The Digital Revolution has been able to convert many physical goods (like music files, photo files, text files, and even books) into digital goods. In 2020, the cost of storing, copying, and even distributing these goods and assets is close to zero. In such an infinitely interconnected world, we’ve made it possible for music to be remixed, mastered, shared in different channels, and get incorporated into a list of famous digital works. The process of content creation has been simplified so much so that anyone with a digital device can literally become a content creator today.
With this digitization, there has also been a rise of many challenges. For instance, the process of verifying the authenticity of any asset goes for a toss, likewise figuring out the ownership of any particular asset. In the physical world, it’s easy to calculate cassettes and CDs to figure these things about, but with a commodity like music being a digital asset, how does the artist correctly track the number of times the song has been played or downloaded, especially when people are streaming from third-party providers? What about a remix? How do you figure out which of your pieces were used to create a mix, and how much should the original artists be paid?
The internet has provided our world with a platform that is truly digitally ubiquitous. Blockchain can help provide answers to the above questions by providing digital scarcity!
Blockchains, at their very core, work by allowing users to create unique tokens representing digital assets. Any kind of modification, improvement, addition, or deletion to those assets is stored and defined based on specific user-accesses. That way, it becomes possible to create stringent relationships between the asset and its owner in a more reliable way.
With such a token, it becomes extremely easy to track the complete lifecycle of any asset – from creation, mixing, trading, attaching metadata, getting distributed, and more. The term NFT (Non-Fungible Token) is popularly used to describe such a tokenized version of any digital asset.
A new standard for NFTs has emerged on the Ethereum ecosystem, which goes by the name ERC-721. This standard offers industries of all shapes and sizes to have a common language in order to interact and describe assets to each other. For instance, crypto-native projects like CryptoKitties (for collectibles) and Decentraland (virtual land parcels) are aiding the establishment of this common language. Adhering to standards similar to ERC 721 not only makes the asset distinguishable and identifiable but also makes them tradeable and exchangeable — thereby creating a whole new arena of liquidity.
Also Read: Blockchain Service Providers
Financial Business Documents as Non-Fungible Tokens
In today’s world of Financial Supply Chain, most documents already come with some of the other form of a digital representation. For instance, purchase orders, invoices, and such documents originate in a digital financial system and are processed in many other systems throughout the lifecycle of each data set.
We discussed earlier the digital version of any song or other art piece and the problems that come with it — like that of duplication, verification, proving authenticity, or even tracking ownership. All of these problems are just surface-level, and we’re not even going in-depth into what other problems may arise as a result of this. We are not even scratching the surface of creating traceable, unique, certifiable derivative documents (the “mixes” of different information) based on today’s documents of the Financial Supply Chain.
These ultra-important financial documents can be turned into NFTs on the Ethereum ecosystem, with the goal of making them first-class blockchain citizens. Such a transformation will create a completely new array of possibilities in terms of interaction and processing of the documents, as well as their unique representation. With Blockchain-based implementation, it is easy to attain an immediate single source of truth and its entire history. Therefore, these business documents can be made traceable and assignable by reducing all the previously mentioned challenges.
These types of tokenized business assets can be called Business NFTs, whereas tokenized assets for specific documents, like an invoice, purchase order, etc., can be called “Invoice NFT”, “PO NFT”, and such. Following the ERC-721 standard for the tokenization, there can be a combination of public on-chain data with detailed, private representation of each asset – something that’s only accessible by the current owner of the on-chain NFT.
Taking such a tokenization route, we can simplify the assignment of documentation to other parties without causing any issues. Questions like who should receive the payment, who owns the documents, what’s the entire lifecycle of the document, can be easily answered without any challenges. Further, attaching metadata to documents can be done in an easily verifiable and standardized way.
Also Read: Cryptocurrency Exchange Development
NFTs with Private Off-Chain Data for Best Results!
By using Ethereum as the underlying public blockchain ecosystem, and leveraging an off-chain P2P protocol for private document exchanges, document updates can be seamlessly committed and anchored via precise proofs (Merkle trees of complex document structures) to Ethereum.
Such a two-layered approach and perspective of the entire P2P network, coupled with on-chain transactions and verifiability will ensure utmost privacy and scalability in the system at large. Then, the next simple step is turning these assets into Business NFTs following the ERC-721 standard.
The actual creator of the document on the P2P layer can register an NFT through the on-chain NFT registry. These NFTs themselves will only hold a minimal set of data of the original document, in order to avoid any chances of a private data leak. The metadata will contain a backlink to the on-chain anchor along with a link to the private document on the P2P layer.
Then, the on-chain data can be used to uniquely identify and trace the document and its ownership, as well as used to allow anyone to verify the NFTs data, and even perform exchanges within the network. The P2P network operates in such a way that the NFT holder is able to gain access to private off-chain information.
Also Read: Use-Cases of NFT
Decentralizing Invoices Financing
One of the very important use cases of turning invoices and other business documents into tokens on decentralized networks such as Ethereum will be the ease in the assignment of payment obligations, as well as lending for those assets in a decentralized manner. Any existing platform on Ethereum that can support NFTs can be used to provide liquidity in terms of unpaid invoices, in the form of NFTs. The payment obligations can be seamlessly turned into assets on exchanges that support the ERC-721 standard. This will allow liquidity like never before, in a completely decentralized manner.
We are witnessing some major transformation in terms of how things operate, for each and every domain, and Blockchain has turned up with the answers to many legacy problems haunting several industries. Integrating business documents into NFTs will further open various avenues of improvement and liquidity, while eliminating the forever hanging challenges.
The future looks bright, and as more research is carried out, we can be sure to witness some more marvelous use cases of this concept. Meanwhile, if you’ve any confusions or queries with the above-written text, or need any guidance pertaining to anything under the Blockchain banner, don’t hesitate in reaching out to us at Minddeft!