Use Case: Limitation of Physical Assets on the Blockchain
By: Jakob Gmoser
Tags: Decentralization, Crypto, Business, Blockchain, Use Cases

Humans want to stand out of the crowd. They want to be unique and they want to possess things others don’t have. This behaviour brings us along to speak about the term of scarcity.

Scarcity describes the limited availability of resources of some kind of asset. Like for example time. Time is scarce, because we have only a limited amount of time available each day. We have to differentiate between natural scarcity and manufactured scarcity. There are some natural resources which are scarce in their supply. Take for example gold, we know that there is only a limited amount of it available. Then there are produced goods that are manufactured in a way that they are scarce. This group includes for example coins, stamps and other collectibles.

Photo by lasse bergqvist on Unsplash

But the scarcity of manufactured goods relies heavily on the public trust in the manufacturer of the good. Because who knows, if the manufacturer really produces only the 100 pairs of limited sneakers that he announced? Or if the central banks will print another $500 billion in the next years?

How to prove the scarcity of a manufactured object on the blockchain?

This brings us to the big question: “How can it truthfully be proved that there is only a limited amount of this object or asset available?” And moreover: “How can we ensure that the initially stated amount of the assets stays the same forever?” Not that the issuer just simply creates another batch of those super limited sneaker editions, once their market price increases.

Following, we are describing the process of how the true limitation and scarcity of a manufactured object can be ensured, utilising blockchain- and NFC-technology.

(1)

The first important point to cover is NFC-technology. Many projects developing solutions in that direction are using the standard NDEF messages of NFC chips to communicate with the consumer device. We think it is important to use a crypto enabled NFC chip. It has the ability to store public-private-keypairs and can also sign transactions with its private key. Whereas a standard NFC chip could only communicate a unique ID, just like with an QR-Code but without the camera.

Without proper methods of strong key protection no successful blockchain system can be established. By using a security controller as NFC hardware the highest possible security level can be achieved. It protects the public-private-keypair even of micro-architectural and physical attacks.

(2)

Now, when an asset is produced it gets instantly equipped with a crypto NFC chip, which has a public-private-keypair stored. Afterwards the manufacturer has to create and publish a list with the public keys of all the objects to be sold. Additionally, this list is stored in a smart contract on the blockchain.

(3)

Then, in order to register the object on the blockchain it is important to write a transaction to the blockchain containing the object number (for example asset #42 out of 100) and the list with all the public keys (this can be skipped, if the list is also stored in a smart contract). The hash value will be needed later. Afterwards, the transaction is signed with the private key of the NFC chip on the object and it is written into a public blockchain. The asset is now officially registered on the blockchain.

(4)

When a customer gets or buys the desired object with the built in NFC chip, he can first verify if it is one of the limited assets. Therefore, not only the asset itself is needed. The customer also needs additional information about the available amount of the assets. Everyone can verify his own object. But one would never know if there is really just a limited amount of objects available or if there exists an exact copy of the object somewhere else in the world.

In order to gain this additional information the customer can look at the list with all the public keys, which was published by the manufacturer. In this way, a customer can easily verify, if the public key of the object he is going to buy is included in the official list. If the list is also stored in a smart contract, this process can be easily sourced out and automated on the blockchain.

(5)

When a customer gets or buys the desired object with the built in NFC chip, he can easily verify the integrity of the object. The NFC-chip on the object needs to make a signature with its private key and the customer can then check, if the signature corresponds to the public key of the chip.

Because otherwise there could also be a normal NFC chip which only stores the public key. But by creating the signature, the chip proves to the customer that it also stores the according private key.

(6)

And because the hash value of the list is also included in every transaction it is also assured that the list has not been manipulated afterwards. If the list is also stored in a smart contract, this is automatically ensured. Therefore, the manufacturer does not get any chance to sell any objects that are not included in the initial list of public keys.

Why use Blockchain?

What are the important aspects of blockchain technology in this application? First of all it is decentralization. Because all the data (or specifically the hashes of the data and the transactions) is stored on a public blockchain, there is no single central authority which can compromise the data. Furthermore, there is no single point of failure, it is absolutely no problem if one node of the blockchain shuts down.

Moreover, the data is immutably stored on the blockchain. Because the hash of the list with all public keys is included in every transaction, the list can not be altered anymore afterwards. Any change in the list would also affect the hash in the list. And the customers would recognise the change.

Blockchain technology also provides an open ecosystem which can be adapted and extended easily. The use case could be extended in a way that also the ownership of the asset is stored on the blockchain. And additional information regarding the asset can also be added. Like for example manufacturing details or the used raw materials. Furthermore, new business models could be created by paying the manufacturer of the asset a small percentage, every time the item is resold. Basically, the presented use case is only the minimum version which creates a basis for further applications.

Conclusion

Scarcity of an asset drives value. But in a digital context it is hard to prove scarcity, since nearly everything that is digitally represented can be easily duplicated. By using blockchain technology combined with NFC technology it is possible to create physical-, as well as digital scarcity for manufactured goods. And more importantly, the combination succeeds in assuring that the manufacturer is providing the same limitation as he promises his customers.

Let us know what you think about the use case and which assets come to your mind that can be limited using the combination of blockchain- and NFC-technology. You can contact us here.