Take the Risk out of Hiring Freelancers using Bitcoin
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That is especially true if you want to hire somebody from a different country. Offshoring work from a country with expensive labour, such as the US or Europe, to a country with skilled workers who are willing to accept substantially less, like India for example, can be an excellent way to reduce overheads and therefore increase profits. But everything from cultural differences to the language barrier to the general difficulty of screening applicants purely over the internet can lead to major problems, and many companies find it difficult to hire the right freelancers to get work done on-time and to their expectations.
But all of the problems boil down to one thing – trust. When you hire somebody, can you trust that they really have the skills they claim that they have? Can you trust that they will deliver to the required standard and within the specified time frame? Can you trust that they will put in the hours needed to make your project a success? All of these things are more difficult than when hiring regular staff. Freelance workers are often hired without you ever meeting them, may have qualifications and credentials that are more difficult to check (often due to being in a different country), and by definition are not there in your office under your supervision whilst working. They may also have less to loose by doing a bad job, as they do not stand to loose their whole income if you are dissatisfied with their work.
As a result of this it is sadly common for work to come in below standard, late, or never at all.
Fortunately, Bitcoin and the technology behind it can take many of the risks and problems out of hiring freelancers by replacing the need for trust (both for the employer and the freelancer themselves) with set rules that can be enforced through the blockchain itself.
There are two different methods that you can use, each with its own particular advantages and disadvantages: double deposit ‘smart contracts’ and multi-signature escrow.
Using Multi-Signature Escrow to Hire a Freelance Worker
A multi-sig bitcoin address requires more than one person to sign off on any transaction before it is sent. When you create an address like this you can specify who is authorized to sign transactions and how many signatures are required. This is called the ‘n of m’ method because a certain number (n) of signatures is required out of the group of authorized signers (m). For more detailed info on this technology and how to use it take a look at our article how to create and use a multi-sig bitcoin address.
One of the most common ways to use this technology is to create ‘escrow’ contracts. Escrow can be used for a wide range of purposes, but it is particularly useful for temporary employment contracts. It involves the use of a third party with the authority to arbitrate over disagreements.
Essentially, this is how both traditional legal contracts and many freelance marketplaces work, but with lower costs, enhanced security and faster settlement. When you sign a legal contract you are effectively employing the government legal system to fulfill the role of arbiter if any disagreement arises; but of course this can be very costly and time-consuming to actually use. When you hire a freelancer through certain websites, like Upwork for example, they take on this arbitration role themselves. Instead of drawing up and signing a legal contract, you each agree to the terms & conditions of the website. Then you pay your money to the website operator who passes it on to the freelancer if and when they complete your work. In this case the website is acting as an escrow agent, and if there is any disagreement they will decide whether the worker should get paid or the employer should be refunded. This is cheaper and easier than using the legal system, but does have some significant limitations:
- You can only hire people who use that one specific website. This can either reduce the talent pool available to you or add unnecessary costs if you find a candidate through other channels.
- It is still quite costly – Upwork, one of the most popular sites, charges a full 10% on top of every payment at the time of writing this article.
- It is more difficult to set your own rules: The website itself will have its own rules and methods for arbitrating over disagreements, which may not suit your needs. You may also find that they lack the specialist knowledge or experience to judge whether a particular job has been completed properly.
- You have to trust them: If they go out of business or suffer from theft or fraud whilst holding your funds, then you stand to lose everything. Likewise, technical problems on their end could put your project and even your funds in limbo.
- It can limit your communication channels: You may be required to communicate with your worker only through the channels provided by that website.
Paying bitcoins through a multi-sig address can solve all of these issues. Using this method the employer makes a payment in advance to a bitcoin address which requires 2 signatures for a withdrawal to be made. The employer, freelance worker, and an independent escrow agent (see below for where to find one) are each authorized to sign transactions. If both the employer and the employee are happy and there is no disagreement then they can provide the required signatures to make the payment. If there is a disagreement over whether, when, or how much should be paid then the escrow agent steps in to add their signature to that of either party to meet the two signature requirement.
The advantages of this are that:
- The escrow agent never actually holds your funds, so cannot lose or misuse them.
- If there is no disagreement, which is the case more often than not, then the escrow agent never needs to do anything. This significantly reduces the fees that they need to charge you; sometimes they may not even need to charge you anything at all.
- Digital currency payments tend to have much cheaper payment processing / transaction fees than traditional payment channels anyway, further saving you money.
- You and your freelancer are free to select an agent with policies and experience to match your needs.
- You are free to advertise your position anywhere and hire through any channel without having to go through a specific website.
Actually making payment in a digital currency can be either an advantage or a disadvantage. If you are hiring somebody in a different country then using an international currency which is equally accessible to both parties can make a lot of sense. But of course many companies will have a set price they are willing to pay in their national fiat currency (pounds, dollars etc) and will not want to take any risk of diverging from this. Fortunately there are services that can mitigate against this currency risk for you, as you will see in the next section.
Finding an Escrow Agent
Anybody can act as an escrow agent, but if you do not have somebody in mind already then you may like to take a look at these websites:
- CryptoGrind: A full service which lets you create, view and apply for job listings for free, and provides its own in-house escrow for multi-sig bitcoin contracts.
- Bitrated: A marketplace of independent escrow agents, which features a large number of different service providers. If you are looking for somebody with specific skills and experience, to be able to judge whether technical requirements have been met for example, then this is a good place to start looking. You can also find a bargain here too, as there are often agents willing to charge you only if you need them to arbitrate – so if all goes well you will literally not have to pay a penny.
- EscrowMyBits: Offers escrow contracts pegged to a set fiat value using the Coinapult service. This makes it as easy as possible to set your price in your normal fiat currency but still take advantage of the technology bitcoin can offer, without having to worry about the volatile price. Their fees are also very low – just 1% on each transaction, a full one tenth the price charged by Upwork.
- BTCrow: Reasonably priced at 1.5% and with enhanced privacy, this service is worth taking a look at for more sensitive work.
- EscrowCoin: An anonymous service with a fee of just 1% – they don’t use multi-sig though, so this is actually a central escrow service in which you have to trust them to hold your coins.
- SafePayBTC: Although this company seems to specialize in retail escrow rather than employment contracts, their 1% fee and simple to use Multi-sig tools make it worthy of consideration.
Double Deposit Smart Contracts
Using the double deposit ‘smart contract’ method means that you do not need to engage the services of a third party escrow agent. Instead, you create a programmable contract which provides financial incentives to encourage both parties to reach an amicable agreement if there is any kind of dispute, and which automatically enforces its own terms.
Don’t worry, its not as complicated or difficult to use as I may have made it sound. In fact, its actually very simple: both employer and employee pay a deposit to the bitcoin address used by the contract.
If the employee fails to do the work properly but still tries to demand payment then they are taking a big risk because they stand to lose their deposit. On the other hand, if the employer refuses to pay when they should then they also stand to lose their deposit. Because each side risks losing their deposit, there is nothing to gain by trying to cheat or duck out on your obligations. Entering into a contract like this with the intention of doing anything other than fully meet your obligations and satisfy the other party would be foolhardy, so it ensures that both sides have honest intentions from the start. This contract will have a set time-limit: if agreement is not reached within this time then the funds become inaccessible.
All of this provides a strong incentive for both sides to reach an agreement in a timely manner through negotiation and compromise.
The main advantage of this is that you do not need the services of any kind of third party, saving you both time and money. It can also be very good if you want to make sure that work is completed by a fixed deadline, as there is a built-in deadline feature within the contract itself.
The disadvantages are that both sides need to tie up money in the deposit – something which a small freelancer may not be able to do even if they wanted to – and that there is always a possibility that you may lose your deposit.
The double deposit method was created by the BitHalo team, and this is still the main platform through which to use this method. Here is an explanation of how to use it by the BitHalo team themselves, which I’m sure is more eloquent and easy to follow than anything I can manage (btw, ‘BlackHalo is identical to BitHalo except that it uses Blackcoin rather than Bitcoin):