Framework of Bitcoin Escrow Services
July 2017 Note: The information contained in this article is was accurate at the moment it was written. Some companies, protocols, or solutions may be outdated, replaced, or no longer supported. Please conducted additional research.
Escrow services in the bitcoin network have slightly different responsibilities than other financial escrow institutions. Traditionally, an escrow performs duties as a representative of a particular account. An escrow can pay obligations, with designated funds, allocated for the purpose of paying those debts. Escrow services are useful for dispensing funds or documents as a neutral third party in various exchanges. Escrow services do not release their contents until agreed conditions are met. Escrow services acting in the blockchain are generally not exchanging and holding funds for later payment but rather exchanging public and private keys to perform their function as an escrow.
When using bitcoin, the importance of securing your private keys can not be stressed enough. If access to a private key is lost, all funds associated with the paired wallet are lost. Funds will not be able to move into a different bitcoin wallet because when a private key associated with a wallet is lost, transactions cannot be verified. Therefore the funds are immovable. Bitcoin transactions are irreversible and there is no central system to restore funds. As a result, securing private keys is incredibly important to protecting the bitcoin associated with that key. Single point failure is more common when handling a single private key. An alternative to a single private key is to have multiple keys associated with your wallet and have those keys stored separately.
Multi-signature verification (BIP-11 & 16) is a higher tier of bitcoin wallet security that require a function, M-of-N, to validate funds. M-of-N represents the number of keys needed to verify a transaction. 2-of-3 is the most common security measure for multi-signature bitcoin wallets and is more secure than a single private key. BIP-32 is the framework for creating multi-key verification . Hierarchical deterministic wallets are designed create “child” keys from their respective “parent” keys. A public parent key can create a public child key, and a private parent key can create a child private key. This system enables a parent key to be constantly used without having to compromise the location or the owner of that private key.
Creating additional administrative barriers can become a nuisance for many companies. Key security is a difficult concept for many business that have not interacted with bitcoin or are fairly new to the technology. There needs to be strict documentation, auditing policies, compliance reports, access lists and many other administrative hurdles that need to be functioning to provide an intermediate level of security. Multi-signature bitcoin wallets create the need for new escrow services that offer to securely manage private keys and authorize transactions.
Companies Offering Bitcoin Escrow Services
Pamela Morgan, Andreas Antonopoulos, and Richard Kagan began this key management and consulting firm in late last March. As a neutral consulting firm, Third Key is merging leading industry standards with bitcoin security functions. Key creation and secure storage are the most impactful service that a bitcoin escrow firm can provide. Additional escrow services that are offered from Third Key Solutions include:
- Customized multi-signature administrative procedures
- Integration with other leading bitcoin firms such as
- Compliance with the soon-to-be ratified CryptoCurrency Security Standard
Key recovery services are a new business entity. As bitcoin use increases, more escrow services may sprout out of necessity for a higher need of secure key storage. Escrow services currently in the bitcoin realm are coordinating efforts to create a Key Recovery Network that is slated to be completed by summer 2015. This Key Recovery Network is an attempt to create industry standards in the realm of key storage and signing services. Currently this network includes Third Key Solutions, Armory, C4, and Keepr.
Private key security is one of the most important topics to comprehend when using bitcoin. Single key verification is a default security measure for many bitcoin wallet services. Multi-signature verification is not a requirement to using bitcoin but is one of the easiest ways to increase the security of your funds.