As of this writing in 2022, national banks were the only US institutions explicitly permitted to offer a crypto escrow service, and even then they must demonstrate that they have adequate controls in place before they can engage in certain cryptocurrency, distributed ledger, and stablecoin activities.....

So what are your exposures and protections, where is the money for the transaction safely kept, and how will you complete the transaction?

As a first step, please immediately find an attorney and a CPA with the right experience.

Why? Because in this ill-defined environment if something goes wrong, or a public institution determines that some aspect of the transaction was done improperly or against law or policy and they want detail, or worse they accuse you of an unlawful or taxable act, you need to show you took precautions, have the evidence, and have someone professional "on the hook" to defend your actions and position.

If you aren't already working with an attorney who has been involved in, and familiar with what can go wrong, the assets you have, (crypto, Greenback, or hard assets), may be exposed in a dispute.

You're participating in a process that's evolving

Crypto real estate transactions occur within uncomprehensive rules and limits, evolving restrictions, uncustomary procedures, unexpected costs, and unintended risks, as ill-equipped state and federal laws cope with transformational changes that are ever more frequent.

It should not surprise you, but not all parties to the transaction accept crypto

Closing costs, registrations, tax authorities, associations, commissions, they all need USD even when the seller and buyer are using crypto.

There really is no reliable "crypto escrow" yet

As of this writing escrow of crypto currency itself is permitted to be handled by national banks, but real estate documents cannot. The main problem escrow is supposed to solve is "not sending your money to strangers".

As of today, I am unaware of a crypto escrow service with a reputation (good or bad) that's either reliable or affiliated or backed by an entity in which we can have high confidence.

None that exist have been around long enough to be considered reliable, and there is no way to know if they are even legitimate. Most are off shore. So why would you send your money to them, especially when a CRYPTO TRANSFER IS IRREVERSIBLE!?

According to Florida attorneys, Florida law does not explicitly permit escrow agents to have a crypto wallet into which they take the buyers cash to close (balance of the purchase price plus closing cost).

Until things change the existing escrow language inside the standard offer contracts must be crossed out and replaced with new clauses or an addendum, (hence the need for an attorney). As a consequence, the parties involved may not have the same protections, the same requirements, or be able to utilize the same mechanisms, (another reason you need an attorney).

In place of escrow attorneys are used to follow and observe the steps of the transaction until all parts are consummated. proceeds go directly between buyer and seller crypto accounts, if you can believe that!

One strategy has been to FIRST convert digital coin into a non-volatile "intermediary crypto currency"

That kind of crypto currency is categorized as "Stablecoin", and it was created so that there could be a crypto currency alternative that did not fluctuate, or have gains or losses against the value of the US dollar. USDc and USDt are the 2 most known and used stablecoins.

why use this intermediary step?

Conversion into stablecoin is being used as a mechanism to "freeze" the value of the crypto currency brand you are holding, much like a decision to convert ANY currency into US dollars.

The difference is that it takes milli-seconds to convert, transport, and thus freeze and deliver the value of one crypto currency into another crypto currency in preparation for transactions or converting into dollars. Otherwise, at a bank it could take days to wire and convert into USD, which could either expose you to abrupt gains or losses should the volatile crypto market change the value of your coins overnight.

Unlike other crypto currency types that are pegged to mining, a stablecoin's value is pegged to the us dollar, 1:1, and that value is derived from some actual underlying external asset (the dollar, gold, or other hard currency or asset.)

It is important to realize that USDc and USDt were invented by and are controlled by private companies, and you should be comfortable with their solvency, performance, and structure (guess where they were founded). For example, as of this writing USDc's assets are public but USDt's are not, yet USDt has been around longer, and has much broader circulation in existing transactions.

Another strategy uses a crypto exchange

You will typically be faced with exchanging SOME crypto for dollars anyway, and most parties will be looking to use a reputable exchange to accomplish that like Coinbase, Kraken, etc.

Participating parties may also be looking to transact using a more reputable crypto currency like Etherium and being held in crypto wallets that are more mainstream than "Golden Dragon Wallet" or "Pink Unicorn Wallet". Behind the scenes the exchange handles the conversion and fluctuation by promising an exchange rate.

While Standard offer contracts can be used there are additional terms

The aforementioned agreement defining the form and substance of payment and exchange must make its way into an addendum or additional terms.

• Either A specified amount of US cash will be contributed by specific parties by a specific deadline, or by a specified future deadline the transfer of a specified amount of monies in the appropriate currencies must be determined
• The payoffs in USD, for example, must eventually be specified and agreed upon: who will receive monies, when, how much, in which format, and how that money will be converted, transferred, and applied.
• The wallet used by the seller and buyer are with a "reputable crypto exchange", for example, one that is also a public company
• In the absence of escrow, the attorneys of the seller and buyer are party to the agreement and charged with helping seller confirm transfer using a service, and some definition as to what indication is sufficient for the transfer to be confirmed.

Your state may require a license to buy hold or move crypto currency

Not surprisingly, states like NY for example, require those engaged in “virtual currency business activities” to be specifically regulated and to maintain a "BitLicense" or a virtual currency limited purpose trust company charter from the New York State Department of Financial Services.

NY Regulation 23 NYCRR 200.2(q)

• receiving virtual currency for Transmission or Transmitting virtual Currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of virtual currency;
• storing, holding, or maintaining custody or control of virtual currency on behalf of others;
• buying and selling virtual currency as a customer business;
• performing Exchange Services as a customer business, or;
• controlling, administering, or issuing a virtual currency.

FinCen (a division of the U.S. Treasury in charge of preventing financial crimes) also regulates money transmitters via the Bank Secrecy Act (P.L. 91-508), requiring registration of “money services businesses,” including money transmitters, and imposing reporting obligations.

This whole process and every step must be agreed upon upfront

So the "form and substance of payment and escrow" must be defined and agreed upon either up front, or by a specified future deadline, so that the mortgage payoff from the seller for example is paid in USD (traditional banks and their investors also take greenbacks today not crypto! So when the buyer transfers crypto funds some portion will have to be exchanged, and that may also be a taxable event.

The west may be wild, but the sheriff is funded, organized, and on the prowl. Make sure you have what you need to report any gains (or losses). This is where the accountant recommended to you in the beginning comes into play.

The material in this article was graciously and professionally contributed to by:
Rich Barbara Esq. - Coral Gables Title + Escrow LLC
224 Palermo Ave, Coral Gables, FL 33134
+1 305 400 8802

www.cgtitle.com

References

Issues to address on a federal and state level

The 150 different crypto currencies that Coinbase exchanges as of Jan 2022