How my company lost $20,000 ordering services with cryptocurrency
… and what we did to try and stop this from happening to others.
Last year my company was helping a client promote their new blockchain based startup. In doing so we needed to hire various service providers to help us along the way. This included a number of article and press release writers, social network promoters and social influencers.
Some of these service providers wanted to be paid in crypto, which made sense considering the space we were working in. The process was always the same, we would agree on the terms of service, set deadlines for completion, and then settle on a price. The service provider would then send an invoice, along with a wallet address to send funds to.
It all sounds normal up to this point, but this is where it started to go wrong.
After sending the agreed crypto amounts to the wallet address that was sent, a number of these service providers backed out of their offer. I could not believe it! In the space of a week we had 3 different people refuse to deliver as promised, even after they received payment, accounting for more than $20,000 in lost funds.
I was furious, how could this be? Crypto was supposed to fix all the ills associated with fiat currencny, but the truth set in, people are people, and even the greatest of tech advances cannot cure some things… or can it?
There has to be a way to fix this, I thought to myself, but my uncle Vito did not want to fly around the world to track down these people just to collect twenty thousand dollars… just joking ;).
Once I realized uncle Vito wasn’t an option, I started scouring the Internet, and found a number of escrow services that all looked promising. After reading through their websites, I realized they all were basically the same.
As I started digging into how these companies were providing their service, I quickly realized that they were all taking the well-established model of escrow and applying it to their crypto business, but this is problematic.
At this point you’re probably asking, so what’s the problem with that?
Well I will tell you what the problem is… in traditional escrow the monies are held in a single bank account, and are managed by a single fund manager or team of fund managers. These fund managers account for every transaction in and out, knowing exactly where every penny is at all times.
This process works great when applied to fiat currencies, but the moment you attempt to do this with cryptocurrency an enormous problem appears.
I will now give you a moment to figure out what that problem is.
OK, did you figure it out? Can you see the problem when applying this method to crypto based assets held in escrow?
I did, I saw it quickly, and that’s why I started Escaroo.
When holding client funds in a single pooled wallet, that wallet becomes a huge target for thieves. This can be proved by the more than $7 billion dollars in funds stolen from various exchange and escrow service wallets since the inception of bitcoin. Cryptocurrency was supposed to be secure, and it is, as long as it stays in your control, but the moment you place those funds in someone else’s hands that security gets thrown out the window.
This is why you hear of so many people preaching sermons on how to keep your crypto safe, and why you should never store tokens on an exchange. You may wake up one day to the news that the exchange you kept your tokens on has just been hacked, and now your funds are gone, never to be seen again. (by the way this has actually happened to me on a New Zealand based exchange I won’t bother to name).
After finding this major flaw, I decided there had to be a better way, and there was.
I decided to brainstorm the idea with a friend of mine on how we could build a better mouse trap (escrow service), and in a few weeks we came up with the idea for Escaroo.
Escaroo is different from every other crypto service. By harnessing the power of smart contracts, our advanced patent pending escrow technology puts the control of money back into the users hands.
Each Escaroo transaction is governed by an individually created non-pooled smart contract that is keyless and immutable. This ensures that any funds held within are totally secure, and can only be released when all parties are happy with the transaction outcome. Once posted to the blockchain, only the parties involved in the transaction have the authority to dictate how funds are dispersed, removing the need for third party oversight, creating a true peer-to-peer escrow service.
Each smart contract transaction is posted to a public blockchain and can be monitored throughout the process. Once the transaction is complete and funds have been dispersed, the smart contract terminates refusing any additional interaction.
This simple but elegant solution puts the power of fund management back into the owner’s hands, just where it always belonged and exactly how Satoshi Nakamoto intended it to be.