Understanding Physical Backed Tokens
What are Physical Backed Tokens?
Physical Backed Tokens (PBTs) were introduced with EIP-5791 an extension of EIP-721 which proposed a minimal interface for an EIP-721 NFT to be “physically backed” and owned by whoever owns the NFT’s physical counterpart. This essentially ensures that holders of the chipped physical asset will always be able to claim ownership of the digital asset.
So how do they work? Each NFT will be linked to a physical chip. When the NFT is minted, it will send out an event with the 20-byte chip address that comes from the public key of the chip. This lets indexes further down the line know which chip address goes with which NFT tokens. The NFT cannot be made without its token ID linked to a specific chip.
But how do PBTs differ from other “physical” NFTs?
NFT collectors enjoy collecting digital assets and sharing them with others online, however, there isn’t a standard like this for showing physical assets as NFTs with verified ownership and authenticity.
In many other projects, designers have produced “physical” NFTs using QR codes or off-the-shelf NFC chips, where the physical and digital assets exist as separate entities. The difficulty with this design is that once claimed, the “physical” NFT no longer has any link to the digital asset. Existing solutions are piecemeal and usually have at least one of the following problems:
- The person who owns the physical item is not the same person who owns the NFT.
- A trusted third party must verify the physical item to make sure it is real (e.g. StockX).
EIP-5791 tries to address this complexity by simplifying and standardizing the operation of physical NFTs within a limited set of constraints:
- Each NFT is conceptually linked to a physical chip.
- NFTs can only be transferred if a signature from the chip is supplied to the contract.
Another great feature of PBTs and EIP-5791 is the time-gated signature. Where essentially all signatures generated cannot be used far into the future after being generated. PBT requires that the message being signed include a recent blockhash, and that the contract checks that the blockhash is recent when verifying.
The contract would only accept signatures made by the owner for a short time after they were made. Their signature is only good for a short period of time that is defined by the PBT implementor.
Technical Requirements for PBTs
This approach requires that the physical item must have a chip attached to it that fulfils the following requirements:
- The chip can securely generate and store an ECDSA secp256k1 asymmetric key pair;
- The chip can sign messages using the private key of the previously-generated asymmetric key pair;
- The chip exposes the public key; and
- The private key cannot be extracted
The approach also requires that the contract uses an account-bound implementation of [EIP-721](./eip-721.md) (where all [EIP-721](./eip-721.md) functions that transfer must throw, e.g. the “read-only NFT registry” implementation referenced in [EIP-721](./eip-721.md)). This ensures that ownership of the physical item is required to initiate transfers and manage ownership of the NFT, through a new function introduced in this interface described below.
Variations of PBT chips
Kong.cash introduced their HaLos (Hardware Locked Contracts) that allowed users to interact directly with their mobile browsers (no dedicated app required). They use Ethereum’s native secp256k1 which allows direct signatures for transactions and messages, reducing the cost of verification on-chain.
In terms of security, we see significant improvements from their previous SiLos (Silicon Locked Contract) tags, where their cryptographic logic is reliant on firmware-level guarantees. This essentially means that HaLo can be used in any application, and compared to less secure QR codes or URLs on NFC tags, HaLo’s can attest to their own identity through the generation of signatures.
Kong’s HaLo chips are the star of Azuki’s BEAN chips which have been featured in their Golden Skateboard collection and potentially their more recent Azuki x AMBUSH drop.
