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.

eBay Doesn’t Have NFTs… yet

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.

1. Royalties

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.

A. Storage fees:

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.

B. New Technology enforcing royalties

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.

C. Audit and charge

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.

2. The Customer base.

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.

Conclusion:

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.

Now imagine they used a permanent paint— meaning you can never remove the graffiti nor stop people from adding more.

That is the reality of Soulbound NFTs.

Yes, people can graffiti your house with nice words and praise about you, but do you want to always have people’s thoughts about you— even if they're good— on display for the public? Or would you rather have some choice over who gets to know certain things about you?

What is a Soulbound NFT?

When the term NFT comes to mind most people think of a digital image that they can buy and sell on a platform like OpenSea. That’s a very valid idea to have of NFTs, but a new type might soon be among us: Soulbound tokens (SBTs).

Like the name suggests, SBTs are inherently linked to your personal soul. In other words, they are issued to your wallet and remain there forever. They may not be transferred or sold.

Why on Earth would you buy a picture of an alpaca wearing a jean jacket if you can’t even sell it, for a 90% loss three months later?

Well, SBTs will likely not manifest themselves as decked out cartoon animals.

Instead, they will likely be text documents declaring something about you– the eternal owner of that NFT. Imagine that instead of requesting copies of your university diploma from your university, you could show a prospective employer your diploma issued by the verified school wallet. Your mentors could leave verified letters of recommendation publicly visible in your wallet too.

Sounds well and dandy, right? Well, yes— SBTs allow for people to know something about the actual person behind the web3 wallet because they know the token has not just been bought and sold.

The Dark Side of Soulbound NFTs:

But there are legitimate downsides you ought to consider.

Just like your previous employer can send you an SBT praising your amazing work in the office, a disgruntled party can leave slander in your wallet for everyone to see. Soulbound NFTs turns every person’s wallet into a personal Yelp page where people are free to leave comments about you with no recourse.

Currently, if someone leaves something in your wallet you don’t want, you can “hide” it from being seen on centralized platforms like OpenSea or “burn” the asset by transferring ownership of it to a wallet nobody has access to. So, if someone chooses to leave a hateful message as an NFT in your wallet, you can simply remove it.

With SBTs that’s not possible since they are non-transferrable. Someone can drop compromising photos of you in your wallet, and you can never remove them. Considering other people can drop things into your wallet fully pseudonymously, the risk of very extreme and hateful drops is quite possible.

The benefits of SBTs are there and valid to acknowledge. They provide a way to show that someone has a specific real-life trait or qualification, and you can know someone didn’t just buy that acknowledgement. However, simply ensuring that a transferable NFT went directly from the verified source wallet (like the college) to the current wallet would provide the same result. By creating a class of non-transferrable NFTs, the risk of hate mail and other spam becomes great.

If web3 wallets exist as ways for users to show off what they are all about, then should they not have the ability to curate what’s inside?

Soulbound NFT Alternatives:

This is where the opportunity for Decentralized Identifiers (DIDs) and Verifiable Credentials (VCs) come.

If you recently had a baby, your hospital would issue you a birth certificate that includes identifiers: tags that point to the very information about your baby being born (name, date and time of birth, etc.). The ‘birth certificate’ doesn’t contain your baby’s personal data or wallet information. Rather, they’re a string of random letters and numbers that contain information about the public key and verification information. In other words, they’re solely a means for you to prove cryptographic control over it. And just like your crypto wallet, you can have a DID for professional use (public-facing) and personal use (confidential). And you can spin up as many DIDs as you want, one to prove you’re a member of a DAO, a student at a university, your marriage certificate, and so forth.

One way to verify DIDs is through a “claim” or verifiable credentials (VCs). This is the work Evin McMullen and her team are tackling at Disco. Using zero-knowledge privacy, VCs can verify that you are indeed the owner of the identifier without compromising your private data on a public blockchain (like Ethereum).

Within Disco, you have three parties: the issuer (entity or organization issuing the VC), the recipient (owner of the VC), and verifier (to verify that the VC is legitimate and tamper-proof). Suppose a university (issuer) sends you an off-chain encrypted VC. Your acquaintance at work doesn’t believe that you actually graduated (gasp!) To refute your acquaintance, you send that VC, which was signed by my alma mater's decentralized identifier. Since the DID is unique and tamper-proof, your acquaintance now knows you did in fact graduate.

Last but not least, Proof of Personhood (PoP) takes a completely different turn from Disco and Dock[c]. It's a permissionless consensus participation mechanism that verifies your existence as a human being, using methods such as identity verification (KYC), social trust, Turing tests, and/or biometric modalities. Notable projects include Proof of Humanity (PoH), BrightID, and HumanNode.

While useful in establishing personhood, their lack of identifiers and credentials fall short in painting us as multi-faceted, complex beings in the different milestones and activities we participate in.

DIDs can also be used as a way to keep parts of your identity private and only revealable with your consent. One of the most popular types of NFTs are POAPs— or Proof of Attendance Protocols. These are collectible badges you can get at crypto related events. By having one of these in your wallet, you are revealing a part of your identity. But it’s important to think about the implications of this. By putting that POAP in your wallet— even if it’s transferable— you are telling the world something about who you are and how you spend your time. Do you want everyone in the world to know that?

Especially for sensitive events, like social activism, POAPs could instead be issued as DIDs. This way, you still have a record of your involvement with a certain cause but only have to reveal that information with people you feel comfortable sharing it with.

Conclusion:

Overall, the idea behind SBTs is an important one— there should be records about tasks specific people have done that they cannot. However, since this technology is accessible to all, there is a legitimate risk of abuse and thus alternatives should be considered.

We’re Firefly and Serenity. Welcome to our page.

Here on Mirror, and over on our Twitters (Firefly and Serenity), we’ll be sharing education and our thoughts on the happenings in the crypto-sphere. We’ll be talking about why you should care about crypto, how you can get involved, and we’ll share a few hot takes along the way.

Once again, welcome, we’re so happy you’re here.

In prosperity,

Firefly and Serenity