A surety bond or surety is a promise by a surety or guarantor to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation.
If you buy something online with a cryptocurrency, there's no guarantee that you'll receive what you bought, and there's no recouse for getting your money back if you're unsatisfied with the transaction. A surety bond is a possible mechanism which a third party insurer can insure transactions and provide recourse to buyers and sellers.
- The buyer can have peace of mind that their transaction is insured.
- The insurer can make a profit by selling insurance for a transaction.
- The seller will have peace of mind that they will get paid.
- Unlike escrow, a seller can get paid immediately.
The insurer needs to decide of a claim is valid or not, thus the buyer and seller are at the mercy of their decision. They also have an incentive to not honor claims.