Following the announcement by Ernst & Young on April 16, 2019, of the release of zero-knowledge proof blockchain transaction technology onto the public domain, 0xcert is responding to the public invite for the community to provide improvement proposals as per the in-depth article by Paul Brody published in late May of 2019.
The issues with current data and asset management at the level of enterprises and multinationals have been demonstrated clearly. Of the various possibilities for elevating their operations onto the blockchain level, the one that proposes leverage of a public blockchain combined with private or zero-knowledge proof (ZPK) transactions has proven to be the optimal way of protecting the transactional information from being publicly exposed while eliminating the risk of a central point of attack.
The EY’s recently released software Nightfall thus leverages the decentralized nature of a public blockchain, specifically the Ethereum blockchain, and combines it with the privacy of cryptographic, zero-knowledge proof to provide private transactions to the enterprises and institutions managing sensitive data and valuable assets.
Nightfall allows for the private yet decentralized transfer and management of not just digital monetary units such as cryptocurrency, but also – and more importantly – unique business assets, such as goods, items, and documents, in the form of non-fungible tokens.
These unique tokens and their immutable nature provide trustworthiness and traceability of goods in supply management and trade while ensuring data protection and payments guarantee - features appreciated in every one of billions of trading and operating transactions that the world of enterprises handles on a daily basis.
We are proud and honored to say that the non-fungible token implemented in the current version of EY’s Nightfall has been written and developed on top of the official reference implementation of the ERC-721 standard which was published by 0xcert. In the latest fork of the open-source code of Nightfall by 0xcert, however, we’ve proposed the implementation of enhanced non-fungible tokens that introduce two additional features to increase versatility and verifiability of transactions enabled through Nightfall.
How unique digital assets change the way enterprises operate
Apart from financial metrics and capital that define the market value of enterprises, it is also their stock, inventory, purchase and sales documents, contracts, and personnel management data that need to be handled and stored just as responsibly to reduce the operational friction on the intra-level to the lowest extent possible. Within trading and business cooperation ecosystems, on the other hand, enterprises exchange data, execute purchases and sales of goods and services, and interact in one way or another with a network of businesses, organizations, service providers, and legal experts.
Even though industry standards do provide guidelines for best practices and minimum requirements for running a business, enterprises working on international or even global level still need to tackle operational friction that hinders business optimization. To help them leverage the benefits of decentralized management of transactions, Nightfall introduced a blockchain network with private transactions that makes processes fully verifiable without revealing the sensitive data. By implementing smart contracts and tokenization of data, the traded and exchanged assets acquire a uniform format, manageable and confirmable by all parties involved. And here is where unique tokens come in.
On the one hand, cryptocurrencies or monetary tokens on the blockchain are formalized as fungible or interchangeable tokens, where every unit holds the same value as all other units of its kind. On the other hand, both tangible and digital assets managed by an enterprise or service provider by definition carry unique information - be it inventory number, titles and/or signatories of official documents, order details, among others - and are represented by unique or non-fungible tokens. This allows businesses to run their inventory in a wholly digital way, and base their work on smart contracts which contribute to data tracking and lower the friction between operations, departments, or cooperating parties.
Standardized but with room for improvement
Understanding the potential of the blockchain tech in all kinds of business transactions, we applaud and embrace the response by EY and their commitment to instilling adoption of the blockchain technology within the realm of international business. It is also honorable that EY decided to release the Nightfall software onto the public domain - we believe that unrestricted access to security and verifiability of private transactions marks an essential step towards narrowing the gap between the enterprise and the tech worlds and brings substantial benefits to thousands of organizations.
Especially in the scope of non-fungibility, it is extremely encouraging to see an institution as prominent as EY recognize the potential of unique digital tokens and their adoption in business solutions on the blockchain.
At the same time, however, we find it important to point out that technology never ceases to improve and upgrade. While the ERC-721 standard for non-fungible tokens indeed represents a critical set of community-confirmed guidelines for tokenization of unique assets, its latest official implementation does not encompass all the possible features that bring non-fungible tokens to their full potential. Therefore, 0xcert welcomes the opportunity to respond to EY’s call for improvements of the Nightfall software and hopefully contribute to the advantages that the blockchain tech is about to bring to its users.
William Entriken, the lead author of ERC-721 standard for non-fungible tokens, is watching the business applications of tokenization closely: “I am thrilled to see how enterprise adoption of tokens and more secure supply chain tracking is taking off. Nightfall and the 0xcert Framework build on the baseline standard for non-fungible tokens, and you can see how simple and elegant this fork is. The 0xcert Nightfall fork was only possible because the companies behind these two products clearly support open software development and an inclusive community for their products.”
Hindrance to interoperability and lack of certified proofs
Just within a single business, different processes and operations - from manufacturing and packaging to shipping and accounting - require compliance with different standards. Zooming out and taking into consideration an array of operating standards and cross-sector cooperation practices, international trade agreements, and government policies, the lack of common ground becomes even more apparent. At the same time, the assets that are transacted among trading parties can be tokenized as immutable digital tokens, but how to make sure that their content has indeed been certified as existing and accurate or valid?
To provide the Nightfall software and its users with interoperability and certification possibilities, 0xcert has forked the open-source code of Nightfall and replaced the standard ERC-721 token implementation with the enhanced ERC-721 token. The latter works the same way as the original but introduces two additional token features - namely interoperability and certification - that enhance the inter-business (or even inter-department) data and asset transmission practices.
Nightfall transactions become certifiable and interoperable
The enhanced ERC-721 token is called Xcert and goes a step further from its reference implementation in extending the use of non-fungible tokens and data privacy. The certification feature of the Xcert creates a digital structure or a cryptographic imprint based on the data of the asset. Such imprint can verify the existence and authenticity of a data record, without revealing the hidden data itself, which enhances the native privacy of transactions provided by Nightfall.
With imprints, therefore, only the data necessary for verification can be revealed publicly (for instance, the date and the status of the transaction), while the rest of the content, specifically sensitive information such as operating or trading parties, order value and discounts, or price per item, can remain completely private.
Imprints enabling selective data verification
Moreover, the certification feature makes the Xcert token interoperable among all users of Nightfall even when they employ a different industry standard for their operations. The Nightfall software thus becomes easier for implementation within multi-party processes, which further instills adoption of the blockchain tech and private transactions for the benefit of businesses.
In the words of Kristijan Sedlak, CEO at 0xcert, “Xcerts are contextified ERC-721 non-fungible tokens. With their implementation, you know exactly what kind of asset the Xcert represents and verify its existence.”
To date, the fork of the Nightfall’s code by 0xcert has been published as public in the dedicated 0xcert repository. With interoperability and certification features added to the scope of Nightfall, we hope enterprises could rely even more on having their assets recognized and transferrable among managing parties without the risk of hitting the wall of non-compliance with third-party standards or lack of reliable asset certification proof.