Payment Guarantee to ensure mutual trust during a transaction

[TL;DR] How can blockchain be used in auctions? Payment Guarantee constitutes one of the great application of blockchain to auctions.

Internet auction sites offer buyers a big “virtual” — but real — flea market from around the world; they give sellers a global storefront from which to market their goods. But the online auction business can a be risky business, from both the seller and bidder’s points of view. Whether you are a buyer or a seller, understanding how auctions work can help you avoid most problems.

In traditional auctions, when someone wants to bid on a property, he will have to arrange the necessary finances beforehand. Auction sales are non-suspensive, which means that they do not allow time for buyers to go and obtain mortgage finance after the fall of the hammer. When the hammer falls, it means that the auction is over and the property is sold. If a bidder wins, he will have to pay the deposit on the purchase price and the auctioneer’s commission on the same day, and then give the seller’s attorney a “guarantee” for the balance of the purchase price within a short period of time. However, this deposit will only arrive after the end of the auction sale which can be an issue if it turns out that the winning bidder does not have enough funds to pay. This would jeopardize the sale. The seller would then have to start the whole process over again or ultimately offer the property to the second highest bidder….

Blockchain to solve current auction systems through Payment Guarantee

Payment guarantee will solve the problem of mutual mistrust between both parties of a transaction. By definition, an auction sale generates a competitive climate between bidders who want to buy the property on sale but also with the seller who wants to sell it at the highest price possible. Decentralization is the key: blockchain has the possibility to solve these problems.

First, Payment Guarantee means that the seller has the guarantee that the buyer has enough funds to pay for the property at the end of the auctions. This means that people are not bidding just for the sake of it or consider their bids as chopped liver. Payment Guarantee is an important feature for sellers who require a proof of funds when buyers are bidding. So if the buyer wants to place a bid, he will be asked to make a deposit first. The seller can request a partial guarantee percentage of the maximum total bidding amount the bidder wants to engage, or he can simply require the full amount before the bidder can place his first bid.

Payment guarantee will also help fight against fakes bidders whose purpose is to create the impression of a great demand at some crucial times in the bidding in order to extend bidding momentum. A fake bidder is a person (or a bot) who is no intention of buying the property at the end of the auction. So if he does not have the funds, he won’t even enter the game. If he wants to bid, he will need to deposit funds with Payment guarantee. Only then will he be able to bid and get a chance to win the auction, which is a fairer situation for every participant to the auction. This makes Payment Guarantee a trustful proof for bidders.

A common issue on the bidder’s side is having to deal with auction fraud. It is not uncommon that sellers fail to send the merchandise, send something of lesser value than announced or fail to deliver in a timely manner. This is the issue Delivery Guarantee will answer with Auctionity. But we will give you more on that later as Delivery Guarantee is scheduled to be released in September.

Payment Guarantee will be released on Tuesday 3, July along with a Yellow Paper, a detailed technical description of Payment Guarantee, to thoroughly explain how it operates. Stay tuned!