the parties to the transaction.

In its original form, an escrow is a service that is a trusted party for both the seller and the buyer, providing them with a separate invoice to which collateral amounts are deposited, ensuring the collection and storage of data about the conditions of the transaction and their implementation. Escrow service also assumes the function of resolving disputes when the parties for some reason cannot agree.

How does escrow work on the Internet

On the Internet, escrow services have been working for a long time and quite successfully. In particular, escrow is used by all self-respecting large retailers like Amazon and AliExpress. There are certain types of escrow that are very difficult to implement without a trusted party. For example, a deposit system that only sends a payment if the seller provided proof of delivery would be impossible without a trusted third party.

In the context of talking about ICO, escrow helps to eradicate scam and loss of invested funds, due to the project’s failure to fulfill its promises.

The scheme works as follows: the funds received from investors are not transferred to the startup directly upon their receipt, but are transferred to an independent third party that stores them until the project fulfills the promises made at the start. As a rule, funds are not transferred to the project all at once, but in stages, as the points outlined in the roadmap of the project are implemented.

Technically, it looks like this. The collected money is concentrated on a multi-signature wallet account that is accessed by an escrow agent (usually at least two) and the project team. The agent's function is to verify the fulfillment of contract requirements, the observance of deadlines, etc. In case of fulfillment of promises, the startup is given access to a part of the funds on the wallet, according to this stage of the project.

Escrow also solves an important question that concerns investors after collecting money: how well they are spent, what are they doing? If the team starts doing something not specified in the ICO terms, the funds in the account are frozen for the purpose of further returning to investors.

Does escrow service guarantee the safety of investments?

Alas, it is not. Of course, this mechanism significantly increases the likelihood of investment success, but the possibility of fraud in this field is still present. The human factor in the form of collusion, mistakes and negligence - when choosing an escrow agent, utmost care should be taken to avoid being held hostage to all these unpleasant phenomena.

A classic example of the problem of centralization of escrow - capture and subsequent
the closure of the darknet market of Silk Road in October 2013, resulting in a loss of $ 3.6 million deposited in the escrow service on the site. Centralized escrow represents a kind of technical vulnerability, a point of failure in the traditional deposit model.

Escrow decentralization

The problem is solved by the decentralization of escrow. In general, the transition from centralized to decentralized depositing is one of the key areas of technological innovation.

Decentralized escrow is an independent mechanism that eliminates the human factor by eliminating the risks associated with dishonest conduct of business by specific individuals, exerting various kinds of pressure and other unpredictable events. Escrow decentralization transfers the process control to the investors themselves. Owners of tokens themselves decide whether the business in which they have invested is conducted correctly, and whether its further financing is advisable.

The benefits of decentralization for the investor community are undeniable. In particular, we are talking about the ease and efficiency of the decision-making process, its efficiency and objectivity. The likelihood of making the right decision increases significantly.

Decentralized Escrow service for ICO investment from Descrow

The Descrow project began with an understanding of the critical vulnerability underlying all ICO projects: smart contracts cannot assess the fulfillment of conditions by a startup. Depositaries, which usually participate in campaigns to solve this problem, have the disadvantage mentioned above - the human factor.

Thus, all the advantages of decentralized blockchain technology in this particular issue do not work, because here we are still dependent on the human factor. The fact is that the decentralized space needs the decentralized methods of regulation, and the Descrow project is such a method.

Descrow's ICO investment platform includes a built-in tool through which investors can control their funds on their own, in a decentralized manner. Descrow will be the first project in the world to guarantee the independence of the deposit and the only decentralized solution for the transparent and fair use of funds after the closure of the ICO.

The project completely excludes from the mechanism of depositing intermediaries (escrow agent). Descrow platform provides investors with the opportunity to participate in the life of a project to which they trust their money. If the majority of the owners of tokens decide that the project is not fulfilling its obligations, they can vote for the termination of further funding and return their funds. This tool is also useful for startups: the implementation of a decentralized escrow mechanism in an ICO campaign significantly increases the level of trust and loyalty on the part of investors.

The decision on the next stage of financing a specific campaign within the platform will be taken by a majority vote of investors. Thus, scam projects that do not intend to actually implement their roadmap will be eliminated, while those who will be ready to justify the trust placed in them will come to the forefront at the initial stage.

An important detail that excludes a centralized point of failure is that funds deposited for the next stage of financing will not be stored in the general smart contract, but in the personal wallets of investors who own private keys. Thus, with the unique tool Descrow, the investor becomes the key link regulating the ICO market and exerting a direct influence on the purity of this market.


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