Decentralized escrow functionality built into Bitcoin? AFAIK there are a few websites out there that offer escrow services for Bitcoin. Those however are central, i.e. I have to "trust" them.

Is it being discussed, is it theoretically possible, or does the blockchain technology already enable to implement a decentralized escrow service?

After all, it is easy to imagine that an escrow holder could be nothing more than a "virtual" party or a "bot", with its own wallet or private keys, that two negotiating parties could cast into existence. After the transaction has completed (or cancelled), the software would release (or revoke) the entrusted value to the respective party.

Update: If two parties cannot come to agreement, I can think of these solutions for now:


There could be a form of escrow option that will be chosen where at least one party is public facing and reputational, e.g. a (online) shop, that will be trusted by the other party not to deceive.
Two more "ordinarily" trading parties would choose an escrow option where the funds will never be released in the case of conflict at first. If they disclosed identity to each other, a court hearing could then be invoked which should usually come to a resolution, and the losing party will be enforced by law to provide value. Should Bitcoin never be accepted as negotiable matter by traditional jurisdiction, an alternative, equivalent infrastructure is thinkable, but let's leave that to another question for now.
This proposal by user Meni Rosenfeld:


  How about this. There is a box in which there are two types of coins,
  "deposit" and "payment". Both parties have permission to open the box.
  When the box is opened, the deposits go to whoever put them, and the
  payment goes to the party other than the one who opened it.
  
  So first the buyer and seller both put a small deposit in the box.
  This is safe since they can get it back. Then the buyer puts the
  entire sum of the payment in the box. Now:
  
  
  If the seller sends the goods, the buyer will open the box and the
  seller will receive the funds. He is incentivized not to be lazy or
  spiteful because he wants his deposit back.
  If the seller for any reason wants to back out of the deal, he can
  open the box and have the payment return to the buyer, and is
  incentivized to do so because he wants his deposit back.
  If the seller goes with the "reimbursement" plot, the buyer knows
  he is scamming (since the seller should have just opened the box) and
  ignore the request. (There is a potential weakness in that the buyer
  can "defect" and open the box anyway, to get the deposit. This may be
  alleviated by having the buyer's deposit smaller than the seller's,
  giving him more bargaining power).
  A fraudulent seller is not incentivized to try this on N people
  until it succeeds, since every failure costs him his deposit. Hence,
  scenario 3 in which the money is burned should very rarely happen.
  
  
  In any case this isn't supposed to be bullet-proof, just a significant
  extra protection for sellers who already pass the sniff-test.
  
  Additionally, the box can specify a charity address, agreed upon by
  both parties, to which the buyer has permission to send all funds,
  deposits and payment. So in the worst case the money will go to
  charity.
  
  I'm not sure about the technical implementation details but all this
  should be very doable.
I don't think it's possible in principle. The escrow service is one that is inherently authorized to make a decision as to who ultimately gets the funds. In a decentralized escrow service, who or what would make that decision?

If I place some coins in escrow as part of a transaction to you, something must decide whether those funds ultimately go to me or you. Obviously, that decision can't be made by me or you.

I have heard proposals where the coins are "burned" (lost forever) if both parties don't agree on who should ultimately get them. I think that's a pretty useless service as it allows one party to blackmail the other. "Release the coins to me and I'll give half of them back to you. Otherwise, they're lost forever."