Comparing Implementation of NFTs and Verifiable Credentials
It is important to understand the difference between NFTs (non-fungible tokens) and Verifiable Credentials (VCs) as key components of the overall Web3 infrastructure being built in the modern day.
Let’s explore the similarities and differences between NFTs and VCs, argue how they are designed and intended for fundamentally different use cases, and explore how the architecture of the SAVAGE marketplace uses both.
NFT vs Verificable Credentials (VC)
An NFT is any tokenized, non-fungible (unique) asset that can represent any digital asset on any blockchain ranging from a photo, video, audio, or representations of real world objects such as real estate, or rare collector’s shoes. Most of the activity today is on the Ethereum blockchain.
What makes an NFT non-fungible is the fact that a specific NFT cannot be directly interchanged for another NFT, unlike can be for a fungible asset such as a currency. The history of ownership and authentication of current ownership is tracked on the digital ledger referred to as blockchain, wherein the owner can be verified as owning the legitimate NFT, and the transaction history can be verified and seen by any party as well.
In contrast, VC’s are the World Wide Web Consortium’s (W3C) standard for digital assertions or credentials. Verifiable credentials allow an entity to asset attributes relating to identity such as citizenship, age, location, and others of another entity in a tamper-proof and verifiable manner. The subject of the VC can choose when and to which other parties those credentials are presented, and they can be securely proven as belonging to the subject.
Similarities of NFTs and VC’s
The extent of the similarities between NFTs and VCs are that they both are ways of digitally proving ownership that can be cryptographically verified. They both also enable a degree of disintermediation meaning reducing the use of intermediaries — an NFT is tracked on a blockchain which is permissionless and public.
A VC may be issued by a central authority, but they do not control nor dictate when and where the VC is issued. For example, a government may issue a VC showing citizenship of the owner and subject of the VC.
Both may also be stored on a mobile wallet which has access to a private key that is digitally signed. Both also adhere to certain standards, notably the ERC-271 standard for NFTs on Ethereum, which has also been copied on other platforms.
Both are also issued by some degree of authority, for example for NFTs it is the creator of the NFT in question, and for a VC it may be a government or other body. Both NFTs and VCs can still be issued by non-authoritative entities, but it is unlikely that they would be accepted by others.
Differences Between NFTs and VCs
In what they represent — Whereas an NFT belongs to a particular entity and denotes the ownership of some specific asset or resource, a VC attests to the entity or subject owning some identity attribute only. A VC is descriptive for the subject, while an NFT is a representation of a digital asset.
In proof of ownership — They may also differ in how ownership is proven. For an NFT, proof of ownership is demonstrated by a signature applied to a transaction submitted to the blockchain. For a VC, proof of ownership is demonstrated by a signature applied to some challenge string created by a party to whom the VC is presented. That signature is then verified by the party using digital ledger or blockchain technology to lookup the relevant metadata.
In the relevance of blockchain — an NFT requires blockchain to track ownership and transfer or transaction history. An NFT is stored on a typically public blockchain network. Any party can view an NFT and its history of transactions as well as determine what account owns it, even if not necessarily being able to determine the real world identity of that owner. However, the wallet of the NFT owner can be tracked and connected to endpoints and exchanges that can be theoretically used to deduce his or her identity by forensics and relevant authorities.
A VC however can leverage blockchain technology to facilitate verification by timestamping key lifecycle moments such as issuance or revocation, but VCs do not presume a blockchain being needed. A VC is typically stored locally by the entity described and was issued to. It can be possible to store a VC on the blockchain, but may not be optimal to do so on public blockchains for privacy reasons.
In regards to trust — entities that have confidence in blockchain technology and its consensus algorithm can trust the verification of the NFT, as long as the owner’s private key was not compromised. Entities can trust a VC as legitimate because of confidence in the issuer and the fact that the subject’s private key was not compromised.
In terms of economics — for NFTs there is immense market opportunity, increasing volume and transactions, and a vibrant community of buyers, sellers, and community members across many blockchains as of late.
In contrast, there is no comparable economic model for VCs nor relation to an economic model of value accrual nor speculation as there is for NFTs. There is not an expectation of being able to transfer the VC to another entity different from the one to whom it was issued.
In regards to scarcity — an NFT represents value, the more scarce the NFT, the greater its value. A VC represents the identity of an entity, its value is intrinsic and not dependent on scarcity, supply, nor speculation.
In regards to custody — an NFT can be either custodial or non-custodial. In the non-custodial situation, the owner of the NFT controls the private keys to his or her own NFT instead of the NFT being custodied in a third party exchange, removing counterparty risk.
SAVAGE’s Use of VCs and NFTs
The issue results when the two technologies are used for use cases for which they were not designed. For example, an NFT being used to capture a creator’s attributes, or a VC being used to represent or describe a collectible item of a notable person.
NFTs are fundamentally more useful and designed for recording ownership of and transfer of value, as well as representing assets in digital form. VCs are fundamentally optimized for recording ownership and attributes relating to identity.
SAVAGE will implement both NFTs and VCs as they were designed — NFTs to track ownership of assets for which transfer is appropriate, and VCs to track ownership of identity attributes. There also exist opportunities within SAVAGE for integrating and combining the worlds of NFTs and VCs and wider decentralized identity standards.
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