With UPCX's non-custodial escrow, funds and assets are locked in the wallet of the user (buyer) when goods or services are purchased. Since there is no need to send funds or assets to another address, such as a custodian, the service can be used safely.
The basic mechanism is as follows.
- The buyer and seller (seller of goods or services) agree on contract details and the buyer locks the respective funds via a smart contract in his/her wallet.
- Once the buyer confirms that the seller has fulfilled the terms of the contract, the buyer authorizes the transfer of the escrowed (locked) funds to the seller.
- If the seller fails to fulfill the terms of the contract, the seller can release the funds escrowed in the buyer's wallet, therefore making them available to the buyer again.
It is important to note that the buyer can only send funds that have been held in escrow to the seller, and the seller can only release (cancel) funds from the escrow. This means that the buyer cannot release funds once they are escrowed, and the seller cannot initiate the transfer of escrowed funds to their UPCX address.
In such transactions, disputes often arise between buyers and sellers.
UPCX’s non-custodial escrow allows an arbitrator to be set up in order to resolve such disputes.
The arbitrator has the power to both release the funds locked in the buyer's wallet and to send the funds to the seller.
If a dispute arises between the two parties, the arbitrator will review the claims of both parties, determine the validity of the claims, and then take appropriate action.
The arbitrator is registered in the smart contract that is created in the initial stage. Buyer and seller may select one or more arbitrators.
When multiple arbitrators are appointed, multi-signature or TSS multi-signature is used.
When multi-signature is used, and for example three arbitrators are appointed, the transaction will be processed only after unanimous consensus has been established between all arbitrators.
As an alternative, when the TSS multi-signature method is used, each arbitrator can be given a different weight of authority. For example, we could assign Arbitrator A with 2 points, Arbitrator B with 1 point and Arbitrator C also with 1 point. If the threshold for dispute resolution is set to 3 points or more, then action could be taken when at least Arbitrator A and B, or Arbitrator A and C are in agreement.
Arbitrators may earn a fee for each dispute they resolve.
A non-custodial escrow smart contract contains the following information:
- Buyer: Acts as the sender of funds and goods/service receiver that participates in the escrow transaction.
- Seller: Acts as the receiver of funds and trader that participates in the escrow transaction.
- Expiration Date: Indicates the expiration date of the escrow transaction.
- Escrow Conditions: Indicates the conditions required to perform an escrow transaction.
UPCX’s non-custodial escrow can be integrated with UPCX’s scheduled payments to create a simple financial smart contract that can serve as a Letter of Credit (L/C).