Software licences as non-fungible tokens
By: John Griffin
Tags: Erc721, Software, Nft, Ethereum, Blockchain

What if all our software licenses were compatible and we could go to a single integrated app store and sell say three days of Adobe Creative Cloud and buy two days of Microsoft Office? This flexibility would be a clear win for consumers but would surely lead to a loss of revenue for software vendors. Hmm, but what if this easy transferability of licenses also reduced piracy?

In this post we present a simple proof of concept, representing software licenses as ERC721 tokens on the Ethereum blockchain, and using Metamask to passwordlessly log in to a web app by proving that you own the address that owns the tokens. We’ll also discuss some of the potential pros and cons of taking this approach.

Screenshot of https://licensetoken.atchai.com

Try the live demo on Ropsten testnet

The code is open source and on Github.

Although the demo here focusses on web based SaaS software, the same principle can be applied to desktop and mobile, where the wallet would be embedded in the software.

Potential benefits of this approach

Transferability

This is obviously a benefit to the consumer, offering more flexibility. It is also safer than the current methods of transferring a serial number or a subscription membership, where you either take the risk of non-delivery or use a third party escrow service like Ebay.

It’s not all bad for the vendor either, a token is a smart contract after all, so you can program whatever rules you want to constrain how transfers happen. For example you could set a time period where tokens are locked and non-transferrable, or you could set up a revenue share where you get a percentage of the secondary sale.

Anti-Piracy

A particularly interesting property of making licenses transferrable and owned by an Ethereum account is that you need to possess the private key in order to authenticate yourself, and if you share that private key then you risk the token being transferred away from you.

This is only really a deterrent for wide-scale sharing of the private key, and probably wouldn’t stop you sharing the key with someone sitting next to you. It would however deter you from posting it on a public forum.

There will always be technical workarounds for anti-piracy measures and ultimately it comes down to incentives, if you can incentivise legal purchase enough (e.g by requiring less commitment from the customer) then it should make the workarounds required to pirate the product less attractive.

Privacy

Theoretically there’s no need to share anything other than your Ethereum address to buy tokens and to authenticate.

Another interesting use case is where you want to prove that you have an active subscription with a partner product. Normally the partners would have to share some information about you, but in this case you just need to prove to the partner that you own an address, as you normally would to authenticate, and they can then look up your subscription.

This is essentially a single-sign-on (SSO) system.

Technical Details

This diagram illustrates a successful authentication flow between the end user (client), software vendor (server) and smart contract.

Illustration of a successful purchase and authentication flow of License Token

While we are focussing on the case of web-based software here, the same principle also applies to desktop and mobile software. The client’s private key would be embedded in the desktop or mobile software rather than within a browser or browser extension wallet like Metamask.

Our implementation

In our proof of concept, all of this flow is initiated from a single web page.

Screenshot of https://licensetoken.atchai.com

The web page uses the web3.js library to communicate with Metamask — other Ethereum enabled browsers could be supported. Webpack is used to bundle the code.

The server is written in Node.js, making use of MetaAuth to verify the signature. Incidentally the signature methods of Metamask are subject to change, hopefully this will stabilise soon so that these methods can be used safely in production. We make use of the Infura API so that we don’t have to run our own Ethereum node to check the contract state.

Our smart contract is managed with Truffle, and we’re using the new OpenZeppelin ERC721 contract as a base.

We did have problems trying to prototype this in Remix, though all functions of the OpenZeppelin ERC721Token contract seem to be implemented, Remix keeps throwing the error: “This contract does not implement all functions and thus cannot be created.”

Next Steps

There are lots of trivial improvements that can be made to the work we have started here. This is only intended to be a proof of concept. While developing this we discovered a few other people exploring this territory. Most notably there’s a project that’s just been released called DotLicense — it’s more focussed on desktop software licenses at the moment but it’s a full framework that uses ERC721 tokens and though we haven’t tried it, it looks great!

When it comes to subscription billing there is no way for a smart contract to reach into your wallet and extract a recurring amount each month. You would have to pre-fund a contract with multiple terms up front, then you could potentially withdraw / transfer at a later date. We envisage a system where all your subscription licenses are managed in one place, so this single contract would act like your bank account in the traditional direct debit / recurring credit card payment scheme. There is some good discussion about standardising an interface for this over in EIP 948

We use ERC721 tokens here as they can hold metadata, such as type of plan and the date of expiration. You could also imagine a case where ERC20/223 tokens are used, perhaps you could encourage people to hodl your tokens by giving them access to premium features on your website depending on the amount of tokens in their wallet.

It would be great to see a full web app built out that would allow software vendors unfamiliar with Ethereum and Solidity to configure and deploy a license contract. This would be something like Stripe’s admin interface, allowing you to define plans and licenses, view payments and customers.

If we want to trade our licenses though we will need somewhere to do that. There are already a few of marketplaces to trade ERC721 tokens (notably Rarebits.io and OpenSea) but it’s likely that we would need a specialised exchange for licenses and subscriptions. There doesn’t seem to be any need to change the way software is currently distributed — e.g. through websites and app stores.

Legal —some work needs to be done to ensure that buying the token commits you to the terms of the license. This could be some sort of Ricardian contract.

Commercial — tokens make more immediate sense for software that is already using a utility-based pricing model. For subscription-based pricing the benefits are not quite so clear. A lot of thought and experimentation needs to go into whether we can find models that increase flexibility for the customer without cannibalising revenues for the vendor. The hypothesis to take forward here seems to be similar to Spotify’s, by improving the UX and making it easier to purchase small amounts of software you’re more likely to pay for it than to steal it. Can the growth in participation in legal purchase outweigh the revenues lost from people churning out of unwanted subscriptions?

There are lots of creative ways we can manipulate this calculus to make it work, revenue shares of secondary sales, limits on transferability, partnership and affiliate deals, cross vendor bundling. All of which can be implemented as rules in the license’s smart contract.

It’s unlikely we’ll see any degree of adoption outside of a few crypto software projects unless we work through the above issues successfully. If we can come up with good solutions then the vision presented at the top could become a reality!

This article originally appeared on the atchai.com blog.