Categories: EducationFAQ

What Is a Multisignature Escrow Wallet?

In the world of cryptocurrency wallet technology, multisignature solutions have been slowly becoming the new norm. A multisignature wallet requires multiple users to sign off on a given transaction. This is mainly beneficial to companies and projects working with a single wallet. However, this technology can also be used for escrow-related services. This is greatly interesting to darknet market operators, who have been looking to integrate multisignature escrow wallet solutions.

The Purse of Multisig Escrow Wallets

Escrow services continue to play an ever-growing role in the world of cryptocurrency. This is especially true for marketplaces. Ensuring the buyer has the necessary funds and locking those funds in escrow until the shipment arrives at its destination is a way to prevent scams. We have seen many marketplaces and service providers employ this technology over the past few years, as it protects all parties involved.

To improve upon the concept of escrow technology, some marketplaces – especially those on the darknet – have been flocking to multisignature escrow solutions. These still involve the use of a middleman holding onto customer funds. However, with a multisignature implementation of escrow services, there is not a reliance on a single entity controlling the funds. Rather, multiple parties have to sign off on every transaction before the money is released to the seller. It is not a trustless solution by any means, but it certainly provides some benefits.

One of the first darknet marketplaces to introduce multisignature escrow was AlphaBay. Once the world’s most popular darknet marketplace, AlphaBay was 

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removed from the equation by law enforcement officials a few weeks ago. Additionally, law enforcement officials took control of all of the funds controlled by the platform, including its escrow money. It is unclear if they successfully “cracked” the mutisignature requirements for this wallet, though. After all, they only arrested the alleged operator of the platform, who theoretically only holds one of the multisig keys.

Introducing multisignature escrow addresses is a great way to provide additional safety to both buyer and seller. It reduces the chances of a platform operator successfully screwing over either party because they are friends with the other. Most multisignature escrow wallets require at least two different signatures to move funds, although there is no real limit as to how many signatures are required to sign off on transactions, other than for practical reasons.

One thing to take into account is how using multisignature escrow solutions do not necessarily prevent loss of funds by any means. If the service provider deploying the wallet were to go out of business, there is no guarantee users could successfully recover their money. In most cases, the buyer, seller, and service provider all hold one key each. If the operator went out of business, the buyer or seller would need the other party to agree to provide their key to move money out. That assumes the wallet itself has a private key which can be exported to a different solution if needed.

It is quite surprising to see so few service providers implementing multisig escrow right now. One would expect this technology to be far more prevalent these days. BitGo is the market leader when it comes to mutisig wallet solutions for Bitcoin; thus it would make sense to see services focusing on multisig escrow solutions with the help of BitGo. Only time will tell if we will see more of these implementations in the future. It would certainly make a lot of sense for any company to use this technology moving forward. Safeguarding customer funds should be a top priority for every company.

JP Buntinx

JP Buntinx is a FinTech and Bitcoin enthusiast living in Belgium. His passion for finance and technology made him one of the world's leading freelance Bitcoin writers, and he aims to achieve the same level of respect in the FinTech sector.

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