Personal Experience: Part 8 – Transactions

3 minute read

Posted by: Joseph Meehan

January 12, 2015

This a post in series of posts describing a personal experience from learning about the DNM’s to becoming a vendor – all the parts of this series will be available to here: ExperienceTag

If I’m going to start selling my work for Bitcoin, it is important to understand the different transaction types. Different marketplaces use different transaction types. There are technical and functional differences between the types of transactions that are important for vendors and buyers to understand. The two main categories are multi-signature and escrow.

Escrow is a traditional type of monetary transaction that has been around for a long time. Escrow generally means a third party holding on to the money in an exchange of goods for money between two other parties. In the case of Darknet marketplaces, the buyer sends the agreed-upon Bitcoin for the products they want to the marketplace, who then holds it and lets the vendor know it has been received. The vendor then ships the product. When the product is received by the buyer, the buyer notifies the marketplace who then releases the funds to the vendor.

Multi-signature transactions work differently and can be more secure. Multiple addresses are attached to the funds, and the only way to release the funds is by a vote. The vote needed can be set in the beginning of the transaction. For example, a buyer, vendor and marketplace all attach their addresses to the funds. Two of the three private keys for those addresses are required to release the funds to any one party. The buyer and the vendor, the buyer and the marketplace, or the vendor and the marketplace: these are all scenarios where the funds could be released. In essence a majority vote is required to release the funds. If the buyer feels like they have been cheated they can contact the marketplace with their complaint. If the marketplace decides that the buyer deserves their money back, they can use the buyer’s key and their own key to release the funds back to the buyer.

There are some pros and cons to the two transaction types. One of the biggest advantages escrow has over multi-sig is its simplicity. Escrow transactions are easy to enter into and require little technical knowledge to perform. Multi-sig on the other hand require more technical knowledge and can be intimidating to those without much technological prowess. Escrow transactions are not as secure as multi-sig. In an escrow setup, the funds held by the third party are all at risk of being stolen. They sit in a big pool and require any attacker to only crack one key to have access to all of the funds in escrow. This has happened to a number of Darknet marketplaces already. Multi-signature transactions, on the other hand, require at least two keys for access, and possibly more. Gaining access to something with two keys presents a much larger problem for an attacker, and something with three or four or even more keys would be nearly impossible for an outside attacker to compromise.

Multi-signature transactions allow for another interesting marketplace and economic innovation. Smaller arbitration services have the chance to enter the marketplace and offer their services. Without the regulations and hurdles that traditional arbitration requires anyone can offer their dispute resolution services to the public. Yet another way that Bitcoin is revolutionizing the worldwide economic landscape.

Entering into any Darknet marketplace venture requires some working knowledge of the different types of transactions and what benefits and features each one carries. Armed with this knowledge, I’m one step closer to vending my freelance writing services on the Darknet.

Updated: 2015-01-12