Novel Applications for Ethereum ERC-721 Non-Fungible Tokens

Bill R Weber
Cyber Security Sector Manager MIT Lincoln Laboratory
October 2020

Since the introduction of blockchain technology, several of the key applications have been in creating digital currency. Understandable as the key features of non-repudiation and distributed ledger are both desirable aspects of a monetary system. However, as the technology develops, new potential emerges. This paper evaluates potential uses of Non-Fungible Tokens as outlined in ERC-721 of the Ethereum standard to create use cases that are not purely monetary in nature, but represent an open future for transparency and rights management. In the first case, we evaluate the potential for a pseudo anonymizing function supporting transparent non-profit donations. In the second case, we look at the potential for creating an open standard for digital rights management and privacy using cloud storage. In the last use case, we present a new ontology for managing contextual relationships on a global scale. Each of these ideas on their own may merit further discussion and research. The intent here is not to treat each use case as a full treatment of such research, but rather to provoke a conversation about potential novel uses for non-fungible tokens in Ethereum as a non-monetary application of the technology.

Decentralized; Blockchain; Ethereum; Non-Fungible Tokens; ERC-721; EIP-721; CryptoKitties

Ethereum was introduced as a concept in the evolution of blockchain technology in 2013 by Vitalik Buterin (Buterin, 2013); the concept of blockchain in the service of cryptocurrency being popularized and substantively set forth by Satoshi Nakamoto (Nakamoto, 2009). In these seminal works, the concept of an immutable and distributed public ledger is introduced. Where Bitcoin (Bitcoin Project, 2009) focused on this primarily as a means to create a monetary system, Ethereum (Ethereum Foundation, 2020) created a more suitable platform for decentralized applications using blockchain technology.
In 2008, William Entriken introduced a comment and eventually a proposed change to the Ethereum Standard referred to as ERC-721 (EIP-721) (William Entriken, 2018). In this proposal, Entriken presents the concept that Ethereum tokens which inherently contain non-fungible bits of code referred to as smart contracts and therefore can be used to track the ownership of assets by extending the Ethereum specification. In essence, the ownership of a specific non-fungible token can serve as an indicator of ownership of property (positive value) and obligations (negative value) through the development of Ethereum based smart contracts and functionality to transfer ownership of these tokens via the Ethereum Blockchain.
The exploration of these ideas was codified in 2017 at the ETHWaterloo conference (ETHWaterloo, 2020)in the form of CryptoKitties (CryptoKitties, 2017). This novel application created both an implementation of the ERC-721 specification and a self-morphing non-fungible token.
A key concept in this field is the decentralized nature of the ledger, thus allowing for the development of decentralized trading. Specifically, a DEX or Decentralized Peer-to-Peer token exchange allows for users to directly exchange tokens and the reconciliation to occur directly on the blockchain. This is fundamental to the concept that token exchange does not require a centralized liquidator or clearing house in order to create a functioning system. In this way, the trust in the system is transferred to the protocol over the institution.
For our purposes, this plays a partial role in the novel use of non-fungible tokens because it minimally creates transparency in the ability to publicly audit all transactions and secondarily it creates survivability should a stakeholder in the transaction fail to survive. We’ll explore both of these ideas and see that while a full implementation can be desirable, it is not a requirement for the value of either of these capabilities to be mutually present.
Our first use case is a hypothetical non-profit called ‘HowIHelp’ (HIH) (Weber, How I Help, 2017). HIH is a theoretical concept of a not-for-profit foundation that creates a decentralized finance (DeFi) decentralized application (DApp) based on the Ethereum Smart Contract concept. In it, users identify not-for-profit organizations that they would like to benefit through a monetary contribution. They deposit these funds into an account on the DApp platform and select their benefiting organization. The platform then allocates this money to the organization through a cryptocurrency transfer. This is desirable to the donor in that it creates a pseudo-anonymizing function whereby they obscure their identity to the beneficiary, thus shielding them from solicitation; while creating forward looking transparency in that they can publicly track their contribution to ensure that it went where they anticipated. Unrelated to the blockchain application of this platform, the DApp also serves the interest of the donor and beneficiary by creating an application to bundle, target, and increase donations to participating not-for-profit organizations. The basic concept at play here for cryptocurrency is a decentralized finance / decentralized application platform providing fungible token transfer with a value add application. There is a corollary to this use case called ‘HowIVote’ (HIV) (Weber, How I Vote, 2017) which extends this concept to a political action committee concept.
Our second use case is a more traditional ERC-721 function whereby content creators can use decentralized applications to create entitlements to assets that can be transferred from peer to peer directly. The use case is a electronic book seller where they sell the rights to a user to their content. The traditional modality would be for the ebook purveyor to maintain the original content and to send serialized versions of this content to the licensee of the content upon request. This model creates significant issues in the proprietary nature of this transaction. For example, the purveyor of the content may or may not provide transparency or functionality as to the rights purchased by the buyer. A negative example of this concept is depicted by Amazon Kindle Store Terms of Use (Amazon, 2020) and Conditions of Use (Amazon, 2020) which state that content or ‘service’ purchased from Amazon is “limited, non-exclusive, non-transferable, non-sublicensable license to access and make personal and non-commercial use”. This is addressed in the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) (Uniform Law Commission, 2015) which partially adopted at the state level in the United States allows for fiduciary access to digital assets in some cases. While a state law, it is nether uniform nor comprehensive in reforming the terms of service enforced by content providers. Specifically missing in this act is the transferability of assets. Further complicating this is the Digital Millennium Copyright Act (DMCA) (United States Copyright Office, 1998) which proscribes limits on any effort to “circumvent of effective technological measures that are used by authors in connection with the exercise of their rights”. Creating reform of digital rights to the transferability of assets is largely a function of the technology being able to provide a common and fair platform which the market can prefer and therefore drive content providers toward. In summary, this use case provides for gatekeepers of digital content to use a blockchain for the transfer of non-fungible tokens as a methods for the movement of digital rights from a license holder to a fiduciary or transferee as a fair use of the digital asset.
The third use case is a variant of the second that focuses on the public storage of protected content in a repository. This use is fundamentally different in its application because it’s focus is on the creation of an object orientated internet referred to hypothetically as a Shared Object Network (SON) (Weber, Shared Object Networking and IPFS, 2017). In this model, the current internet methodology is augmented by moving to an object model which allows for the creation of context between objects that can be ‘surfed’ much in the same way as the current internet, but rather than using a salt mine search like Google, it would provide a contextualized object reference model between relevant topics. The importance of blockchain and non-fungible tokens in this context is that objects maintain both public metadata and private content. The public metadata allows for the creation of object context. The private content is then governed by a digital rights management concept which provides for the encryption and decryption of the object content through transferable and complete control over the objects while allowing it to be mutable. This use case details how digital rights management can be applied to private objects allowing them to be publicly stored and consumed; thus creating the ability for content holders to move their private or managed content into cloud based public storage.

[More To Come]

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