Many people have been waiting for Bitcoin’s killer app. This is the one app that would provide a use case where it actually makes sense for the average person to use Bitcoin on a regular basis. It seems that we may have finally have the first such app in the form of BitHalo. This new innovation from David Zimbeck comes packed with a variety of new, exciting features for online commerce as a whole, and it doesn’t seem like the full impact of this new software will be felt until the full version is released. One of the main problems that Bitcoin has had up to this point is that some consumers are scared of irreversible transactions. It seems that BitHalo may have been able to solve that issue without any added costs.
Escrow without a Third Party
The potential for BitHalo to have a massive impact revolves around its ability to perform escrow through the use of smart contracts. Most people who pay for things online today use some form of escrow because they want to have a bit of protection for situations where a merchant tries to rip them off. These escrow services, such as PayPal, Visa, and Mastercard, also come with fees that vary from country to country. For some merchants, the cost of using these systems for escrow isn’t even practical for their business model. In the case of BitHalo, there are no fees for the decentralized escrow service. BitHalo gets around the need for a fee by having the merchant and customer both send bitcoins into a smart escrow contract. The following is an example of how this could work:
- Bob is looking for a used Nintendo 64 to buy on Craiglist, but the only one he can find is in another city. He agrees to buy the video game console from the seller, but he insists that BitHalo is used for escrow.
- James, the seller of the Nintendo 64, decides that using BitHalo is fine with him. Bob and James each send 0.05 BTC into an escrow smart contract. Bob also needs to send another few dollars worth of BTC into the contract (see steps 6 and 7).
- James ships the Nintendo 64 to Bob. It’s important to note here that James would lose his 0.05 BTC if he decided not to ship the Nintendo 64 at this point. This is the key to the escrow system. It’s basically a way for the merchant to put up some collateral before the buyer sends them any money. The seller only gets their original deposit back if both parties agree that the transaction was completed successfully.
- Bob receives the video game console and checks to make sure that it works. Everything seems to checkout, so he sends a message to the smart contract claiming that he received the package in the mail. He has an incentive to actually go back to his computer and confirm that he received the game console because he will want to get back that extra few dollars deposit that he had to put down.
- James also confirms the deal is done, and he receives both his original 0.05 BTC deposit and the 0.05 BTC from Bob. The extra few dollars worth of BTC is now also sent back to Bob.
Watch the video below if you need a clearer, more thorough explanation of how this whole system works:
A Killer App for Bitcoin
The escrow system described above has many different use cases in the world of e-commerce, and it’s not just about people buying and selling goods over the Internet. There are also plenty of people who make a living from work they find online. I am one such individual, and I learned early that you cannot simply trust a client to pay you after you’ve sent them a completed project. With this escrow system from BitHalo, I could make sure that a client is actually legitimate before I begin working for them. This can also be useful from the client’s point of view. There are some clients who like to pay upfront for work, and forcing the contractor to pony up some cash for a deposit in the smart contract can calm their fears of having the contractor run away with the cash. This is basically a new way for two random people to prove a certain level of trust to each other over the Internet without having to even know their respective names.
In addition to offering new protections for online shoppers and freelancers, BitHalo can also be used for decentralized exchanges of just about any asset. The actual exchange portion of this software is known as NightTrader, and it almost seems like an afterthought after looking at the implications for other aspects of online trade. In addition to being able to trade between bitcoins, litecoins, dogecoins, blackcoins, and any other cryptocurrency, this software could also be used as a decentralized replacement for LocalBitcoins. If you take the example from above and replace the Nintendo 64 with a bank deposit, physical cash, or realcoins, it’s easy to see how this platform can be used for purchasing or selling bitcoins in a decentralized manner. This may be something that is eventually handled better by a server-based system such as Open Transactions, but it’s still interesting to think about all of the different aspects of online commerce that are helped through BitHalo’s escrow system
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