Scarce City

Scarce City: A Transparent Marketplace

Abstract. Scarce City (SC) associates each item with a Bitcoin address and displays each transaction to a publicly displayed, permanent Arweave ledger so that customers can verify the supply and authenticity of merchandise. The resulting transparency enables SC to help brand partners earn the maximum reward for their work and incentivize their community members to become loyal customers and brand ambassadors.

1. Introduction

The authenticity and supply of physical merchandise rely on brand trust. Brands that assign value to the limited supply of their merchandise make no effort to communicate the supply of their merchandise. Serial numbers are useful for tracking internal inventory but they cannot be used to prove merchandise supply because they are subject to counterfeit. Impractical methods for verifying the authenticity of merchandise results in a proliferation of counterfeit goods.

Conversely, decentralized networks like Bitcoin align the incentives of stakeholders (developers, miners, investors) through transparency. Instead of relying on trust, anyone can verify transactions and blocks conform with the network’s consensus rules. As a result, stakeholders are more compelled to invest their resources to benefit from the network’s profit opportunities.

A marketplace for physical merchandise can use the transparency of decentralized networks to reward brand partners and customers. SC utilizes the public address/private key cryptography of Bitcoin in combination with Arweave’s permanent web in a “proof-of-print” system that allows customers to verify merchandise supply and authenticity. The resulting transparency enables a marketplace that allows brand partners to earn the maximum reward for their work and incentivizes customers to invest their resources into the brand's growth.

Finally, by executing payments through Bitcoin, SC aligns with the decentralized network principle of respecting user privacy. Aside from a mailing address, SC does not require personal information from customers.

2. Proof-of-Print

The following proof-of-print system associates each SC item with a Bitcoin wallet and displays transactions to a public Arweave ledger.

  1. The customer selects an item to purchase.
  2. The customer is prompted to input a unique Bitcoin address (UBPA) with their transaction details.
  3. The customer purchases an item through a Bitcoin (or Lightning) transaction.
  4. The UBPA is added to a permanent ledger publicly displayed on SC’s website and Arweave’s blockchain. The total supply of the item is updated to reflect the transaction.
  5. The UBPA is printed on the item and the item is delivered to the customer.

The customer can see their UBPA on the public ledger to verify their item is accounted for in the item’s total supply and prove their item is authentic by signing a message with their UBPA private key.

3. Non Fungible Tokens (NFTs) on Bitcoin

NFTs can be paired with SC physical goods by sending a Bitcoin NFT to the customer UBPA. SC currently has the ability to pair each physical good with a Counterparty NFT.

RGB is an alternative Bitcoin NFT solution currently in development. SC plans to be one of the first marketplaces to issue RGB NFTs as soon as the technology is ready.

The supply of NFTs can be locked which therefore locks the supply of the paired physical goods by association.

4. Customers Benefit in a Transparent System

The transparency of merchandise supply and authenticity enabled by the proof-of-print system allows customers to immediately benefit from dynamic pricing, customer revenue sharing, and secondary markets. We believe this is just the beginning.

Dynamic Pricing

With transparent merchandise supply, items can be priced based on the number of units sold.

Brand partners can maximize their earnings by pricing their first edition items higher e.g., the first shirt is sold for $50 and the price decreases as additional shirts are made available for sale.

Dynamic pricing can also work to the benefit of early customers when an item’s first units sold are priced lower than future units e.g, the first 5 t-shirts are sold for $20 each and the next 5 t-shirts are sold for $25 each. Customers are rewarded with lower prices by buying early.

Dynamic pricing based on units sold is only possible with transparency into units sold.

Customer Revenue Sharing

SC customers can receive a share of their item’s future sales revenue. For example, 10% of an item’s sales revenue can be distributed to previous buyers of the item. Early customers are rewarded with the potential to receive a greater amount of future sales revenue. Once they purchase an item, they’re also incentivized to encourage others to buy the item. To enable this system, customers must have transparency into an item’s sales volume so they can audit the amount of proceeds they receive.

Secondary Markets

Transparent merchandise supply and locked NFT supply enable an item’s total supply to be capped. For example, a maximum of 30 units of a specific t-shirt could be available for sale.

When the number of units sold reaches the item’s total supply cap, SC’s secondary marketplace matches customers with prospective buyers.

Customers of capped supply items benefit from the option to re-sell their merchandise at a potential profit. Brand partners also benefit by receiving 10% of any secondary market sales of their merchandise.

While secondary markets exist for traditional, supply constrained physical merchandise, they rely on the trust of the merchandise brand to not produce more units and are vulnerable to counterfeit goods. Transparency into supply and the ability to prove merchandise authenticity removes these market inefficiencies.

5. A Payment Channel with Every Customer

The association of each item to a UBPA makes the distribution of sales revenue to customers easy, low-cost, anonymous, and transparent. Beyond explicitly sharing revenue, merchandise brands can distribute bitcoin to customer addresses for other creative purposes.

Bitcoin wallets come with risks. Customers could lose their private keys and thereby, the ability to authenticate their merchandise as well as access bitcoin stored on the wallet. There is also risk of customers compromising their privacy and the privacy of others by reusing the UBPA associated with their merchandise for other purposes. To mitigate these risks, SC will aggressively communicate the importance of securing private keys and not reusing UBPAs associated with SC merchandise.

6. Brand Partners Benefit from SC’s Transparent Marketplace

SC brings the benefits of verifiable supply and authenticity to creators, influencers, and organizations. These merchandise partners produce and guide merchandise designs and have the option to manufacture the merchandise while SC integrates the proof-of-print system into merchandise sales. SC’s transparent marketplace enables merchandise partners to maximize their earnings and incentivize their community members to become loyal customers and brand ambassadors.

7. Inhibiting Counterfeit Goods

SC inhibits the production and distribution of counterfeit goods through the following mechanisms.

Fake Public Address

A fake-customer could counterfeit the production of an item with a UBPA from the public ledger however, they would not have the corresponding private key to prove ownership of the UBPA through a signed message.

False Purchase Claims

A fake-customer could counterfeit the production of an item with their own address/key pair, claim to have made a purchase through the platform, and accuse the platform of failing to post the UBPA to the public ledger.

The scenario is not possible since customer UBPAs are added to Arweave’s permanent ledger automatically upon payment confirmation.

Compromised Keys

Customers generate and maintain complete control of the private key associated with their merchandise UBPA. Under no circumstance should it be exposed to SC or any other entity.

8. SC is Disincentivized from Artificially Inflating Supply

While the proof-of-print system ensures that all purchased t-shirts are accounted for in the t-shirt’s total supply, SC could artificially inflate supply by adding arbitrary orders and addresses to the ledger or creating fake purchase transactions. Therefore, it’s critical for SC to be disincentivized from such actions.

Because SC is a marketplace that sells merchandise on behalf of its brand partners, revenue is shared between SC, the partner, and potentially, customers. Sold goods result in a SC liability to partners and customers, therefore, the platform would lose money by artificially inflating merchandise supply.

9. Conclusion

SC integrates a system of transparent supply and proveable authenticity with a marketplace for physical merchandise. By associating each item with a unique Bitcoin public address (UBPA) and displaying each transaction in a permanent Arweave ledger, customers can verify their merchandise is accounted for in the item’s total supply and prove its authenticity by signing a message with their UBPA private key. The resulting transparency enables SC to help brand partners maximize their earnings and incentivize their community members to become loyal customers and brand ambassadors.

10. References

[1] S. Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System”, https://bitcoin.org/bitcoin.pdf, 2008.

[2] S. Williams & W. Jones, “Arweave Lightpaper”, https://www.arweave.org/files/arweave-lightpaper.pdf, 2018.

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