Escrow - Multisig: Everything you need to know

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Escrow Multisignature logo

Multisignature, commonly referred to as multisig, is a type of digital signature scheme that requires multiple signatures for a transaction to be authorized. Multisignature transactions aren’t unique to the cryptocurrency space, but the possibilities of programmability around digital money projects like Bitcoin and Ethereum has led to new and powerful multisig use cases.

Escrow - Multisig use cases

One of these use cases is 2-of-3 joint escrow accounts on darknet marketplaces, where trust among participants is understandably low. While a typical Bitcoin transaction only requires a single private key, a 2-of-3 multisig DNM escrow entails a buyer, a vendor, and a platform’s operator each having one. This structure means any two of those three parties -- say a buyer and a vendor, or a buyer and a market admin -- can coordinate to authorize payments with their keys.

Why use Escrow?

Escrow system brings trust assurances, as buyers can pay after they’ve received a product as opposed to taking the risk of paying a vendor directly and upfront. Conversely, if a vendor encounters a bad faith client that is abusing the dispute process, they can notify the marketplace’s admins and then together use the 2-of-3 multisig feature to free up funds that are rightfully theirs. Likewise, many darknet marketplace operators offer multisig because it protects stakeholders and thus makes their platforms more attractive.

Conclusion

It’s true that some DNMs only facilitate direct payments between buyers and vendors, but these sites are the outliers of the bunch. Indeed, multisig transactions have become such a staple in the darknet ecosystem that industry review sites normally feature front and center whether DNMs offer multisig. Notably, the first darknet marketplace to embrace this kind of escrow system was the Silk Road, after which the model quickly took off on successor sites and has remained popular with the dark web’s enterprising denizens ever since.

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