What is Auction?
Let's find out Auction meaning, definition in crypto, what is Auction, and all other detailed facts.
An auction is a sale event that occurs live, in person or online. Participants aim to purchase goods or property through the means of bidding.
The parties involved in an auction are the auctioneer who is in charge of the bidding process and the bidders who aim to purchase the property on display. When the asset or commodity is first presented at the auction, the auctioneer opens the floor with a set opening bid, which is the lowest amount possible to pay.
After the opening bid is set, interested parties can bid higher prices until no one offers a higher bid. The highest bidder is declared the winner of the auction and receives ownership of the asset. The more bidders take part in an auction, the higher the chances are of competitive bidding with larger sums offered for the asset.
Auctions have a long history, dating back to Ancient Greece. While the format has evolved over time, some fundamentals have stayed unchanged. At the start of the event, the bidders can preview the assets on sale and determine if they wish to purchase them. Typically, bidders receive individual bidding cards upon registration.
Dutch auctions are a format of auctioning where the bidding happens in reverse order. The opening bid is set at a high price. The auctioneer calls a progressively lower price until one of the participants accepts the price or, in some cases, until it reaches a predetermined limit, also known as the reserve price.
Some auctions, known as electronic auctions or e-auctions, occur on digital platforms, where users post images of an item on sale, and bidders can submit their offers online. These platforms allow users to set a time limit for the auction. Once the auction time limit expires, the highest bidder is able to pay for the item.
Electronic auctions are typically centralized. They may contain security vulnerabilities that can be exploited by malicious parties. Decentralized, blockchain-based e-auctions offer a higher level of security, and the auction process is more efficient.
Digital platforms allow for opportunities to auction cryptocurrencies and other blockchain-based assets. During auctions, cryptocurrencies are typically sold at a lower rate than the market price. Crypto assets that are auctioned off are usually reclaimed from criminal cases.
At the start of the auctioning period, investors must register and input their bids. The winning bidder has to pay for the asset within a specific time period. In order to receive the auctioned assets, bidders must hold a digital wallet. In many cases, they have to cover the transaction costs to have the asset deployed in their wallets.
Auctions for non-fungible tokens (NFTs) are becoming increasingly popular. They function similarly to other digital auctions, with a set bidding period and the reward going to the highest offer. The winners receive the NFTs in their digital wallets.
Some NFT auctions involve physical items. In these cases, the auctioneer may keep the physical item but the NFT serves as the ownership proof for the highest bidder.
During blockchain-based e-auctions, the data of the event is recorded on the blockchain. If any changes occur to the auction data, they have to be verified using a cryptographic digital signature. The public blockchain receives the digital signature for backup.
The digital signature changes any time the data on the blockchain is altered. This allows the auction data to remain transparent and accessible to anyone who wants to inspect it. The mechanism of altering the digital signature with each change keeps the auction data secure from hacking or fraud attempts.