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What is P2P Escrow and How Does it Work?

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4 min read
What is P2P Escrow and How Does it Work?

Have you been wondering how people are trading P2P worldwide safely?


Escrow generally refers to a third party holding money or an asset on behalf of two other parties in a transaction. On P2P marketplaces like LocalCoinSwap: escrow refers to the cryptocurrency being secured by LocalCoinSwap on behalf of the buyer and seller while the trade is completed.

Escrow makes buying and selling cryptocurrency safe by protecting both the buyer and seller in the trade. It ensures that the cryptocurrency being sold exists and that the buyer will receive the crypto once they have made the payment.

How does P2P Escrow Work on LocalCoinSwap?

  1. Begin trade
    After browsing through the various trade offers on the platform, a user requests to buy or sell crypto from a vendor. Then, a trade chat will open up where the buyer and seller can communicate directly. Once the vendor accepts, the trade begins.

  2. The seller “funds escrow” (locks their crypto into escrow).
    Funding the escrow is as simple as the seller clicking a button on the trade page. The crypto will then be deducted from their LocalCoinSwap wallet and sent directly into escrow. Once in escrow, the funds are locked, and the seller or buyer can’t withdraw without agreement.

  3. Make the payment
    The seller provides the local currency payment details in the trade chat, and the buyer pays the seller directly. The payment may be through various payment methods, including bank transfer, cash deposit, Western Union, and more, depending on what was agreed upon for the trade.

  4. Crypto released to the buyer
    Once the seller receives the local currency payment, they release the crypto from escrow to the buyer.

What if Something Goes Wrong?

If there are any issues during the trade, either party can raise a dispute, and a LocalCoinSwap dispute resolution manager will join the trade to assist. Once they have collected evidence to determine who the correct owner of the cryptocurrency is, they will release the escrowed crypto to the buyer or seller.

Rest assured that 99% of trades go smoothly without dispute.

Can’t I Trade Directly to Avoid the Escrow Fee?

P2P trading without escrow is very dangerous due to the first-mover advantage. Either the buyer or seller has to make the payment first, and once the payment is made, there is no guarantee that the other party will fulfill their side of the trade. Therefore, 9 out of 10 times, trading outside of escrow will lead to the complete loss of funds.

You may find some scammers attempt to bait you by offering you better rates to trade off-platform or other incentives such as increased size limits over what their offer lists. However, when the other trader has no intention to follow through with the trade, these offers have no value and are extremely likely to result in an unrecoverable loss.

Even if you have taken the risk and traded a small amount with someone directly in the past, you expose yourself to the same dangers each time; without escrow protection, you have nothing to fall back on.

How Does Escrow Protect Buyers?

Escrow protects buyers by ensuring the cryptocurrency they are buying actually exists and ensures that they will receive the crypto once they make the payment. It is too easy for a seller to create a fake screenshot of a wallet balance or share a random wallet address to pretend that they have crypto that they do not own.

How Does Escrow Protect Sellers?

Escrow protects sellers by ensuring that they receive the crypto back if the buyer does not make the agreed payment. In the event of a dispute over the payment being made by the buyer, they will typically be required to prove that payment has been made.

Whether you are the buyer or the seller, the escrow process helps to ensure that both parties are trading honestly.

What Happens if the Buyer Disappears After Escrow is Funded?

When you’re dealing with other people, just like in any situation, not everything will always go to plan. For example, if you fund the escrow and the buyer seems to have vanished, you can simply raise a dispute, and the moderation team will resolve the trade in your favor after a reasonable amount of time has elapsed.

How Long Does it Take for Escrow to Be Released?

Once you make a payment, you can easily mark the trade as paid by following the on-screen prompts, and the seller will be able to verify they have received the payment.

For a standard bitcoin trade, the escrow release is instant once the seller has verified payment. If you want to complete a trade quickly, being responsive to the seller and making payment promptly is the most likely way to get your transaction completed fast and your cryptocurrency released.

If you’re new to P2P trading, the escrow process may sound complex at first, but as you now know, it’s a simple process designed to protect you during trades. In addition, taking advantage of the benefits provided by P2P escrow enables you to exchange with traders worldwide using a vast range of payment methods, which are just some of the reasons P2P is the best way to trade cryptocurrency.

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