Topic: Escrows: probably unavoidable human intervention for fiat/BTC exchanges (Read 598 times)

Agree, that's also an important point, apart from the "fakeability" of documents.

There's one possible exception though: if a country adopts a blockchain-based CBDC without reversability.

Perhaps this could even be offered privately. I remember times when P2P participants accepted some very small online wallet services like PerfectMoney. I mean to remember that they were not reversible, in contrast to PayPal and bank transfers. Basically this would be though the same business model than Tether, albeit not necessarily with a blockchain-based stablecoin. But of course these wallet services are then the "middleman" you have to trust, and they're often much less regulated/secure than bank accounts - more comparable to crypto exchange. So it's not really a big advantage.

That is also true. While DeFi apps exists that eliminate that middleman, the collateral then has to be held in another cryptocurrency, so it has far less use cases than traditional lending.

I may have to elaborate a bit about the HDD space/fiat model because Sia[coin] isn't nomally thought to be a fiat-crypto exchange.

You can however use it as one:
- to onramp, buy hardware for fiat and offer space on Sia.
- to offramp, rent space on Sia for crypto and sell it as low-quality webspace for fiat.

I've never tried that, but it seems it could fill a niche. However you need to be trusted as a webspace seller in this model, so this is not for everyone, and it's also very difficult to do in an anonymous way. You would have basically the same trust problem than on a P2P DEX, but with a difference: as webspace can be seen a a "stream of value" (every second you get webspace counts) the amounts which can be "scammed" are normally so small that there is extremely little incentive for it.

For certain quantities it is impracticable. If the payment that arrives to you from "Quassam Bon Loden" from Syria is 400€, then surely nothing will happen at that moment but you will not be very calm if the treasury of your country a posteriori begins to review your accounts and finds quite a few of similar payments that you haven't declared as taxable events by selling Bitcoin.

But if you are trying to receive a payment of 10.000€ or more, in most European countries your bank will block the transfer and will not make effective by writing the amount in your account until you justify that this transfer has a legal origin, and then the DEX will not be of any use to you. And do not tell me that you were going to declare it anyway, because for that you would not take the trouble to do it through a platform that has much less liquidity, you pay more fees and in any case you give your data to a stranger.

It would also be necessary to see how the bank reacts if you tell them that it comes from a P2P Bitcoin sale, because I don't think they will say: "Oh! Ok" and they will instantly write down the amount in your account.

Depending on the country in which you reside, they will block the transfer even if it comes from within Europe, and if it comes from a conflictive country they may block it and/or ask for justification with smaller amounts.

The only way you can get rid of the exchange (and thus the people who take the crypto from the bank and give you fiat) from the equation is if the bank directly offers you an crypto/fiat exchange service. And I don't mean Paypal (it's not a bank), but the actual banks themselves.

That would actually make things much more stable than the current "wild west" of exchanges who don't even get audits or liquidity checks and thus fall insolvent every now and then.

Huh, I've never heard of that and will have to look it up out of curiosity.

You've got valid points, all of them, d5000.  They've been noticeable bugaboos in the crypto space since I started paying attention to it in 2014, and clearly since bitcoin was gifted to the world by Satoshi.  And damned if I've got any bright ideas as to how to remove any and all trust when it comes to crypto transactions--minds much more knowledgeable than my little pea-noggin have surely been trying to solve the problem all of this time, and it doesn't seem like there's been a breakthrough.

Not that this is an issue that affects me much, as I can't remember the last time I did a fiat-crypto transaction.  But I do think it's one of the things that turns potential newcomers away from buying bitcoin/altcoins, especially if they've gotten burned before.  We all know that scammers take advantage of anything like this to fleece people who are willing to trust an unknown counterparty as if they were a local bank.

This sums it up perfectly.
Bitcoin is perfect in a (physical) shop: you get the goods, the seller gets the money. When reversible items are involved, then escrow is a must.

This being said, fiat/BTC exchange is possible without escrow when fiat is in a physical form, hence cannot be reversed. But this is not the target for OP topic. For online exchange I agree, escrow is necessary. Sadly there are plenty of people who prefer to try to scam...

I'm afraid fiat/crypto P2P trades done online might not be able to completely do away with escrow. Where trust is required, escrow in whatever form is necessary. We simply can't trust anybody. Although this isn't the third party that we really hate considering that the escrow doesn't actually approve, reject, screen, reverse, or whatever the transactions, it's still a third-party intervention.

And then there's the ironic fact that the fiat side of fiat/crypto P2P trades oftentimes involve banks and other traditional financial institutions which can actually freeze withdrawals, suspend accounts, lock or even confiscate funds. Not only is there an intervention in the escrow system, there is also the powerful involvement of third-party decision makers. How many are actually using the Bisq software and chooses bank transfer or Western Union or MoneyGram as fiat payment methods?

So, for me, I prefer a real-life person to person exchange, in cold cash. There remains a security issue nonetheless, but escrow is unnecessary this way. How I also wish there are OTC centers where the spread is reasonable and KYC is completely non-existent. You just go there with hard cash and you can have Bitcoin sent directly to your wallet, or your Bitcoin for some cash.

Why it's need escrow? because fiat is reversible currency, if there's no escrow someone can easily scam the Bitcoin holder by transferring the fiat and then ask to reverse the money back into his account. Trading about small amount money is safe without escrow, but it's different if we talk about big amount trade.

Not only about fiat/BTC exchange, but lending must need an escrow because they need to claim and verify the collateral.

I agree with stompix here. In addition, if your bank offers a smart contract on some blockchain to buy BTC (for example using wrapped Bitcoin), they could in reality offer you BTC directly. Or you don't need the smart contract at all. I remember a bank which had Ripple gateways. But then the fiat-to-crypto part is already solved, as XRP/BTC can be done with an atomic swap or on an escrow/P2P exchange without any risk (other than an 51% attack or so) because all transfers can be proven.

I agree somewhat regarding CEX. For a certain public they're very useful if they're responsibly and securely managed. I think this business model also will stay, But on the other hand I can well imagine that the DEX/escrow model can grow too. I think we're moving into a scenario where some big CEXes will stay and continue to grow, but many small CEXes will be replaced by DEXes, because they offer better terms regarding KYC (small exchanges always are prone to be hacked, and your KYC data is then in danger to be sold to criminals), and a complete exit scam is also more likely.


I can see where you're coming from. And I agree that there's always a middleman if you use a bank account or centralized wallet service, and if not, then all you can do is a person-to-person trade currently (a trade sending cash through a postal service seems even more risky).

But on platforms like Bisq you can see how old the accounts are (and as they tie account names to a bank account hash, old accounts are extremely unlikely to have used stolen bank accounts), and thus you can manage the risk a bit.

Moreover, while you have to send your name and bank account number to the counterparty, CEX verification takes currently much more data (at least photos of yourself, more likely videos), which in Deepfake times can be very dangerous if they get in the wrong hands. Names are public everywhere, bank account data in the wrong hands can be a risk but much less than a photo/name/phone number combination, which is what criminals will get if they hack a CEX.

The DEX proposal I linked to above was proposing to divide buy and sell orders in very small parts which are filled by different buyers and sellers to make escrowers unnecessary, so malicious parties lose more (reputation) than what they're able to scam, use LN for the Bitcoin side to be able to process micropayments, and a bank API for the other side (which is something not all banks will offer, and has additional risks). It's not a completely bad idea, but I guess this model could also be exploited to gather personal data, and of more people than with the traditional DEX model.

How do you implement a smart contract in a fiat to btc transaction?

That's the whole thing, banks and other 3rd party payments system don't care about smart contracts and don't want to get involved in such thing as it would be simply an enormous pain in the ass for little returns, why even bother with it, why try to build the infrastructure needed when he customer will be in the hundreds at most? That's why you see so few businesses accepting Bitcoin directly and the ones that accept BTC are doing it via other providers because it would be a pain in the ass to deal with this all by yourself when the returns are minimal.


With the volume that DEXs with a fiat gateway are getting right now, the chances of CEXs losing market share is dwindling day by day.
MtGox is still meme material, FTX is almost fresh news yet when rumors about Huobi started you still had even on this forum users who said it's better to keep calm, wait for an official announcement and don't panic to not spread FUD.
No, CEX are here to stay and in this age where people want to solve everything with two taps it's DEX who are at risk.

That aside, this whole quest of getting rid of a middleman while still using a ban or another kind of payment service for fiat sounds a bit, well, weird.
So in the CEX scenario, you have your bank, the exchange, and the transfer between them.
In a DEX scenario you have the bank, the other guy, the transactions between you and him.
You still haven't gotten rid of the bank or PayPal or Wu or whatever, all you have avoided is not sending your id to a CEX but instead your name and bank account to a complete stranger on the internet.

Just as I was saying here
How comfortable would you feel when selling Bitcoin over a DEX and when you receive your payment and it's from a guy called "Quassam Bon Loden" and the bank is from either Syria or Iraq?  Binance and that piece of *** CZ start to look like a safer option, right?

Still, there are some ways to eliminate the escrows like implementing smart contracts but those are much more complex and highly limited when it comes to Bitcoin's network so the escrow business may last for a while but not forever. Surely there will be an advancement in the field where we can trade Fiat/BTC and vice versa in a trustless manner.

Escrow so called trusted third party may not be completely trustable if we are talking about millions and in billions that is why most users who is dealing with huge amount prefer the centralized platforms based on reputation which means still there is room to fill this space and hopefully, there will be a solution.

I was inspired by the thread about "unavoidable" middle men in the crypto sector, which unfortunately went into a completely different direction, and also a bit by this DEX proposal.

Escrow services, like P2P exchanges, have existed since Bitcoin trading exists. And while there have been attempts to create mechanisms to avoid them to eliminate all middle men or human interventions (Bisq's security deposits, to the very recent DEX proposal I detailed above), no one has succeeded when we talk about fiat/BTC exchanges.

In the field of crypto-to-crypto exchanges, atomic swaps have conquered a small niche, but I expect it to grow. This is due to them being almost completely trustless, and even the optionality problem (that one of the exchange partners can leave the trade) can be potentially solved.

But for fiat/crypto I see currently no way to replace escrow services, even in the long term. With very few exceptions but which are not for everyone, like person-to-person exchanges in "real life", and some exotic methods like trading cryptocurrencies for HDD space (via a crypto platform like Sia), and of course direct BTC-to-goods/services trades.

The reason is probably that there is no universally verifiable way to transfer fiat money (other than stablecoins). There seems to be always a way to game the system, and it needs the intervention of an human escrower with a certain expertise to avoid them. Escrowers know that even if some documents are easily faked, there are others which are very difficult for the scammer to provide in a timely manner, and thus if they're required in the right moment provide a high probability to catch a scammer.

So, even in a "completely decentralized" Bitcoin setting where people try to avoid centralized exchanges, escrow services and P2P exchanges may be a kind of business which will last forever? Or do you think there will be a technologic revolution eventually that makes them obsolete?

What I definitely think is that there could be improvements for P2P trades/escrows. For example, digitally signed bank receipts about transfers could become more popular, and that would make escrowers' work much easier and straightforward.