Double deposit smart contracts are an alternative to traditional escrow services and the ‘n of m’ multi-sig escrow method commonly used in Bitcoin. They allow two or more people who do not know each other and therefore cannot reliably trust each other to do business without risk, but unlike like the alternatives mentioned above they do not require a trusted third party to provide the escrow service.

The BitHalo and BlackHalo decentralized marketplaces introduces this method.

The double deposit escrow method is best described through an example:

Alice wants to buy a pizza over the internet from Bob, for $20. If she simply pays the $20 she can’t be certain that Bob won’t take the money and run, without sending the pizza. But if Bob sends the pizza before he receives the money, he can’t be sure that Alice won’t just take the pizza and not bother paying for it. To solve this problem Alice pays her $20 into a smart contract, along with an additional $20 security deposit, and bob also pays $40 into the same contract as a security deposit. This contract will only pay out if both Alice and Bob can agree on who should get what. If the pizza gets delivered and everyone is happy then Bob gets his $20 payment and everyone gets their security deposit back. If no agreement is reached then nobody gets any money.

The fact that both people have made a security deposit theoretically means that nobody can win by trying to cheat the other person – they both have an economic incentive to reach an amicable agreement.

Example of Double Deposit Escrow



« Back to Glossary Index