Some info on escrow from a similar two-party system,
correct me if I'm wrong but Sling should work very similar.
Escrow LockWhen the seller approves the purchase, the seller's client constructs the first part of the escrow lock transaction which contains their security deposit and sends this to the buyer's client. The buyer's client then adds their own Sling inputs for payment and the buyer's deposit, signs the transaction and sends it to the seller to sign and broadcast the completed transaction to the Sling network.
Neither party's funds are locked (unavailable for spending) until the transaction is submitted to the Sling network. If either party fails to complete the escrow message exchange or submit the completed escrow to the Sling network, either can cancel the escrow by sending their own Sling inputs for the transaction to another address they own. Cancellation is only possible if the completed escrow transaction has not been sent to the Sling network first.
DeliveryOnce escrow lock is complete, the buyer's client prompts them for delivery details for the order. These are then sent to the seller for delivery.
Escrow ReleaseUpon receiving delivery of satisfactory good/service, if the buyer chooses to initiate payment, their client constructs a transaction which releases the deposits to their respective parties and sends the payment to the seller in a similar process to how the escrow was locked.
If the buyer does not receive the good/service or finds them unsatisfactory, they can request a refund from the seller. The refund request constructs a transaction which sends the deposits to their respective parties but returns the payment to the buyer. If the seller approves the refund, the transaction is completed in a similar process to how the escrow was locked.
Choice of Two Party EscrowTo appreciate the value of the two party escrow system and why it is so important for secure, private and middle men 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 it's 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 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.
Fortunately, two party escrow made possible by Sling's multi-signature transactions can solve all of these problems.
