If you look closely at «the way» today’s Internet giants – such as Google, Facebook, Twitter, Uber or Airbnb – you notice that they all share one thing in common: the value of these platforms is directly related to the involvement of users. Over the past 20 years, the economy gradually moved away from the traditional model of centralized organizations, where the major operators, often with a dominant position is responsible for providing services to the group of passive consumers. Today we are moving to a new model of increasingly decentralized organizations, where the major operators are responsible for the aggregation of resources of a group of people to provide services to a much more active group of consumers. This shift marks the emergence of a new generation “dematerialized” organizations that do not need physical offices, assets or employees.
In this article we will look at how decentralization can transform one of the oldest financial instruments used in transactions – here we are in particular interested in the question of security when investing in ICO projects, and how this purpose you can use this tool. We are talking about the service.
What is escrow
Escrow in the classic sense of the Anglo-Saxon law is the account of a third party. Pure escrow, or escrow, means the retention of funds in transactions to a trusted third party until all conditions are satisfied. The word comes from the old French word escroue, which translates as “piece of paper” or “scroll parchment”, which indicates the action performed by a third party to complete the transaction. Escrow agent literally holds in his hands the decision about the payment.
Escrow is a very important technology that provides the trust between the parties and in a number of countries became a standard for quality of service. Through this mechanism, control over the money goes from the buyer to the independent agent. An independent agent, i.e. owner of a Deposit account control so that the allocation is carried out in accordance with agreed between the parties that signed the deal terms.
In its original form, escrow is a service that is a trusted party for both the seller and the buyer, giving them a separate account to which collateral amounts are entered, ensuring the collection and storage of data on conditions of transactions and their execution. Also escrow service takes on the function of dispute resolution where the parties for whatever reason are unable to negotiate.
How does escrow online
Online escrow services are run for a long time and quite successfully. In particular, escrow are all self-respecting large retailers like Amazon and AliExpress. There are certain types of escrow, which are very difficult to implement without a trusted party. For example, the escrow system, which sends a payment only if the seller provided proof of delivery, would be impossible without a trusted third party.
In the context of talking about ICO, escrow helps to eradicate the scum and the loss of the invested funds, non-compliance with their promises.
The circuit operates as follows: the funds received from investors, the startup is not transmitted directly received and transferred to an independent third party, which stores them for as long as the project does not fulfill the promises stated at the start. Usually funds are transferred to the project, not all at once, but gradually, as the implementation of items identified in the roadmap of the project.
Technically, it looks like the following. The money collected is concentrated on account of a purse with multipoles, which have access to the escrow agent (typically at least two) and the project team. The function of the agent is to check the requirements of the contract, deadlines, etc. In case of fulfillment of the promises of a startup can access funds on the purse, consequently this phase of the project.
Escrow also solves an important issue of concern to investors after collecting the money: how well is it spent, what is coming? If the team starts to do anything not spelled out in the terms of the ICO, the funds in the account shall be frozen for further return to investors.
Does the escrow service the safety of the investment?
Alas, it is not. Of course, this mechanism significantly increases the probability of investing success, however, the possibility of fraud in this field is still present. The human factor in the form of collusion, mistakes and negligence – when selecting the escrow agent need to exercise extreme care in order not to be held hostage to all these unpleasant phenomena.
A classic example of the problems of centralization escrow seizure and subsequent closure of the darknet market Silk Road in October 2013, leading to the loss of 3.6 million dollars deposited in escrow service on the website. Centralized escrow is a kind of technical vulnerability point of failure in the traditional model of the Deposit.
The problem is solved by decentralization of escrow. In General, the transition from centralized to decentralized escrow is a one of the key areas of technological innovation.
Decentralized escrow is an independent mechanism that eliminates the human factor by eliminating the risks associated with dishonest conduct of business by individuals, providing various kinds of pressure and other unpredictable events.
Decentralized escrow transfers control to the process in the hands of the investors themselves. The holders of the tokens get to decide whether you are a business in which they invested, and whether further funding.
The advantages of decentralization for the community of investors is undeniable. In particular, we are talking about the ease and effectiveness of the decision-making process, its efficiency and objectivity. The probability of making correct decisions is increased significantly.
A decentralized escrow service for ICO investment from Descrow
Descrow the project began with the recognition that a critical vulnerability underlying all the projects ICO: smart contracts can not assess the implementation of the conditions of startup. Depositories who are typically involved in campaigns to solve this problem, have the above mentioned disadvantage – the human factor.
Thus, all the advantages of a decentralized blockchain technologies in this particular issue do not work, as we are still dependent on the human factor. The fact that decentralized space needs to be well decentralized control methods, and project Descrow is one.
Platform for ICO-investment from Descrow includes a built in tool through which investors can monitor their funds independently, in a decentralized manner. Descrow will be the first in the world project, guaranteeing the independence of the Deposit is the only decentralized solution for the transparent and equitable use of funds after the closure of the ICO.
The draft excludes from the mechanism of the Deposit intermediaries (escrow agent). Descrow platform provides investors with the opportunity to participate in the life of the project to which they trust their money. If the majority of the tokens owners will decide that the project does not fulfill its obligations, they can vote for the termination of further funding and return on their money. This tool is also useful for startups: implementation of the decentralized mechanism to escrow the ICO campaign significantly increases the level of trust and loyalty from investors.
The decision about the next stage of funding specific campaigns within the platform will be adopted by majority of votes belonging to the investors. Thus, Scam projects are not going to actually implement its roadmap, will be screened, while in the foreground will be those that will be ready to justify the trust placed in them at an early stage.
An important detail that eliminates a centralized point of failure is that funds held for the next funding round will not be stored in common smart contract, and personal wallets of investors-owners of the private keys. Thus, a unique instrument Descrow the investor becomes a key element governing the market the ICO and have a direct impact on the cleanliness of this market.