Auctions.Cash is a Penny Auction site that exclusively uses Bitcoin Cash. Users can spend a small amount of Cash to make bids on items available for auction. The winner often wins the item for a small fraction of the MSRP, but the funds earned through the bid fees makes up the difference and generates profit for the operating site.
Penny Auction sites have been a fixture on the internet for over a decade, with the first big site Swoppo starting in 2008. The biggest companies still active in the space are Quibids and HappyBidDay. Penny Auction sites have been described as 'having a license to print money', but several have failed. Historically the failures are because they got caught scamming customers, they faced expensive regulatory interference, high payment processing costs, or just failed because of high operating costs or other basic business mistakes.
There has never been a penny auction site that accepted Cryptocurrency, let alone one that accepted one exclusively. The Bitcoin Cash ecosystem is vibrant and has many enthusiastic users who are just looking for opportunities to spend their BCH. Additionally, while Penny Auction sites are sometimes viewed more as gambling than games of skill, Bitcoin Cash users traditionally enjoy gambling.
Penny Auction sites are often viewed as gambling because of the irrational nature of the bidders. Once you've bid on something a few times, you now have a vested financial interest in that product, a product someone else could end up winning, rendering your investment moot. This often leads to irrational decision making -- something called the endowment effect, which has even been observed in chimpanzees. So instead of doing the rational thing and walking away from a bad investment, bidders pour more money in, sending more money attempting to make their initial investment pay off.
There is not a lot of publicly available information about Penny Auction site finances, since most of them were private ventures. MadBid, one site that published financial figures during a Series A round, indicated that in their first year they generated £2.5 million, but their operating costs were not disclosed. By their fourth year, they were turning over £20 million.
It's not hard to see where the generated funds come from. By requiring fees to make bids, each auction often generates a 300% profit. The danger to the bottom line is the cost of marketing, with some sites paying huge amounts of money for broadcast commercials with endorsements from celebrities like Lindsey Lohan. Auctions.Cash will be able to have a lower marketing figure since advertising can focus on the niche Bitcoin Cash community rather than having to market to the general public.
Ownership & Use of Funds
Auctions.Cash is owned solely by a single individual. With investment money, a few contract workers might be hired to speed up development and provide 24/7 support. An Angel Investor at this pre-revenue stage would receive an ownership share as well as a weekly disbursement of profit share. The amount of the ownership and profit share depends on the amount of the initial investment.
Additionally, for legal protection, investor funds will be used to form a corporation in a friendly jurisdiction like Malta or Panama.
It is believed that the site can be operational by Thanksgiving with the support of an investor, with the goal of running during the holiday gift shopping season. Some operational constants such as the ideal amount of time to bump auction deadlines each bid, as well as the cost of bids, can be determined during the soft launch, and slowly tweaked until the ideal constants are found.
Until the proper constants are discovered, and because of the marketing costs, the first few months might not have a significant profit. Historically the use of BCH decreases in the summer due to various reasons, and when the Bitcoin Cash market takes a turn for the worse, people often use their BCH less with the hope that it'll increase in value again. Conversely, when the value of BCH increases, people often feel free to spend their Bitcoin Cash liberally.
Because of these development delays, and development and marketing costs, as well as the time required for the site to become a fixture in the community, it's not unreasonable to expect the site to take as long as 6 months until it's making a significant profit.
The site will operate with a backend database and redis server, with a front-end server in North America and in Europe. There will be a VPS that operates the support and status sites.
Static assets are cached by BunnyCDN and Cloudflare, the site itself is protected by Cloudflare, and a third-party message queue service will be used to prevent exposure of the server IP addresses.
Email messages will be sent by a third-party email notification service to ensure that they are delivered properly
Customer Bitcoin Cash deposit addresses are generated in advance and the site only contains a public key. No private key will ever be stored on the infrastructure