Not all NFTs are made equal. VCs vs NFTs.

NFTs vs. VCs. It's all about the use case and the implementation.

Not all NFTs are made equal. VCs vs NFTs.
NFTs vs VCs

The big identity dilemma.

The past year has seen incredible growth in the web3 space. Opportunities around new use-cases have been strongly driven by an unexpected contender: Non-fungible Tokens, or NFTs for short.

This new, primarily scarcity-driven asset class opened the space of crypto. A new breed of participants of the web3 economy, whom we can collectively refer to more as a collector than an investor, joined the scene.

The JPG run revolution took crypto by storm, unexpectedly driving usage and meaning for use-cases that were previously not gaining a market share. Burgeoning communities are being established around small sets of unique images.

Why does this matter? Because an economy previously driven by returns introduced a solid social, economic mechanism where belonging to a group goes beyond just economic opportunities, creating a solid bond and a sense of belonging. NFTs entered pop culture, and the ownership of a particular asset type became a social symbol.

A large part of Crypto Twitter took to the stage by claiming their PFP (Profile Picture) NFTs became more than their investment, and it is now their identity. Why does this matter? Because NFTs, as we most commonly refer to them, are NOT IDEAL for representing an identity (or becoming an identifier). Identity should not be up for sale, the ability to sell it should be impossible.

Parallel to the rapid success of NFTs, the space of Decentralized Identifiers (DIDs) and Verifiable Credentials (VCs) (not the investor type but the digitally signed ones) gained tremendous recognition among the technically driven members of the community. This technology, or more precisely, technology stack, has been in development for a good part of a decade by enthusiast companies and individuals concentrated around the W3C and DIF.

So why debate the questions between NFTs and VCs?

Because not all NFTs are made equal, nor are DIDs and VCs. The argument that one is better than the other will always depend on their respective implementation and the use-case they are intended to solve.

Today, there are over 100 DID methods (publicly registered) that meet the criteria of the Decentralized Identifiers a W3C Proposed Recommendation [almost final], the core building block of most decentralized identity systems. These DID methods differ in many ways. Each was designed with an ecosystem or set of requirements in mind. The broad appeal of DIDs and the frequently quoted ability to solve all digital identity-related problems have been driving this market saturation.

But DIDs are not a stand-alone solution. DIDs are a piece of an ever-growing puzzle of interlocking technologies that, combined, create a decentralized identity stack. To design or select a decentralized identity profile, a set of technology decisions must be in line with the project’s criteria.

Therefore there is no such thing as a simple DID that gets the work done. An entire framework must be considered.

NFTs are also complicated.

As the ecosystem of NFTs has grown, different types of NFTs are being designed to meet different use-cases, with other attributes and functionality.

The statement that NFTs are not ideal for representing an identity is only partially true. A small set of NFTs popularised by Vitalik Buterin recently, soulbound NFTs, are key. These NFTs solve a core problem stemming from NFTs; they’re non-transferable.

It will always depend on the use case and the implementation.

An example of the use of NTNFTs in the real world:

Why did kycDAO choose ntNFTs over DIDs + VCs to start with?
NFTs are used today by the target audience and offer on-chain composability.

kycDAO is solving reusable on-chain KYC.

What made kycDAO choose a non-transferable NFT based approach?

- a large % of the target audience understands NFTs. Users and implementers are not required to learning anything new when interacting with the service.

- NFTs are an on-chain asset class, therefore offer composability.
The nature of permissionless verifications can go way beyond the comprehension of a team.

- A functionally similar NFT contract is available on blockchains, based on interface standards developed for interacting with NFT,making it ideal to become the base for a multichain ecosystem. i.e. that users can see their KYC identity in their wallet.

- NFTs do not require a datastore/wallet integration.
NFTs take up block space, the JPGs are stored in a decentralized database, but it does not require  special tooling to store Personal Identifiable information (PII).

- no PII should be published on the chain.
KYC NFTs are identifiers to signal trust and compliance.

- kycDAO is a trusted service provider.
The framework augments compliance mechanisms away from web3 services.

- NFTs have JPGs that are owned, unique web3 versions of the web2 blue checkmarks.

Considerations we made during the design process of our ntNFT contracts:

- Privacy:
Does the user lose privacy by disclosing publicly that they have been verified by minting an ntNFT to their blockchain address?
We iterated through VCs and other zkProof-based solutions, and ended with publicly minted ntNFTs. Our rationale was that in case of using off-chain or hidden proofs, at the time of accessing a gated service the existence of a proof becomes public.  

- Compliance
KYC is not a one-time process. It is a continuous service. As kycDAO acts as the trust anchor for the framework, it must offer a bank-level compliant system.
To deliver compliance, kycDAO NFTs are equipped with  Validity status metadata. DIDs and VCs would require a revocation service supported and accepted by all participants. Our NFTs individually store the current status of the identifiers, relying on the already built infrastructure and the blockchains we intend to serve.

- Price
We intend to empower the user so they can own their verifications. Ownership, however, comes with a cost. So does any data storage.

- Future-proofing
We look at DIDs and VCs as a future extension of the framework.

So NFTs or VCs?

It will always depend on what is your use-case.

If you are interested to learn more about kycDAO, visit our website or ask questions on our discord or via twitter.