Creating a safe Deposit Bank with Smart Contracts and Blockchain
Blockchain and smart contracts have been criticized for not having any real utility or use case. In my opinion, this conclusion is far from the truth since they view the industry on a microscopic scale. Since smart contract platforms are relatively new, we can assume that most developers are new to the space and focus on completing the basics therefore we have not reached the state where weak useless projects die and only the best projects survive. But I expect the best projects to show out during the 12 to 24-month recession that is coming soon.
In this article, I will go through one of the most exciting proofs of concepts for connecting the blockchain to real-life applications and show how smart contracts make the concept more efficient.
Deposit Banks
Most people hold dear to their hearts a certain possession as an investment or a souvenir. That object could be a gold bar, a Rolex watch, or just a necklace passed down from older generations. Many store these possessions in a safe at home, or maybe even in one of their closet’s drawers. If they ever want to sell or give away the object, they would need to go through multiple steps:
Unlock the safe, and hold the object.
Meet the person, that needs to be trusted in a trusted location.
Exchange the money for the object in an orderly and safe fashion.
As we can see there are 3 vectors of attack that could pose a security issue for the user. The more expensive the object, the higher the incentive for malicious parties to try to intercept or steal the object. This is why deposit banks were created, to store the object safely, hopefully with the top security measures taken to secure your objects for a certain yearly fee.
Unfortunately, this only solves one of the three vectors of attacks possible. When wanting to transfer and sell the object directly, there is still attacks possible.
This is where blockchain comes into play. What if there was no need to even get the object out of the safe to sell it or transfer it, what if it could be sold and verified online, without any party needing to trust the other one?
How Does it Work?
So the idea may seem interesting to you, but how would that work? Let me explain.
Our goal is not to make the idea fully decentralized, or to completely remove third parties, but to make it more efficient and secure. Third parties protecting the objects and insuring them is still a good idea sometimes.
First of all, a person holding a valuable object that would like to store it will need to visit the deposit bank’s website and register an order to store the object. Then the bank would send employees (more secure) or the user would visit the bank with the object to complete the initial screening process:
The object would be scanned in 3D and taken pictures from all sides and the images would be uploaded to an IPFS storage.
If the object needs to be validated for authenticity, a serial number (or whatever validates it) needs to be shared and also uploaded to an IPFS storage.
A contract agreement is signed that the object has been deposited, and all other details, stating that the owner is the owner of a certain key in a digital wallet.
An NFT is created of the object linked to the IPFS images of its 3D model and 360-degree images and the contract. The NFT also has as metadata the serial number and all of its dimensions and data.
The NFT uploaded the blockchain and now contains its ID. The NFT is transferred to the owner’s wallet.
The object is placed in a box with a QR code stamped to it representing the NFT ID on the blockchain.
The object is stored in a safe at the facility that can only be unlocked by scanning a QR code with the owner’s wallet.
Now, the owner can return home and can access their personal belongings anytime using their wallet.
One day, if the owner would like to sell their possession, they would be able to directly sell it for cryptocurrency on any NFT marketplace, without any risk. As soon as the money is received, the NFT would be transferred to the new owner, and then the new owner would be able to access the object from the bank whenever they wish.
The purchase can be done safely online, and the person wanting to buy the object has all the views needed to decide on the condition and whether this is what they are looking for.
Business Model
To be able for this model to work, there needs to be a certain revenue stream for the company to secure all the objects. We assume that the company is already established, whether as a bank or security deposit company, and wants to expand on the blockchain.
The company can charge a certain annual or monthly fee based on the value and size of the object for its storage. The company can also directly earn royalty from any sale or transfer of the object online. This is a scalable and profitable business model since many clients will not mind paying a fee for the complete security of their objects.
For example, a company can charge 2% of the estimated value of the object (so 2,000 USD yearly for a 100,000 USD watch), and 5% of the total value sold of the object.
We can easily see how a 1M USD revenue can be achieved pretty easily with a total storage value of 50M USD. The costs for an already established company will also not be high, therefore the company can expect an extremely good profit margin.
Software Needed
A company that is willing to start this business will basically need software that takes as input all the data stated above and generate a QR code to be stamped to a box containing that object. The object is then added to the safe with a scanner that verifies that the QR code is valid and the object is available in the safe. As soon as the object is removed from the safe for any reason, the NFT is burned and cannot be sold or transferred.
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