Why Blockchain Technology Unlocked True Digital Ownership.
In December 2017, a virtual cat sold for $100,000 worth of cryptocurrency. In today’s article, we dig out how blockchain technology made possible true ownership of a digital asset.
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On December 2, 2017, Genesis, the first ever CryptoKitty to be created on the Ethereum blockchain was sold for some 247 Ether, around $115,000 at that time valuation.
For those who are not familiar with such concepts, here is a quick recap:
A blockchain at is core is an permissionless, censorship-resistant and immutable ledger that is distributed throughout a network and which governance is decentralized. It allows peers to make trustless transactions without any central authority, resulting in lower fees and increased speed.
Bitcoin is the first application of blockchain technology. By adding transactions into blocks, creating a chain validated by peers which represents the history of the network, it allows the first ever Peer-To-Peer electronic cash to be traded safely on a global scale, without the need of a third-party.
Ethereum is a decentralized platform which allows to run Decentralized Application (aka DApp) in the form of Smart-Contracts, an immutable piece of code uploaded to the blockchain containing programmed functions actionable by users through transactions or another smart-contract. This makes it possible to record events once they have occurred in an censorship-resistant registry, as the actions can not be undone.
This transaction illustrates perfectly the hype surrounding the first Crypto-Game running on the Ethereum blockchain by the time of its release, where players can collect and breed digital cats.
Released in October by the studio Axiom Zen, the winners of the hackathon ETHWaterloo certainly didn’t expect their project to become viral and grow so big that it threatens to bring down the whole blockchain.
Myself, I was just trying to breed a funny looking cat! Right when that mania started happening, we began getting reports of major congestion, problems, nothing working. — Dan Finlay, MetaMask
Despite its apparently gigantic success, at this particular moment, the opinions concerning this game are divided between huge non-sense and pure genius.
Among all of this apparent mess, there is one thing that shone bright like a diamond.
Not content of being the first crypto-game on Ethereum, CryptoKitties is a pioneer in the application of the ERC-721 Token Standard, a set of rules which permits a player to own a unique digital asset.
So far, with the Internet-of-Information, it was impossible for buyers to really own their digital goods.
Think about it:
- Whenever you buy music on iTunes, can you sell it elsewhere after you’ve played it so many times that you just can’t listen to a single note anymore? Does it belong to you?
- Whenever you download for a few bucks an eBook from an influencer’s website, can’t you just then upload it on a Dropbox-like service and share it to your friend without losing access to it?
Does it belong to you? - Whenever you buy an item or a skin from Steam Store for your online game, what is the intrinsic value of the item you just bought if the game-dev can just multiply with a single-command to an almost-infinite number the item supply? Can you sell it to your friends?
Does it belong to you?
“When I send you some information I’m not actually sending you the information, I’m sending you a copy, whether that’s a spreadsheet or a PowerPoint file or a Word document or an email.” — Don Tapscott, Co-Founder and Executive Chairman at Blockchain Research Institute
The Internet-of-Value (in opposition with the Internet-of-Information) is on its way with the development of blockchain technology, and it may finally give users the real ownership of their digital goods.
It will be possible for us to store, move, transact value without the need for a powerful intermediary.
Well, those are beautiful words, isn’t it?
Although I do believe in what I’m writing, I’d like to go a bit deeper and explore for you, and with your permission, what makes blockchain technology so special when it concerns proving digital ownership and trustfully transacts.
Are you ready? Alright, then let’s begin! 🚀
Ethereum Blockchain: between Smart Contracts and Tokens
Blockchains are secure, distributed registers that help ensure that transactions can not be falsified or reversed. For the first time, it was thus possible to rely on data provided by the network (account balances, past transactions, etc…) without having to trust a centralized organization.
Ethereum is a blockchain network proposed by Vitalik Buterin that allows you to deploy programs called “smart contracts”.
A smart contract is a computer protocol first introduced by Nick Szabo that includes functions for exchanging value and checking the balances of the holders.
It can be used to self-execute contractual clauses to perform credible transactions without the need of a third party, resulting in a higher security and lower costs.
Developers can engineer a set of smart contracts to create Decentralized Applications (DApp).
These DApps can work with dedicated tokens, a set of functions included in a smart contract which allows to record movements of an asset within it’s own dedicated database.
The database we are talking about right here contains only two-columns:
- Owner (ETH public address of the owner)
- Amount (Amount of tokens linked to this address)
The smart contract records all transfers and updates its own database.
This is what an entry on the token contract database looks like:
0x5fe3062B24033113fbf52b2b75882890D7d8CA54 (Owner) = 777 (Amount)To make it easier to create their own token and to avoid mistakes, developers designed a set of rules for everybody to use called ERC-20 Token Standard.
This standard is used by most of the Ethereum-based tokens, such as BNB (Binance), OMG (OmiseGO) or BAT (Basic Attention Token).
A smart contract deployed as an ERC-20 Interface can return the amount of tokens created so far [totalsupply()] and even check the balance of a token-owner by questioning his/her ETH public address in the local database [balanceOf(.)].
It can also “transfer” tokens (more like “relocate”) from the owner’s account to another one [transfer(.)]. The smart contract will then simply decrease the owner’s address and increase the receiver’s address by the same amount of tokens.
Another smart contract can eventually transfer tokens from one address to another by calling the function transferFrom(.).
More info on ‘How Does a Token Contract Work’ right here.
This ERC-20 Standard resulted in a huge increase in the number of Ethereum-based tokens. Reviewed and accepted by peers, this set of rules has generated more trust in DApps that implement it. A large number of tokens sold during the Initial Coin Offerings (ICO — Raising funds by issuing tokens) of 2017 used the ERC-20 Standard Interface.
But, the ERC-20 Standard Interface only defines what to do and it is the written code deployed with the smart contract that tells how it is done.
These tokens have no intrinsic value. It is the where the demand and the supply curves intersect that can be found the price of the asset at a given time, which can lead to high volatility.
An ERC-20 token is fungible. Fungibility is the property of a good or a commodity whose individual units are interchangeable, which mean there is no essential difference from one to another.
Fungibility: “Usually, a one dollar bill can be exchanged with another one dollar bill as they’re all considered the same.”
Developers found a way to use blockchain technology to create money-like digital assets which can be sent and received without a third-party.
These tokens can take different forms, such as loyalty points, and can be used as a means of payment on their dedicated platform.
However, it became soon clear that this standard was limited and couldn’t be used to represent unique or rare items. And this is when ERC-721 comes in.
ERC-721: a Non-Fungible Token standard
In ERC-721, each token is unique and non-interchangeable with another one.
As a result, an ERC-721 token is a non-fungible asset and could be compared with any things-like goods.
Non-Fungibility: “When I was a kid, I once exchanged my limited-edition Pikachu Pokemon-card against four others Pokemon-cards. Even though they were all Pokemon-cards, they didn’t hold the same value. Some were rare and valuable, some weren’t. 😸”
This is the common set of functions calls for an ERC-721 Token Standard:
This token standard allows a smart-contract to hold an ownership’s database of unique items.
It is used by Ethereum projects such as Cryptokitties, of course, but also by Etheremon game and Decentraland.
In such applications, users can own and play with digital assets, and trade them against others (or ETH) on a dedicated marketplace. When exchanged, the digital ownership is transfered to the buyer.
The double-entry database with ERC-721 looks slightly different from the previous one.
Remember:
Here is the database from ERC-20 Standard. Each account public address is linked to an amount of tokens. When a transfer is made, tokens are relocated.
With ERC-721, we are talking of unique digital assets. Every token linked to an account public address has its own properties, its own characteristics.
In order to manage each tokens individually, they are distributed to one and only owner.
The database from ERC-721 standard contains two columns:
- Owner (ETH public address of the owner)
- Token ID (The specific ID of a token)
Although an public address can be associated to many Token ID consequently, an ERC-721 Token ID can not be owned by more than one account.
By allowing unique items to be governed by a strict set of rules, along with giving them intrinsic properties, blockchain technology allowed the creation of digital scarcity over the web.
We quoted Don Tapscott earlier who said that the information you get from the internet is always a copy of the original. As a result, it was thus impossible to manipulate finite elements within the digital realm, preventing from creating scarcity.
And also preventing from the true ownership of digital goods. But this era has ended.
Blockchain Technology: to the True Ownership of Digital Goods
We’ve seen in this piece of reading how blockchain technology is used to create digital scarcity. By developing fungible and non-fungible assets with limited supply, users can buy and trade assets they truly own over the internet.
Marketplaces are being created as more and more projects are built up around the discussed standards.
These new kind of digital assets are being trade on many different platforms, disconnected from each others.
The growing ecosystem around fungible and non-fungible tokens results in a distribution of the value created between various actors, instead of being held captive by a single one as with the Internet-of-Information.
So far, the ERC-20 and ERC-721 Token Standards aren’t perfect and there are a lot of ongoing discussions on how to improve them, or at least to adapt them to specific use-cases.
With @unik-name project, we believe in giving back to users the ownership of their digital identifiers.
As we design a network for you to get your universal name to use and to share instead of all your enigmatic identifiers, we expect our community to grasp the intrinsic value of owning such a digital asset.
Your @unik-name relies on a non-fungible token you customize to interface every public addresses you own. You can then share your @unik-name with your friends, family members or even customers for them to interact with you. Don’t worry about your data: the integrity of the registry is ensured and the components are hidden.
Become the true owner of your digital identifiers.
Get your @unik-name for life and use it as you please.
More information on www.unik-name.com
Join @unik-name project 🐘
Have you heard about that? There would be a solution for doing public-addresses transactions without any fear nor stress.
Yes indeed, you’re right.
@unik-name is a project which is pushing towards a mass-adoption of the emerging decentralized economy by giving a unique and refreshing experience to the crypto-enthusiast, and beyond.
If this problem rings a bell in you, well I can ensure you it is worth taking a quick look at my friend.
Why wouldn’t you take a closer glance at what might be the next big thing in the cryptoverse?
Oh and, while I’m still here, just to let you know that I am here as well, so come and chat with us on Telegram!
Finally, … no wait, it is just the beginning! Follow on Twitter 🐦 for some BURNING news 🔥
Take care, hope to see you soon!
@unik-name’s team
