4 ms·

Escrow is the simple thing. Suppose you want to buy a house or a car, and you show up with a bag of money and someone else shows up with a set of keys. How to

Escrow is the simple thing. Suppose you want to buy a house or a car, and you show up with a bag of money and someone else shows up with a set of keys. How to proceed without the transaction requiring trust between people who don't know each other? If you physically get the car/house/keys, what guarantees that title was transferred as expected? Depending on the cash volume and the jurisdiction, there is basically no established mechanism for doing this peer-to-peer. If you're "lucky" then you see a whole industry of middle-men created around trying to solve /skim on this, which then increases the costs of transaction (say realtors or car dealerships). If you're unlucky, then there's simply no way to have a trust-free transaction, and you just weigh the risk and take it or leave it. This does seem solvable, right? Because there's only a few APIs (bank transfers, title queries) that are involved in a fully automatic escrow. Such escrow could be provided as a free service by the government, or it might be pay-per-use (and simply cost less than markup from dealerships/realtors).

GauntletWizard 3y ago
Escrow's only real value is when a third party steps in to judge who's in the right when things go wrong. When Escrow works well, it's highly automatable and already significantly automated by modern escrow companies. When one or both parties try to cheat, then you need human intervention, and again; Crypto/Blockchain/"Web3" is completely unsuitable.
duxup 3y ago
One theory I have about all this is that doing deals with zero trust is that ... people don't want to do that ... and no matter what you do there's going to be this whole process around these transactions to provide some assurances and so on. On the surface all this title company stuff is silly and it is, unless there's a real problem with the title and then you want it. These are human problems.
- photonthug 3y ago
  These sound like problems I associate with bureaucracy, not people, and problems that just go away if/when some kind of API is provided. If the purpose of the title company or lawyer or whatever is to do something like "phone the county office clerk and tell them to look up a rubber stamp and fax us a signed copy", then it's not like it's impossible to get rid of the middlemen.
  - DropInIn 3y ago
    But its not _worth_ getting rid of the middle man when the fee is so much higher than current processes, on transactions where it might actually be used. It really is a solution in search of a problem.
hn_throwaway_99 3y ago
OK, great example, so I'll explain why a smart contract couldn't work here at all. So, to start, going to be clear I'm using your specific example of "escrowing funds on purchase of a piece of real estate (and I mean actual, real, real estate)". Simple enough. But, at the end of the day, who is to say "the keys you gave me are really the keys to the house you said you sold me"? That is, there needs to be some way to import to the smart contract ecosystem "yes, these are the keys to the house he sold me, and yes, the seller is the unencumbered title holder of this house". There is no real way to do that without some sort of oracle, and then you've just moved the problem back a step (i.e. you need to trust the oracle). I happen to think title insurance is vastly overpriced in many states, but that's not the same thing as thinking that title companies (who normally do escrow in the US) don't serve a very important purpose. Most importantly, they ensure the seller is the actual title holder. And I can hear the crypto fans saying "Well, if you just held that title on a blockchain, there would be no ambiguity about who owns it." But that just pretends that all the real world examples don't exist, like a contractor who puts a lien on a house because he claims he wasn't paid. Also, in the real world, if someone steals the key to your house, it's not usually that hard to evict them and change your locks. In the crypto world it's "sorry, finders keepers". So again, this simple example just falls apart on further inspection. Very happy to hear why any of the rationale I've given above is not correct.
- samuellevy 3y ago
  More than just needing an oracle - the keys and the house are both physical items. There's not really any practical way for a contract on the blockchain to validate that a particular physical item is in fact the item that it purports to be. Are these ACTUALLY the keys to this house? Are they the only set? The original set? Were the locks changed, and this set in the contract is no longer valid? Then putting aside all of that... How do you ENFORCE a "smart contract"? Probably through... Existing contract law. Because that's what it's there for. Smart contracts are just more convoluted paper, and we can do that already with DocuSign or any number of other digital contract options - all of which provide, so far as I can tell, precisely the same level of verification that a smart contract does. The only "advantage" of a smart contract over those platforms is that the history of the "document" is more or less baked into the chain, instead of trusting that the third party platform hasn't modified it... Which they will never have any motivation to do... People have been initialing pages to mark them as read/accepted for more years than I've been alive. In the event of a contract dispute, smart contract or not, it's going to be up to a third party (mediator, judge, etc.) to decide on resolution anyway... At which point even the exact wording of the contract may well be discarded as being unenforceable because _contracts are not above the law_.
dale_glass 3y ago
That only works so long the "car" resides entirely within the blockchain. In the real world, there can be disputes after the sale. The property might have some horrible undisclosed effect. You might have stolen it. Or something else along those lines. Securely swapping a bag of cash for some keys is solving the trivial part of the problem, and ignoring the rest. The blockchain will do its thing and give you the title to a house infested from top to bottom with termites, but everything went according to the smart contract, so as far the blockchain is concerned there's no problem to be solved.
deleted 3y ago
[deleted]

GauntletWizard 3y ago

Escrow's only real value is when a third party steps in to judge who's in the right when things go wrong. When Escrow works well, it's highly automatable and already significantly automated by modern escrow companies. When one or both parties try to cheat, then you need human intervention, and again; Crypto/Blockchain/"Web3" is completely unsuitable.

duxup 3y ago

One theory I have about all this is that doing deals with zero trust is that ... people don't want to do that ... and no matter what you do there's going to be this whole process around these transactions to provide some assurances and so on. On the surface all this title company stuff is silly and it is, unless there's a real problem with the title and then you want it. These are human problems.

photonthug 3y ago
These sound like problems I associate with bureaucracy, not people, and problems that just go away if/when some kind of API is provided. If the purpose of the title company or lawyer or whatever is to do something like "phone the county office clerk and tell them to look up a rubber stamp and fax us a signed copy", then it's not like it's impossible to get rid of the middlemen.
- DropInIn 3y ago
  But its not _worth_ getting rid of the middle man when the fee is so much higher than current processes, on transactions where it might actually be used. It really is a solution in search of a problem.

hn_throwaway_99 3y ago

OK, great example, so I'll explain why a smart contract couldn't work here at all. So, to start, going to be clear I'm using your specific example of "escrowing funds on purchase of a piece of real estate (and I mean actual, real, real estate)". Simple enough. But, at the end of the day, who is to say "the keys you gave me are really the keys to the house you said you sold me"? That is, there needs to be some way to import to the smart contract ecosystem "yes, these are the keys to the house he sold me, and yes, the seller is the unencumbered title holder of this house". There is no real way to do that without some sort of oracle, and then you've just moved the problem back a step (i.e. you need to trust the oracle). I happen to think title insurance is vastly overpriced in many states, but that's not the same thing as thinking that title companies (who normally do escrow in the US) don't serve a very important purpose. Most importantly, they ensure the seller is the actual title holder. And I can hear the crypto fans saying "Well, if you just held that title on a blockchain, there would be no ambiguity about who owns it." But that just pretends that all the real world examples don't exist, like a contractor who puts a lien on a house because he claims he wasn't paid. Also, in the real world, if someone steals the key to your house, it's not usually that hard to evict them and change your locks. In the crypto world it's "sorry, finders keepers". So again, this simple example just falls apart on further inspection. Very happy to hear why any of the rationale I've given above is not correct.

samuellevy 3y ago
More than just needing an oracle - the keys and the house are both physical items. There's not really any practical way for a contract on the blockchain to validate that a particular physical item is in fact the item that it purports to be. Are these ACTUALLY the keys to this house? Are they the only set? The original set? Were the locks changed, and this set in the contract is no longer valid? Then putting aside all of that... How do you ENFORCE a "smart contract"? Probably through... Existing contract law. Because that's what it's there for. Smart contracts are just more convoluted paper, and we can do that already with DocuSign or any number of other digital contract options - all of which provide, so far as I can tell, precisely the same level of verification that a smart contract does. The only "advantage" of a smart contract over those platforms is that the history of the "document" is more or less baked into the chain, instead of trusting that the third party platform hasn't modified it... Which they will never have any motivation to do... People have been initialing pages to mark them as read/accepted for more years than I've been alive. In the event of a contract dispute, smart contract or not, it's going to be up to a third party (mediator, judge, etc.) to decide on resolution anyway... At which point even the exact wording of the contract may well be discarded as being unenforceable because _contracts are not above the law_.

dale_glass 3y ago

That only works so long the "car" resides entirely within the blockchain. In the real world, there can be disputes after the sale. The property might have some horrible undisclosed effect. You might have stolen it. Or something else along those lines. Securely swapping a bag of cash for some keys is solving the trivial part of the problem, and ignoring the rest. The blockchain will do its thing and give you the title to a house infested from top to bottom with termites, but everything went according to the smart contract, so as far the blockchain is concerned there's no problem to be solved.

deleted 3y ago

[deleted]