Some people say that Bitcoin is risky to use, because there’s no way to reverse payment if the other party decides to scam you. If you’re worried about this, it might be better to use escrow services such as PayPal, Visa or Mastercard or third-party services that are able to protect you in case the other party is untrustworthy.

Or at least, such services used to be the safest way. But the arrival of a new software called BitHalo, that could soon change.

BitHalo is a smart contracting system currently under development that promises a decentralized escrow service. This is good news for both customers and merchants as traditional escrow companies charge a fee for using their service. For small businesses or those just starting, escrow fees can be impractical for their business model.

Smarter Bitcoin transactions

So how is BitHalo able to perform escrow services without requiring a fee? The key is something called “smart contracts”, which require people to make refundable deposits to facilitate transactions.Here’s how it works:

Here’s how it works:

Elli is looking to purchase an original 1984 Voltron Lion Space robot in mint condition that she’s found on eBay. Elli lives outside of the US and wants to purchase the item using Bitcoin, and the seller agrees provided Elli pays for the shipping fees, and uses BitHalo for escrow.

Naturally, Elli agrees and so a smart contract is set up and both parties send a specific amount of BTC into an escrow smart contract. Elli pays the agreed upon deposit in BTC, then sets a time frame for how long she thinks it will take for the transaction to be completed. The seller then sends the item to Elli.

If Eugene decides not to ship the item, he will lose the BTC he has deposited. This ensures the buyer is protected. When the item is shipped and received, and if everything is in order, Elli sends a message to the smart contract informing it that the item has been received.

For the BTC deposits to be returned, both buyer and seller must confirm that the transaction has been completed, and end the smart contract. This way, the risk of not getting paid is eliminated, and if a seller doesn’t ship the goods, the deposit made by the seller is given to the buyer. If the time frame expires and the transactions have not been completed, the deposits will not be refunded to either party.

There is a fee for BitHalo facilitated transactions, about 0.001 BTC or $0.61 in today’s value. That fee is still minute compared to what PayPal or other services charge for such a transaction.

An additional safeguard in place is the instant refund.  If you think the person you’re interacting with is really shady, hitting that instant refund button gives you back your deposit and the BTC you were supposed to send.

BitHalo has the potential to become a game changer for Bitcoin adoption and online transactions.

In an interview, David Zimbeck, the creator of BitHalo said that aside from facilitating secure trades, it can also be used to “back commodities, for bartering, microtrade, employment, to reduce frivilous lawsuits, for derivatives, to allow people to trade internationally peer to peer and zero risk lending”.

“Although these features can be used already, there are no templates yet to show “mom and dad” how those things will be done,” he added. “Also there are no contract “pools” yet which was supposed to be bulletin boards for contracts which is the basis for the decentralized exchange and just basically any kind of contracts, sales or agreements.”