Blockchain technology can offer significant opportunities to online auctions via enhanced transparency, data integrity and data traceability.
Online auctions bring customers from around the world to a seller and mitigate geographical barriers that would previously have stood in the way of an enterprising salesman. However, these online auctions typically require a third-party to act as an intermediary between buyer and seller to facilitate and maintain the integrity of the transaction. As a result, online platforms rely on human interactions for data integrity, security, transparency and traceability with potential bidders having to trust an auction organizer with ensuring that bids are legitimate and transactions properly settled.
To overcome this, a team of researchers from Khalifa University’s Industrial and Systems Engineering Department has investigated using blockchain technology—a distributed, immutable ledger of transactions organized as blocks and maintained by a community of users—to run online auctions. Ilhaam Omar, Research Associate, Haya Hasan, Research Associate, Dr. Raja Jayaraman, Associate Professor, Dr. Khaled Salah, Professor, and Dr. Mohammed Omar, Professor and Director of the KU Research Center for Digital Supply Chain and Operations Management (DSOM), published their research in Technological Forecasting and Social Change.
“Our team is actively researching the most pressing challenges in supply chain and logistics,” said Dr. Jayaraman. “Our work on blockchain-based auctions was inspired by a real industry problem from a UAE-based company offering a heavy equipment rental service through a competitive bidding process. However, the existing auction process lacks trust and transparency with results that cannot be audited or verified In addition, the role of third-party intermediaries causes significant information delays and a results in a costly process. Our proposed solution has broad applications in ecommerce and related service industries.”
The research team realized that Blockchain-based auctions can effectively remove intermediaries, thereby reducing transaction costs and ensuring trust among stakeholders. Their solution uses programmable Ethereum smart contracts hosted on the blockchain. These “contracts” are actually simple programs that can be used to automatically exchange information under predetermined conditions.
Blockchain technology offers an immutable and tamper-proof ledger of transactions as a shared database, validated by a wide community. Each record created forms a block, and as each block is confirmed by the community, it is paired up with the previous entry in the chain, creating a chain of blocks. The platform is decentralized, trusted, and secure, with tamper-proof records, logs and transactions. The actions enabled by smart contracts take the digital place of a third party and inherit the immutable and distributed properties from the blockchain; tampering with them becomes almost impossible.
Additionally, the blockchain-based solution would allow the seller to directly connect with many potential bidders without intermediaries, while the bidders would be able to monitor the auction process.
The team’s solution was tested on one type of auction where the highest bid is known throughout the bidding process. However, their design allows the platform to be applied to other auctioning types simply by altering the structure of the smart contracts.
They now plan to develop decentralized applications to fully automate the auctioning process. They also plan to develop more multipurpose smart contracts to cater to the broader needs and requirements of auctioneers and bidders.
“Blockchain is an emerging, disruptive, and transformational technology with incredible growth potential and impact,” said Dr. Jayaraman. “Our work, which is at the heart of the UAE’s blockchain vision that is articulated through the Emirates Blockchain Strategy 2021, will help save time, effort and resources while improving competitiveness and providing transparency and trusted transactions.”
13 June 2021