Can M-of-N Schemes Be Used to Create an Escrow Service?

Yes, M-of-N multi-sig schemes are an excellent tool for creating a trustless escrow service without relying on a traditional third-party intermediary. For example, a 2-of-3 setup can be used, where the buyer, the seller, and a mutually trusted arbitrator each hold one key.

The funds are released only when the buyer and seller both sign (2-of-3). If a dispute arises, the arbitrator's signature alongside either the buyer or seller can release the funds.

This setup ensures fairness and reduces counterparty risk.