It is becoming increasingly clear that OpenBazaar will become a powerful platform that will support a variety of peer-to-peer market transactions. One of the most fundamental market transaction types is the auction of a good by a seller to discover the market price. In this article, we cover one possible way of auctioning a good using Ricardian contracts.
It should be noted that this proposal essentially describes the 'back-end' of implementing Ricardian contracts into auctions on OpenBazaar. It is important that the end-user (i.e. your mother, grandfather etc with novice skills) will be unaware of digital signing, hashing etc occuring in the background unless they choose to be, in order to lower the technical barrier of entry for using OpenBazaar.
The seller firstly selects an auction template contract in OpenBazaar. In this type of contract, the product and auction details of the good to be sold are entered into required fields within the JSON or XML file. The product auction details would include:
- The name and description of the item
- A minium sell price, if any
- A 'buy now' price, if desired
- An expiration date for the auction
- A blank field for a bidder to enter their price
For example, let's imagine Alice wants to sell a yellow pinata on OpenBazaar. After digitally signing it, the auction_contract looks something like this:
Contract hash: 8f9cfa1255e4f4c1a5cc1d21c7dd7ce233aa0c9b
-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1
<?xml version="1.0"?>
<!-- Seller's NYM -->
<nym_id> Alice-NYM-ID-HASH </nym_id>
<!-- Node Address -->
<node_addr> Westeros </node_addr>
<!-- Bitcoin Pubkey -->
<btc_addr> 03d728ad6757d4784effea04d47baafa216cf474866c2d4dc99b1e8e3eb936e730 </btc_addr>
<!-- Product Details -->
<item_name> Yellow Pinata </item_name>
<item_description> Good condition, never busted. </item_description>
<item_image> https://img0.etsystatic.com/000/0/6342324/il_570xN.326696084.jpg </item_image>
<min_sell> 5 mBTC </min_sell>
<bid_price> </bid_price>
<buynow_price> 30 mBTC </buynow_price>
<auction_expiration> 2014-06-25 21:00 UTC </auction_expiration>
<!-- Sellers's PGP Key -->
<PGP_Public_Key>
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- -----END PGP PUBLIC KEY BLOCK-----
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Bob accesses the contract and chooses to bid on the pinata. To place a bid on the item, he draws up the following digitially signed bid contract:
Contract hash: 57074779f93235c88a07b7c6de8285c8478cc6a6
<?xml version="1.0"?>
<!-- Buyer's NYM -->
<nym_id> Bob-NYM-ID-HASH </nym_id>
<!-- Node Address -->
<node_addr> Essos </node_addr>
<!-- Bid details -->
<auction_contract> 8f9cfa1255e4f4c1a5cc1d21c7dd7ce233aa0c9b </auction_contract>
<bid_price> 7 mBTC </bid_price>
<!-- Buyer's PGP Key -->
<PGP_Public_Key>
-----BEGIN PGP PUBLIC KEY BLOCK-----
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-----END PGP SIGNATURE-----Alice may receive five different bids on the yellow pinata and according to her conditions, the originally contract is updated with the latest bid price. At the end of the expiration date of the contract, Alice digitally signs the final winning bid contract, sends it to the arbiter for digitally signing and creating a multisignature bitcoin address for the winning bidder, Bob.
Due to the architecture of the P2P network setup, Alice may not be available 24/7 during the term of her auction contract to update the market on the latest bid price of the item. As a result, she may choose to upload her contract on a 24/7 accessible node (a negotiator node) that acts as a contract server. If so, the negotiator node will create their own contract for the item, digitally sign bid contracts, update the <item_price>, and turn over the final bid contract to Alice for her digital signature at the end of the contract/auction expiration date. If Alice digitally signs the contract, the contract is sent to an arbiter for sigining and creation of the multisignature bitcoin address for Bob, the winning bidder, to send funds to. As a reward for hosting the contract, the negotiator node is rewarded by a fee paid for by Alice (via another multisignature address setup with anoter arbiter). If Alice disapproves of how the contract was negotiated by the negotiator node on her behalf, she can simply refuse to sign the contract and raise a dispute to the arbiter for a refund of the fee from the multisignature address.
For the seller (Alice), she can have confidence that the funds for the item actually exist once Bob has sent the required amount of bitcoins to the multisignature bitcoin address, upon which she will ship the item to Bob's designated address. Similarly for Bob, he can retrieve the funds from the multisignature address if he can prove to the arbiter's satisfaction that he goods either did not arrive, or did not arrive in the condition specified in the contract.
To further promote good behavior, the arbiter may require a surety bond from one or both parties. The surety bond is a quantity of bitcoins sent from either the buyer or seller (or both) held in a multisignature bitcoin address that is refundable upon a successful trade. If a dispute arises, and one party is found to be at malicious fault, the funds within the surety bond are transferred to the arbiter and opposing party as compensation.
A non-malicious versus malicous fault may be, for example, a shipping comapany damaging the goods during transport (non-malicious) versus the seller knowingly sending a damaged good (malicious). The value of the surety bond is negotiable and completely optional. However, it is reasonable to expect that surety bonds will become less necessary between individuals with a high web of trust reputation and/or proof of burn identity.
Ricardian contracts have sufficient flexibility to support eBay-style auctions on OpenBazaar, leveraging the authenticity and fidelity features that digital chain signing and contract hashing it has to offer. While the P2P network infrastructure and contract distribution protocol is still under development, we propose here a means of using a third party negotiator node to host contracts on behalf of a seller, updating price changes in real-time.
Good idea.