Blockchain for Decentralized Identity — NFTs

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10 Jul 2022

An NFT is a digital asset, usually creative. It represents real-world assets like music, videos, or art. They are unique, where the ownership is provable and transferable. In Web3, NFTs are bought and sold online using cryptocurrencies on marketplaces like Opensea, Rarible, and Foundation.

Unfortunately, the popularity of NFTs has also seen a rise in fraudulent NFT transactions. According to Blockworks1, 50% of NFT holders have lost access to their NFTs. An NFT collector lost $2.7million in Bored Ape NFTs and derivatives2. Additionally, owner verification for NFT listings is challenging. Buyer protection seems lacking for those purchasing NFTs.

Some problems are:
1. When an artist uses a platform to create an NFT, their relationship to the NFT is tied to the platform where it is created.

2. There is no easy linkage between the artist and the artwork outside the platform. Instead, it is linked to a non-human-readable id on a blockchain.

3. The NFT cannot be linked to the artist’s brand — website, social media, etc. Since artists work very hard over time to invest and build their brands, it is disappointing.

4. If the platform disappears one day, the creator’s identity and information about it linked to the artwork will be lost.

How is Self-sovereign identity (SSI explained in the first blog) enabled for NFTs? In the NFT world, DIDs (decentralized identifiers) are IIDs (Interchain Identifiers) originally designed for Cosmos4 on-chain assets and applicable for any blockchain (see the third blog on blockchains). IIDs have linked resources and accorded rights in addition to all properties of DIDs (see the third blog on DIDs). Linked resources allow the NFT’s IID to link a downloadable or referenceable image to the NFT or an associated asset. It abides by SSI principles respecting privacy and helps identify and verify proof. Accorded rights are specified privileges to the asset owner. No intellectual property rights are needed. It enables derivative, bundled, and delegated (without transfer) rights for the NFT. These travel with ownership of the NFT. Digital Wallets (explained in the fourth blog) store NFTs.

The NFT has built-in digital authentication with an IID, which proves ownership. Each NFT has a digital signature with exclusive ownership rights. The creator can store specific information in an NFT’s metadata — like a signature. When artists and content creators create NFTs, they can program royalties such that each time it sells, they get a percentage of the sale. Buyers can prove they own it, secure and store it in a digital wallet, and resell it with a public transaction record.

Upon creating an NFT, the artist creates a DID/IID — their identity in web 3.0. In addition, it is linked to their social identity, website, and other data if desired. With the DID/IID, the artist can carry the NFT beyond the platform. The NFT with DID/IID is linked to the artist’s identity and brand.

Some capabilities of the IID6 (Interchain Identifiers) include:
1. The IID enables identifying on-chain NFT tokens on any chain, network, or fork to precisely interpret the asset. In addition, the IID method defines the CRUD (create, read, update, delete) for any VDR (verifiable data registry).

2. NFTs sometimes refer to real-world assets, for example, property titles. Linked resources within an IID help link it with a digitally verifiable asset or certification.

3. IIDs are chain agnostic. It allows cross-chain operations or transactions where one NFT on a given chain can be referenced from a dApp (decentralized application) on another chain. It introduces multi-chain transactions.

4. IIDs are usable for verifiable credentials (VCs), online or offline. (Refer to an earlier post on verifiable credentials).

5. IIDs support both public and private assertions. IIDs are like verifiable credentials on a public blockchain with a linked resource for public statements. The DID Doc points to the linked resource available for download (Refer to the third blog for a description of DID Doc). The private VCs may be listed with an IID, but the DID Doc is not accessible. The IID is a hash, and its provability is within the linked resources not available publicly. It is privately created, communicated, and signed cryptographically.

6. Art NFTs need a certificate of authenticity so that buyers can verify it before purchase. This data is not on-chain supporting GDPR (General Data Protection Regulation). However, linked resources provide disclosures and terms associated with the NFT in the DID Doc.
7. Before minting an NFT, it can be signed using linked resources. It is supported by some DID methods that introduced the offline creation of identifiers. Then, minting is from a signed transaction.

8. IIDs, just like DIDs, implement SSI principles (see first blog post) compatible with digital wallets (see fourth blog post). Individuals manage their IIDs with public/private keys.
9. For storage, IIDs work with encrypted vaults and confidential storage. These require cryptographic authorizations with encryption and decryption. IID delegations allow access to these storage mechanisms.

10. IIDs have unique properties and are recognized as such. The method of the IID specifies the type of IID (methods explained in the third blog). In addition, the method specification describes how the method supports IID resolutions.

11. Using linked resources, IIDs represent associated metadata in various formats (for example, pdf, png), including rights and attributes.

12. IIDs use existing DID tools and infrastructure.
Ixo5 has an implementation of SSI for NFTs in the real world. The ixo is a Global Digital Immune system for earth and humanity. Its mission is to change the state of the world by building a sustainable and regenerative earth economy. It measures and verifies initiatives using impact tokens (see glossary). The ixo Protocol is a new standard for making verifiable impact claims about how organizations and people are changing the world using high-definition data as evidence. Trusted Anchors (refer to the sixth blog), also known as Prediction Oracle Service providers, oversee claims. They independently verify claims and issue impact certifications. These digital tokens replace Renewable Energy Certificates.

Impact producers like organizations use their credentials (certified data and proofs) to mint impact tokens as NFTs. The impact tokens map the verifiable earth state to the chain. Ixo applies DIDs for NFTs for the Cosmos4 ecosystem. Growing impact marketplaces supported by relayers who host the blockchain nodes provide incentives to stakeholders for building products and services. In March 2022, the S.E.C. (Securities and Exchange Commission in the USA) gave initial approval to corporate disclosure rules on climate risks. Impact tokens will play a role in the standardization, tracking, and monitoring of risks for investors and governance bodies.

The benefits of using IIDs/DIDs for NFTs include:
1. The creator claims creative rights to the NFT for its lifetime — even if it exchanges ownership multiple times

2. The NFT has its origins with strong authorship that spans beyond one platform

3. Future creations by the artist are also linked to the DID/IID in web3, allowing artists to build their brand

4. After numerous exchanges of ownership, fans, and collectors can trace its authenticity back to the creator

5. Respects GDPR (General Data Protection Regulation) and privacy

6. IID has linked resources that connect to an image with properties

7. Buyers of NFTs can verify the authenticity of their purchase in advance

Adoption of decentralized identifiers in the NFT world will take time. However, the whole lifecycle of the NFT from creation, sale, purchase, storage, and resale will undoubtedly benefit from self-sovereign identity.

I will cover a dApp for Travel in the next post.

Glossary

Cosmos
An internet of blockchains. It is an ecosystem of decentralized apps and services for Web3. They connect using an Inter-Blockchain Communication (IBC) protocol. It facilitates the exchange of assets across blockchains.

DID (Decentralized Identifier)
Like a Uniform Resource Name, a globally unique identifier that somebody can universally discover a DID on a blockchain using a method. A DID is an interoperable, open-sourced web standard delivered by the W3C2. Each DID is associated with only one DID document.

DDO (A DID Document)
The DID document holds the description of the DID, the public key for verification, a set of authentication protocols, service endpoints, a timestamp, and a signature.

Digital Wallet
A digital wallet is software used to digitally store (usually in a smartphone) the contents of a wallet, like IDs, loyalty cards, and financial instruments used for payments. In essence, it is a digital version of a physical wallet.

Entity
A person, organization, or thing

ERC-721
An open standard created by William Entriken, Dieter Shirley, Jacob Evans, and Nastassia Sachs describes how to build Non-Fungible tokens on EVM (Ethereum Virtual Machine) compatible blockchains. The ERC-721 has a standard interface for Non-Fungible tokens with a set of rules which make it easy to work with NFTs.

Holder
An identity owner and user of a Digital Wallet where their credentials are accepted, stored and controlled using verifiable credentials. The holder approves attestation requests from verifiers and delivers the same.

IID (Interchain Identifiers)
Like a DID, the interchain identifier is for NFTs with similar properties and additional ones like linked resources and accorded rights.

Impact Tokens
Impact tokens are NFTs representing a verified outcome state in the real world that humankind cares about and that people will work towards and invest resources. The tokens are used for capital allocations, financial transactions, public sector funding, and products. They are valuable, tradeable, non-fungible digital assets.

Issuer
An issuer is a credible provider of identification documents; their signature (key) attests to the credentials’ validity. Governed by Governing Bodies or Trusted Anchors, issuers can belong to an ecosystem of trusted entities that issue documents/credentials with claims data. Issuers have the infrastructure to access a public blockchain to issue and revoke credentials. The schema and their definition of credentials are on the blockchain.

NFT (Non-fungible token)
An NFT is a digital asset bought and sold online using cryptocurrencies. It represents real-world assets like music, videos, or art.

Private Key
A private key is stored cryptographically in the digital wallet of the entity (holder) in the decentralized identity ecosystem. As the name implies, it is personal for the identity owner.

Presentation or Proof
The proof attests a claim or compound claims from the holder to the verifier to prove some form of identification to complete a transaction. All are achieved without making contact with the issuer.

Public Key
A public key is a cryptographic key stored on the blockchain visible to others. It identifies the identity of an entity. Along with the private key, the public key can read encrypted messages for the entity.

Self-Sovereign Identity (SSI):
A decentralized way to manage the identity of an entity is built on the principles of transparency, interoperability, portability, and consent from the owner who controls what they own, know and have.

Smart Contract:
A program on the blockchain network; executes transactions within certain parameters. For example, a smart contract within a token NFT can receive royalties each time it is sold.