Blockchain
Historically, many auction houses have built their brands as exclusive places where the wealthy buy and sell art, jewelry, and other luxury items. But nowadays auction houses are looking for new ways to attract a wider, more diverse and younger audience of potential buyers.
That’s why many of them turn to Web3 technology. For example, Christie’s 3.0, which the company describes as an “on-chain auction platform dedicated to exceptional digital art,” launched in 2021 to support the sale of art in the form of non-fungible tokens, or NFTs.
But NFTs aren’t the only thing auction houses can sell with Web3 technology – and they shouldn’t be. By offering a wider range of blockchain-based auction experiences, auction houses can offer a wider range of products to more people – and when auctions are conducted in a truly transparent, decentralized way, these houses can build greater trust with potential buyers.
How have auction houses used Web3 technology in the past?
To understand more about how big houses can benefit from decentralization, it’s important to know a little about how auction houses and Web3 technology have intersected in the past.
When NFTs made their grand entrance into the mainstream art world in early 2021, they sold like hotcakes (and very expensive hotcakes). Digital pieces from digital artists like Beeple and celebrities like Grimes sold for tens of millions of dollars, mostly on NFT-specific platforms like OpenSea.
This is when major houses started moving into the Web3 space with the launch of their own NFT platforms. But while these platforms sold Web3 goods that existed on decentralized public blockchains, they themselves were not necessarily decentralized.
What is Decentralized Auction Technology?
In an auction environment, decentralization doesn’t just mean the house can sell blockchain-based assets. In fact, decentralized auction houses can sell all the goods that traditional homes sell — and more.
The basic principle of decentralization is that no single entity maintains control over a system. Traditionally, auction houses operate on hierarchical management processes where individuals make decisions about what to sell, who sells it, and to whom it can be sold. These decisions are made behind closed doors, without input from the wider community.
However, if an auction house were to become decentralized, no single entity would retain control over it. On the contrary, all activities of the house would be carried out in a transparent manner, with the input of the community. Furthermore, any technological infrastructure that makes up the house must always be publicly visible (and verifiable).
Decentralization leads to more transparency and security for buyers and sellers
While it may seem counterintuitive at first, this level of transparency actually makes this infrastructure more secure.
When a piece of software is open source, the community of users can check for bugs and suggest ways to improve it. And in an auction house environment, a similar level of transparency could also help support safer buying and selling practices. For example, blockchain can help buyers track the ownership and provenance of artworks, making it easier for buyers to make informed decisions. And in addition to selling art, decentralized technology can enable a home’s buyer community to see more clearly where products come from.
Decentralization can also shed light on the decision-making processes behind how base prices are set, and so on, ultimately leading to greater trust in the relationship between auction houses and buyers. And most importantly, no matter what’s being sold: fine art, real estate, NFTs, wine, jewelry, and more – homes (and their communities) can benefit from the transparency that decentralization offers across the board.
Cast a wider net
Decentralization can also help auction houses attract younger and more tech-savvy buyers.
Aside from the added confidence that decentralization provides, younger buyers are more likely to participate in auctions held on blockchain-based platforms, especially if they already have an existing interest in blockchain and cryptocurrencies.
Buyers who don’t have this pre-existing interest may still be drawn to the potentially wider range of assets that decentralized homes can sell online in a reliable and transparent manner. For example, buyers looking for valuable artwork may choose to see the work in person to ensure they get what they pay for. But with decentralized technology that provides a reliable record of sales and ownership, buyers can feel more comfortable making larger purchases online.
Decentralized technology can streamline operations for auction houses
Web3 technology can also enable auction houses to streamline operations and reduce transaction costs. Traditional auction houses rely on third-party banks and payment providers to ensure that money flows as planned. But by using smart contracts, auction houses can automate the bidding and payment processes. This reduces the need for middlemen, making the process more efficient.
Blockchain technology can also help reduce the risk of fraud and ensure payments are made quickly and securely. Because blockchain records cannot be falsified or tampered with, settling payments with crypto creates an environment where payments cannot be fabricated or manipulated. The same goes for blockchain-based ownership records – they cannot be changed without the consent of the entire network on which they exist.
Decentralization can offer great benefits to auction houses, now and in the future
It has been said that “software is eating the world” and that “decentralization is eating software”.
There’s a reason decentralized technology is increasingly being adopted across industries. And just as banks, real estate markets, financial services, supply chains and other industries are increasingly moving into Web3, auction houses can benefit significantly from this technology.
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Jack Lu is the CEO of Bounce Finance, a decentralized auction technology platform that provides complete solutions for launching and executing a wide variety of auction types with seamless on-chain settlements.