At their core, NFTs digitally show ownership over something— whether that’s a picture of a cartoon giraffe with a top hat or a membership to a club. And NFTs allow you to change that ownership to someone else with ease.

They can also show ownership over a claim to something. For instance, artist Damien Hirst launched his NFT project, The Currency, in July 2021. Here, owners of the NFT could choose to either keep their NFT or exercise their claim on the physical version of the art for a 1 year window.

Recently, e-commerce giant eBay launched The eBay Vault, where collectible sports card owners can send their cards to eBay for storage. Then, the owner can sell their card to other eBay users, and the new owner can choose whether to take the delivery of the card or keep it with eBay.

In essence, eBay is creating a system where people can own cards without the need to take possession of them physically. Instead, owners get a proof of ownership record stored in the Collection section of the app.

Allow me to be clear: these digital records of ownership are similar to NFTs, but they lack the permissionless nature of NFTs.

Technically, you need eBay’s permission to transfer your ownership: you have to sell it on their platform. So, if your account (or an interested buyer’s) falls out of favor with eBay, they might restrict your ability to sell your item. Since one of the mains draws of cryptocurrency (and NFTs built on top of them) is its ability to be censorship resistant, the centralized nature of eBay’s selling and exchange process is likely to turn many “crypto natives” away.

Might the Vault be eBay’s way of getting its beak wet in the NFT space? It could be, but here’s what might be holding them back from taking the full plunge.

It’s no secret one of eBay’s primary revenue streams is from taking a cut of each transaction that happens on the platform. NFT creators can set royalties, so eBay could set that a percentage of each sale of one of the NFTs gets diverted back to the eBay wallet. However, NFT royalties are not enforced in the actual Ethereum smart contract. Instead, the NFT marketplaces split the sales proceeds back to the artist, the seller, and the marketplace itself.

Users can choose to use platforms that do not enforce the royalty or participate in a peer-to-peer trade. Since this would decimate eBay’s primary revenue source, there’s no way it would make the switch under these conditions. However, there are a few ways eBay can remedy this.

Currently, as it gets the Vault up and running, eBay has waived storage fees and has not yet announced how much they will be. One option that eBay has is that instead of charging both royalties and storage fees, they could just charge an (albeit higher) storage fee. The logistics of this could be that within a certain number of days after purchasing the NFT, owners must add a payment method or transfer crypto to pay for the storage fees or risk their card being liquidated.

As time progresses, Ethereum developers might create technology that enforces royalties directly in the smart contract. This would allow eBay to get a percentage of every sale, regardless of the marketplace. In theory, someone could use peer-to-peer trading to avoid the royalty, but similarly someone could just sell the username and password to their eBay account under the current system to avoid the royalty. The demand for this type of this technology has been increasing, especially since NFT marketplaces like X2Y2 have decided not to enforce creator royalties. Technically, creators can enforce smart-contract level royalties today. However, the current technology would enforce royalties even on transfers between two wallets belonging to the same person. This would wreak havoc on those who have had their wallets compromised and want to transfer their assets out quickly, and the price used to base the royalty amount on is unclear. In order to enforce NFT royalties via the smart contract exclusively for sales (not transfers between one person’s wallets), an Ethereum Improvement Proposal would need to be made and passed. eBay might decide to push for and support such a proposal since it could create NFTs without worrying about manually collecting royalties.

eBay could also audit the blockchain and charge royalties (via an on-file payment method or the risk of liquidation) to those that leveraged platforms that do not honor royalties. eBay would need to make it known to buyers using royalty-free marketplaces that this policy exists and have a public registry to allow prospective buyers to see if there are outstanding dues owed on the NFT they are looking at. While perhaps cumbersome, this system would allow them to have the NFTs trade freely and still collect a royalty.

But it’s not just the economics that are keeping eBay from launching NFTs, it also has to think about its users.

As with any new technology, there’s a ramp-up period during which many people don’t know much about it or actively refuse to use it. It wasn’t too long ago that people said they would never get rid of their button-covered Blackberry in exchange for an iPhone.

eBay has a very wide customer base— some people have been using crypto since the early days, and some have likely never even heard of “a Bit-Coin.” Therefore, eBay would be unwise to ask everyone to take self-custody of an NFT in MetaMask or on a Ledger.

Instead, they should embrace optionality. Should someone want an NFT issued to them for privacy or the convenience of transacting via the blockchain, then they can get one. But otherwise, putting a digital representation of ownership in the eBay app will be preferable for many people.

Overall, the opportunity for eBay to do very well in the NFT space is there. They could begin with sports cards via the Vault, but this could easily be expanded into precious metals where people can trade digital representations of gold held by a trusted source and redeemable at any time. However, for eBay to take the plunge, I presume that they will have to figure out the revenue model and create a two-tiered system where consumers who want NFTs can get them and those that don’t, don't have to deal with the hassle.