Escrow and its evolution to decentralized escrow
If one investigates the modus operandi of the current internet giants — such as Google, Facebook, Twitter, Uber and Airbnb — one can notice that they have in common one particular characteristic: the value of these platforms is directly linked to the engagement of their users. During last 20 years the economy has gradually withdrawn from the traditional centralized model, where huge operators, who frequently held the dominant role, were responsible for providing passive users with a service. Today we are moving towards the new more decentralized model, where these operators are responsible for the aggregation of the resources of the user groups to provide the active users with a service. This major shift is marked by the appearance of new generation of decentralized organisations, which no longer need an office, assets or even employees.
In the current article we are exploring how decentralization can transform one of the oldest financial instruments employed in business transactions. In particular, we are interested in the security of ICO investments and how this instrument could be used to ensure the investments.We are talking about a service.
What is escrow
From the traditional Anglo-Saxon law point of view, escrow is an account of the third party. Escrow means holding the funds during business contractual arrangements till the parties met the contract obligations. The word derives comes from french “escroue”, meaning a scrap of paper of a scroll of parchment: this indicated the deed that a third party held until a transaction was completed. Escrow agent is in a matter of fact holding in his hands the decision on the payment.
Escrow is indeed a very important instrument to ensure trust among parties. In a number of countries escrow has become a quality sign. Owing to this mechanism, the control over the funds is transferred from the buyer to the independent agent. The independent agent, also the deposit account holder, maintain control, so the fund disbursement is in accordance with the contractual arrangement between the parties.
Originally escrow was a service which was the trusted party both for the seller and the buyer, providing them with a separate account, where security deposits were placed, arranging the collection and storage of the data of the contractual agreement and its execution. Also escrow service takes the responsibility to regulate the conflicts, when the parties for any reason are failing to reach a mutual agreement.
How escrow works in the internet
In the internet escrow has been working successfully for a long period of time. For instance, escrow is used by all respectable large retailers like Amazon or AliExpress. There are certain types of escrow that is hard to imagine without the third party involvement. For instance, it is impossible to use the deposit system, which executes the payment order only when the seller provides the delivery confirmation, without the entrusted third party.
In regards to ICOs escrow helps to eliminate scam and loss of the invested funds resulted from the startups not delivering on their promises.
The mechanism works in the following way: funds, collected from investors, are not directly transferred to the startup account but are held by an independent third party until the project fulfills the promises made before the money collection. It is a general practice that the funds are not transferred to the startup at once but step-by-step as the project progresses stage by stage on its road map.
Technically it is functioning in the following way: the collected funds are reserved on the multi-signature account, the access to which is granted to the escrow agent (more than two usually) and the project team. The agent function is to check if the contractual agreements are met and the deadlines are followed. In case the startup fulfills the promises, it gains the access to the part of the funds assigned for the current roadmap stage.
Escrow also solves another very significant to the investor question: what the collected during ICO funds are spent for? If a startup starts to do something, that was not described during the ICO, the funds on the account freeze to be retrieved and transferred back to the investors.
Do escrow services ensure security of the investments?
Unfortunately, no. Of course the described above mechanism increases the probability of making a successful investment, but the risk of scam remains. Human factor in the forms of collusion, mistake or negligence can occur.To avoid negative consequences of these unpleasant occurrences, the particular attention should be paid in the process of choosing an escrow agent.
Capture and shutting down the darknet market Silk Road in October 2013 resulted in the loss of $ 3.6 million dollars stored on the escrow service on the web page serves as a classical example of the centralized escrow problem. It has a technical vulnerability, point of failure in the traditional escrow model.
Decentralized escrow
Decentralized escrow solves this problem. In general, the shift from centralized to decentralized escrow is one of the key trends in tech innovations.
Decentralized escrow is an independent mechanism that excludes the human factor by eliminating the risks associated with fraudulent ways of business management, tampering and other unpredictable events.
Decentralized escrow leaves the fund management in the investor hands. Token holders decide whether the business they invested in is fulfilling its promises, and whether it is feasible to continue the financing.
The advantages of the decentralized escrow for the investors are unquestionable. In particularly, it makes the decision making process easier, more effective, efficient and objective. The probability of making a right decision rockets.
Descrow decentralized escrow service for ICO investments
Descrow project started with understanding the critical vulnerability in the basis of all ICO projects: smart contracts can not estimate the conditions fulfillment from the startup side. Deposit agents that are involved in solving this problem have the mentioned above critical disadvantage — human factor.
Hence all advantages of the decentralized blockchain technology do not apply to this particular case as we still depend on the human factor. The thing is that decentralized ecosystem needs decentralized regulatory methods. And the Descrow project is this method.
The Descrow platform for ICO investments сome with an installed instrument for investors to control their funds in a decentralized way. Descrow will be the first project in the world that guarantees the escrow independence and the only one with a decentralized solution for transparent and fair allocation of the collected during ICO funds.
The projects fully excludes the middleman (escrow agent) from the schema. The platform provides investors with an opportunity to participate in the life of the startup they entrusted their money in. If the majority of token holders decide that the project does not fulfill its obligations, they can vote against the continuation of financing and receive back the frozen funds. This instrument is also useful for startups: implementation of decentralized escrow during the ICO campaign has a positive impact on the level of trust and loyalty from the investors.
In the platform the decision to finance another stage of the startup roadmap realisation will be made by majority voting mechanism by investors. Therefore, scam projects, which do not intend to follow the road map, will not be on board, while startups, who are ready to live up the trust invested in them, will be more visible on the first raw.
The important detail about the impossibility of the point of failure is that funds held for another stage of financing will be stored not in the common smart contract but in the personal accounts of investors — owners of the personal keys. Consequently, with the Descrow unique instrument the investor is the key element in the ICO market chain that regulates it and influences the cleanness of the market.
Descrow — the international platform to secure investments.
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