Hodl Hodl Multisig Escrow Explained: Why We Never Hold Your Bitcoin
How Your Bitcoin Stays Safe
How safe is P2P Bitcoin trading? Hodl Hodl is a P2P Bitcoin trading platform that operates differently from traditional exchanges. The key difference? We never hold your funds. Instead, we use a secure multisig escrow system that keeps you in control of your Bitcoin at all times.
What is Escrow?
Escrow is a P2SH (Pay-to-Script-Hash) Bitcoin multi-signature address generated specifically for each trade contract. Think of it as a secure lockbox that requires multiple keys to open — no single party can move the funds alone. At Hodl Hodl, we use a 2-of-3 multisig escrow system. This means three keys exist for every escrow address, but only two are needed to release the funds:
- One key belongs to the Seller
- One key belongs to the Buyer
- One key belongs to Hodl Hodl
How does multisig escrow work?
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Contract Creation — Once a trade contract is started, Hodl Hodl generates a unique multisig escrow Bitcoin address for that specific trade.
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Seller Deposits Bitcoin — The seller sends Bitcoin from their wallet to the escrow address, where it becomes locked.
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Buyer Sends Payment — The buyer sends fiat payment to the seller using the agreed payment method.
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Release from Escrow — Once the seller confirms they've received the payment, they release the Bitcoin from escrow directly to the buyer's wallet address.
What Happens in a Dispute?
Both the buyer and the seller can start a dispute. Once a Hodl Hodl administrator reviews and resolves the dispute, they can use the Hodl Hodl key combined with either the buyer's key or the seller's key to release the funds from escrow to the rightful party.
This is the power of 2-out-of-3 multisig escrow: it provides a fair resolution mechanism while ensuring no single party has unilateral control.
Why Is This Safe?
The multisig escrow system provides several layers of security:
No Third Party Holds Your Funds — Hodl Hodl cannot move funds from escrow without the seller's signature. Your Bitcoin remains under your control, even while locked in escrow.
Protection Against Exchange Compromise — Even if our exchange were to be hacked, your Bitcoin in multisig escrow remains unaffected. The funds can only be moved with the required key signatures.
Direct P2P Trading — All trades occur directly between buyers and sellers. The multisig escrow simply provides a trustless mechanism to ensure both parties fulfill their obligations.
Buyer Protection — With the 2-of-3 multisig escrow system, buyers aren't left powerless. They hold one of the three keys, giving them recourse if something goes wrong.
Hodl Hodl's multisig escrow represents the true spirit of Bitcoin: trustless, peer-to-peer transactions where you maintain control of your funds. No custodial risk, no third-party holding your Bitcoin — just secure, direct trading.