Author: Robert Mao (Chief Architect and CEO of ArcBlock)
NFT has gone through a long process to become a "new thing".#
Although NFT (Non-Fungible Token) has only recently "caught fire", NFT is not actually a new concept. As early as the "Colored Coin" era, similar early uses and attempts of NFT have begun. Through the "Colored Coin" technology, people have issued new assets on the Bitcoin network, generated records similar to equity certificates, and some geeks have stored images and other information in Bitcoin data. All these can be seen as the embryonic form of NFT in the "ancient" era.
As early as 2017 when the ArcBlock project was just forming, the project CryptoKitties, which was the first to truly bring NFTs into the public eye, caused serious congestion on the Ethereum network. On one hand, people were amazed that a simple "crypto game" that existed between cartoon collecting and nurturing games could generate such high interest. On the other hand, people were even more surprised that Ethereum, which aspired to become the "world's computer," could be so severely impacted, with its performance slowed down to an almost unusable state by a simple game. It was due to the impact of CryptoKitties on Ethereum that at the end of 2017, the ArcBlock Whitepaper we released highlighted the prevalent issues in the blockchain industry and used CryptoKitties as an example to illustrate one of the problems that ArcBlock platform strives to solve.
OpenSea, established in 2017, has recently become very popular alongside the craze for NFTs, and has emerged as the largest NFT trading platform to date, but in fact they have been quietly working in the NFT trading field for a long time. I really like the name that OpenSea has given itself, symbolizing that NFTs embody infinite possibilities and infinite inclusivity like the vastness of the stars and the sea.
Any innovative technology, from its initial appearance, to iterative upgrades, to the point where it starts to "amaze" or "shine" to the public, often takes many years. If we calculate from the era of dye coins, NFT has been around for 8 years, even if we count from the first mainstream entry of CryptoKitties, it is already the 5th year. NFT is a comprehensive technology and product, still in the early stages of exploration and innovation, and will see rapid leaps in development in the future.
What is the relationship between NFT and decentralized applications, as well as the popular Web3.0 ecosystem?#
The application scenarios of NFT are far more than just digital artworks and collectibles, in fact, it has infinite possibilities.
Friends familiar with ArcBlock know that the Developer conference we held last year already used NFTs as conference tickets, and distributed badges for various activities and hacker marathon awards using NFTs. At DevCon 2020, we also demonstrated the possibility of using NFTs for various applications, including exchanging them for our signed physical book "Blockchain Battle: From Technological Innovation to Business Models".
Apart from practicality, our NFT badges are also multi-layered art pieces generated by digital artists using hash calculation methods. Each person's commemorative badge is unique, and the hacker marathon commemorative badge is not only unique, but also can be combined with multiple ones. Our DevCon 2021 held in June this year will also showcase more forms of NFT applications.
The application scenarios of NFT are far more than just this. In ArcBlock's design, users' accounts and data on services, ownership of a node or software, software copyrights and licensing, etc., are all NFTs. Our design combines decentralized identity (DID), verifiable credentials (VC), and NFT together to form powerful application capabilities, which can model a large number of things and application processes in the real world, allowing blockchain to better address more practical problems.
We have always believed that most of the applications of blockchain are essentially applications of Token (NFT and FT, or their combinations). Without Token, blockchain will lose a lot of its meaning. Fortunately, the concept of "coinless blockchain" has recently been ignored by almost everyone, and the era of prosperity brought by Token applications is about to come.
In the concept of decentralized applications (DApps) and the increasingly popular Web 3.0, decentralized identity, user-controlled data, and decentralized service deployment are key technologies for realizing the vision of decentralization, and NFTs are a very suitable mechanism for implementing these technological details. Our recently published article "The Great Experiment of NFT: The Ownership of Digital Assets Has Only Just Begun" points out that NFTs make it feasible and standardized for blockchain to intervene in real-world ownership and verification, and interested readers can learn more from there.
Does NFT exist entirely on the blockchain?#
Many people may not realize when they come into contact with NFTs that although some of the data is on the chain today, most of the implemented data is off-chain.
The current NFTs are actually mostly designed as two parts, on-chain and off-chain. The off-chain part is often the data of the NFT, while the on-chain part on Ethereum is usually only used to record the ownership of the NFT. Although some early NFTs like CryptoPunk attempted to put all data on the blockchain, the current best practice is to store the data off-chain and only put limited information on-chain.
Some NFT platforms store data on distributed storage platforms like IPFS or Swarm (for example, CryptoKitties initially stored data on IPFS), while others are simply web links, using traditional internet data storage methods such as AWS S3 cloud services or on a web server (for example, the popular Nifty's NFT content is stored on their own web server). One risk of this approach is that if these companies or services cease to exist, even though the on-chain record indicates that you own a certain NFT, the data of these NFTs themselves will be lost. This is an early imperfect form of NFTs, and more and more people are beginning to realize this problem.
"Not on IPFS，Not your NFT"
As pioneers and explorers, ArcBlock has also gone through a process of technological evolution in NFT. Our earliest version of NFT design had data completely on-chain, so we limited the size of NFT data to not exceed 1M. This was more than enough for applications like certificates, badges, etc., but for digital artworks, it had to be able to expand off-chain. Therefore, in the 2021 new asset chain upgrade, we expanded the data format of NFT, following the standard practice of expanding Service Endpoint in the W3C specification. This allows our NFT to be controlled with maximum freedom by issuers, compatible with both on-chain and on-chain/off-chain collaborative methods. ArcBlock's support for user self-owned identities such as DID and MyData ensures a comprehensive solution to the data issues of NFT.
Can NFTs "interoperable" across chains?#
Since much of the NFT data is off-chain, the requirement for NFT on-chain data to "cross-chain" exists is a very realistic demand.
The current Ethereum ERC721 and ERC1155 protocols are similar to the ERC20 protocol, only defining compliant standardized interfaces. Any NFT only needs to deploy a smart contract on Ethereum and provide an interface that complies with ERC721 or 1155 to be recognized as an NFT in the Ethereum ecosystem. An NFT implemented on other blockchains or Layer 2 systems may directly join various Ethereum-based ecosystems if it supports the Ethereum ERC721 or ERC1155 interfaces. Currently, various Layer 2 solutions mainly focus on token and transfer issues, and I believe this will be a future direction in Layer 2 development.
Currently, the ownership recorded in the smart contract of Ethereum ERC721 and other NFTs is based on Ethereum addresses. This makes it difficult to record NFT ownership "cross-chain" between different chains that adopt different address systems. Even if the same address system is used, due to the fact that NFT ownership is recorded in the internal data structure of the ERC721 smart contract, difficulties in defining ownership will arise when ownership on different chains is inconsistent. I believe that to completely solve the cross-chain ownership of NFTs, one must adopt DID and verifiable certificates or similar technologies. This means that NFT ownership does not just come from the internal data of smart contracts, but from verifiable proofs using cryptography. Only then can true cross-chain existence of NFTs be achieved.
ArcBlock's NFT design is inherently "cross-chain". We have always believed that the "chain network" architecture is the future form of blockchain. NFTs can not only freely circulate between chains within ArcBlock's ABT Chain Network, but also exist as Ethereum's Layer 2, using Optimistic Rollup technology. Users can put ArcBlock's NFTs back on Ethereum as ERC721-compliant assets, thus joining Ethereum's ecosystem.
What is the relationship between NFTs and decentralized identity (DID) verifiable credentials (VC)?#
As mentioned earlier, using DID and VC to determine the ownership of NFTs can make cross-chain existence of NFTs feasible. Introducing DID in the blockchain is one of ArcBlock's innovations, and combining verifiable credentials with NFTs is also one of our innovations in the NFT field.
The current NFT ecosystem of Ethereum, although there are protocols and specifications such as ERC 721, these protocols only consider the Ethereum ecosystem itself without considering other environments. And the ERC721 protocol only defines the transaction interface specification of NFT, but does not make any agreement on the data format of NFT itself, resulting in various NFT formats currently being basically defined by each platform. Most practices are a JSON format Meta Data, with additional links to some external media files. One of the biggest problems with doing this is that "off-chain" NFT data can be copied and cannot be verified. The digital artwork you acquire at a cost of tens of thousands or even hundreds of thousands of dollars, the data pointed to on the chain is often something that anyone can accurately copy and download, and cannot verify the authenticity of the data. This is a huge gap between ideal and reality, contrary to the attributes of NFT that many people think are non-replicable, non-tamperable, and easy to verify.
Since 2019, ArcBlock has combined DID and verifiable certificates with NFTs starting from DID. First, we define the owner of NFT as DID, not a specific blockchain address. Based on this, we design the entire NFT as a verifiable certificate, and the verifiability of NFT includes all its data, including its media files, truly achieving the immutability, non-replicability, and verifiability of NFTs.
Can NFT and FT be combined with each other?#
NFT and FT (Fungible Token) are actually two complementary tokens, not black and white, but can be compatible with each other.
The design of smart contracts on Ethereum allows for a very clever combination and restructuring of NFTs and FTs. From this perspective, early token designs, even some so-called "Ethereum killers" in the blockchain space, lack this flexibility. This is because in Ethereum, there is no distinction between a smart contract and a regular account with a private key, meaning that an ERC721 smart contract itself can become the holder of other tokens (whether FTs or NFTs), and the control logic of the held tokens is determined by the smart contract itself. Similarly, an ERC20 smart contract can hold other tokens, allowing it to "split" the assets it holds. In the design of the famous decentralized exchange Uniswap V2, LP Tokens (liquidity provider tokens) are a type of FT that conforms to the ERC20 standard, where each trading pair contract itself holds two tokens used for trading, and those who input these tokens receive LP Tokens. The latest version, Uniswap V3, has switched to using NFTs to represent different positions of LP Tokens.
The combination of NFT and FT can bring a wide range of application forms, from gift cards with face value, lotteries, equity proofs, options, property certificates, income rights contracts, etc., can all be modeled using the combination of NFT and FT. ArcBlock's token design fully borrows the advantages and disadvantages of past systems, allowing users to easily create secure and easy-to-use FT and NFT without the need to write complex smart contracts, and can freely form nested combinations to describe very complex business requirements.
What is the relationship between NFT and DeFi?#
If DeFi (Decentralized Finance) is called "Money Lego", then NFT can be said to be "Lego of everything", without a doubt NFT can be organically combined with DeFi to form a multitude of innovative applications.
By utilizing the aforementioned NFT and FT together in this way, a common and powerful "nested loop" design pattern in computer science can be adopted to elegantly combine simple components into highly complex, powerful components. For example, a NFT can be designed to contain other Tokens (FT), making it easy to form applications such as equities, options, and the like. Moreover, (within the legal permission scope) NFTs can divide ownership rights into FTs through DAO (Decentralized Autonomous Organization), allowing a group of people to collectively own an indivisible physical asset, such as a timeshare villa property. The ownership rights of a villa property can be an NFT, and this NFT can be distributed through the establishment of a DAO organization using FTs, allowing for fractional usage rights and even profit distribution. By using similar methods, infinite combinations and divisions can be made, ushering in much more meaningful innovations for DeFi than the current "staking" and "yield farming" practices.
The latest version of Uniswap's product design has adopted NFT as its LP Token, instead of the previous ERC20 method. The previous design with ERC20 made "vampire attacks" by SushiSwap directly convenient, while using NFT can effectively prevent such problems from occurring.
The application combining NFT and DeFi, we expect a large number of innovations and shining stars will emerge in this field. It should be noted that in order for NFT to achieve development in the DeFi field, the data of NFT itself must be reliable, tamper-proof, and verifiable. This is why we believe that the combination with DID/VC is the necessary path for NFT to become a more rigorous application.
ArcBlock's NFT technology development roadmap#
From the very beginning of ArcBlock's establishment, we realized that NFT is an important form of Token. In ArcBlock's "programmable token" system, we have had a very clear positioning and planning for NFT tokens from the beginning. The protocol related to NFT on ArcBlock's blockchain is called the ABBA protocol (ArcBlock Blockchain Assets Protocol). Details of our practice with NFT can be found in the two books we wrote separately by "Blockchain Practical Combat: From Technological Innovation to Business Models" published by CITIC Publishing Group and "2020 Blockchain Roaming Guide" published by Posts and Telecommunications Press..
In ArcBlock's NFT implementation, we have introduced some very unique and innovative designs, including:
- NFT perfect combination of DID and VC: ArcBlock's NFT combines DID and VC technologies, so it has incomparable advantages in aspects such as off-chain data verification, tamper resistance, data portability, and self-sovereign data ownership. We believe this will be the general direction of NFT in the future. Our design conforms to the W3C DID specification, with good foresight and standard compatibility.
- The native capabilities of NFT minting and trading: Due to the significance of NFTs and FTs, we have incorporated token minting and atomic exchange between different tokens as native protocols in ArcBlock's asset chain design, unlike other blockchain platforms such as Ethereum that require support through deploying smart contracts. Additionally, recognizing the importance and universality of NFT transactions, we provide the foundation for NFT trading as a standard Blocklet Service, allowing developers to immediately mint their own tokens in their Dapps and achieve decentralized on-chain transactions without the need for independent development or reliance on third parties.
- The open economic agreement of the native ABT "fuel" mechanism: Within the ArcBlock system, we have completely unified the minting, storage, and other parts of the system like ABT nodes, Blocklets (cornerstone programs), etc. used by NFTs. In fact, various businesses at the underlying level of ABT nodes, Blocklets that users run through ABT have fully adopted NFT transactions and affirmation mechanism. With a simple and consistent economic agreement based on native ABT, developers can provide users with comprehensive services, and the economic agreement of ABT further isolates payment and underlying business provision through NFTs, meaning applications can provide services using any token payment method for end users (e.g. BTC, ETH), even using traditional payment methods (e.g. credit cards, Apple Pay), which is very helpful for simplifying service provision and the "going out" of businesses. We have a lot of innovation in this area, which will be specifically introduced in the future.
- A well-supported NFT wallet ecosystem: The lack of adequate wallet technology support will be a fatal flaw for NFTs. This issue can already be seen in the current Ethereum NFT ecosystem. In fact, Ethereum's ERC 721 NFT applications like CryptoKitties and POAP were introduced early on, but due to the lack of user-friendly wallet support, end users found it difficult to perceive, making it hard for NFTs to go mainstream. ArcBlock places great importance on wallet ecosystems, with the ABT Wallet being available on iOS, Android, and as a pure web application. It is fully compatible between different versions and adopts standard user experiences, which is crucial for many future NFT applications.
- A feature-rich NFT-enabled block explorer: One issue with the NFT in the past Ethereum ecosystem is that the block explorer is not friendly enough for NFT, users cannot easily see the transaction information of NFT from commonly used block explorers at a glance, and cannot verify the data of NFT through the block explorer (because many of these externally designed data currently do not have verifiable support). ArcBlock's block explorer supports comprehensive NFT data display and can help users verify the consistency of off-chain data. ArcBlock's block explorer is a fully open-source implementation of Blocklet, which means that not only can it be used in the official deployment, but anyone can easily deploy the block explorer to achieve more decentralized verification.
- As an Ethereum Layer 2 gateway to the Ethereum ecosystem: ArcBlock's NFT is independent, but users can map FT/NFT on the ArcBlock system to ERC20 and ERC721 Tokens in the Ethereum ecosystem through rollup technology, thus integrating into the Ethereum ecosystem.
The NFT system designed by ArcBlock has many unique features mentioned above. Due to our long research and development period and large investment, many of our designs have undergone multiple iterations and improvements in actual applications, which gives us a greater first-mover advantage when NFT truly moves towards broader applications.