EIP-5791: How We Implement Blockchain for Physical Items?

Implementing blockchain for backing of digital assets and regular financial transactions is nothing new. But what about real-world assets? Thanks to physical backed tokens (PBTs), or the EIP-5791 standard, the future may arrive sooner than you’d think. 

Let’s make it crystal clear: you could link an NFT to a physical item or use RFID tags to trace products before. However, EIP-5791 goes beyond that. A physical backed token lets you authenticate, verify, and even access objects in a decentralized way. 

In this article, we will show how PBTs use smart contracts and blockchain to enable transparency across the supply chain, improve security, prevent fraud, and craft new customer experiences. We’ll also describe how you can implement this technology today. Starting with the basics.

What is a physical backed token (EIP-5791)?

EIP-5791, also known as a physical backed token (PBT) or scan-to-own technology, is an open-source blockchain standard that binds a physical object to a unique digital asset (non-fungible token or NFT) via an electronic chip. Each NFT is stored on the blockchain, usually on the Ethereum networks or its derivatives. 

PBT was developed by Chiru Labs as an extension of EIP-721 — a standard that provides functionality to transfer and track NFTs. Where EIP-721 allows tracking an arbitrarily large number of digital tokens, the physically backed tokens strive to do the same for physical assets.

However, EIP-5791 is different from Radio-Frequency Identification (RFID) chips and tracking devices.

Why would you link physical items with crypto tokens?

Backing physical assets to digital tokens offers distinctive benefits. It’s not just about the tracking of items. You can verify the current owner and authenticity of crypto-backed physical objects via the blockchain ledger. Plus, the blockchain infrastructure itself provides a highly resilient and immutable database of transactions.

Other technologies don’t offer tightly coupled integration between a real object and a blockchain token. Digital and physical items are usually distinct assets. The owner can swap their NFT on the marketplace while keeping the physical item. In PBTs, the chip can be programmed to block access to the device without an NFT.

What’s more, other solutions are centralized — they require a trusted third-party service to verify the authenticity and process the transaction. PBTs let people authenticate, transfer, and share items with smart contracts instead of external entities.

As an alternative, companies can combine blockchain with RFID chips for authentication. However, this solution is alterable, as an RFID controller can generate and rewrite code in the NFTs. Criminals can go as far as to forge assets by copying code from the NFT on the public blockchain to their tokens.

Let’s see how physical backed tokens achieve what other solutions cannot.

How do physical backed tokens work?

For the PBT technology to work, the physical asset must be conceptually linked with the crypto token. To make a token physically backed, you should embed it with a BEAN chip (Blockchain-Enabled Authentication Network). 

Your smart contract algorithm should be reprogrammed for the EIP-721 standard. This ensures that only an item’s owner or legitimate possessor can manage the token rights.

Here’s a quick demonstration of an NFT minting for a physical asset:

1. The cryptographic chip generates an asymmetric key pair for the NFT: a publicly exposed public key and a non-extractable private key.
2. After minting an NFT, the smart contract emits an event (that includes the 20-byte chip address) and sends it to the downstream indexers to map the chip with the token.
3. The owner uses the cryptographic chip and a private key to validate transactions.
4. Anyone can validate whether the chip and physical item are interlinked and belong to a particular person.

New owners can transfer PBTs to their crypto wallets or NFT collections to show ownership rights. It’s possible to implement the scan-to-own functionality, so people can trade items on their mobile devices.

This covers the basics. Next, we will introduce you to the possible application of this technology.

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How can companies implement physical backed tokens?

It’s up to you how to apply the EIP-5791 standard to NFTs, physical assets, and smart contracts. Here are just some of the possible use cases and benefits:

Verification of ownership rights

Scan-to-own technology simplifies the tracking of the ownership lineage of physical items. It’s similar to the car ownership registry, but only more accessible, transparent, and on a larger scale. 

Retailers can reprogram NFT-backed devices once the customer buys them. There’s no need to sign additional contracts — property rights and permissions are automatically processed. The blockchain records every time someone returns the item, exchanges it, or trades it. So, the client can easily verify if the product is new and how many hands it has passed through.  

The EIP-5791 chip can showcase if the assets belonged to a famous figure. So, for example, everyone at the auction can verify the authenticity of an auctioned item before placing a bet.

Decentralized tracking of the supply chain

Companies can manufacture products with the BEAN chip to track them across the supply chain. The subsequent parties — transportation companies, distribution centers, warehouses, and retailers — will reprogram the token rights as they pass on the product.

It’s important to mention that the EIP-5791 doesn’t lump transactions together in a blockchain. You can program the smart contract to track ownership of every asset individually. This means companies can find the party that was responsible for their goods on any given date.

Additional security

Physical backed tokens can control access to products. For example, you can integrate a chip into smartphones, car control units, or smart locks. Then, the chip will automatically unlock the device when a private key owner scans it or gets into its proximity. 

You can add NFT verification on top of the regular authentication mechanisms. Doing so adds another layer of security to physical devices and, if integrated correctly, doesn’t complicate access for the token owner.

Secure property sharing

Decentralized authentication and smart contracts can help users share their property. Something like this is widely used for scooter sharing. The user downloads an app, puts funds in the wallet, and scans the QR code to access the vehicle for a limited time. 

Similarly, blockchain integration allows sharing of other property types by transferring a chip signature. Users are able to safely lend out electronic devices, cars, or even real estate. The NFT can even be used to prove property rights. Imagine a police officer using the blockchain to verify if the person should be driving a vehicle.

Another useful feature is the ability to reclaim ownership and access. The smart contracts can be set to block the user from the property after a particular time or if they don’t meet their obligations. For example, a borrower can lose the ability to drive a car if the payment is overdue.

Anti-fraud measures

This technology can improve fraud protection. As we mentioned, only the owner (or an approved user) of an NFT and a physical item can initiate a transfer. With the correct setup, a device can be inaccessible without a crypto token.

It also enables decentralized authentication of goods. Users won’t need to contact the manufacturer or professionals to confirm the item isn’t counterfeit. Instead, everyone can check the asset details and ownership history via the blockchain.

New digital experiences

Physical backed NFT collections can become trendy. Take the NFT project Azuki that plans to auction eight 24-carat gold skateboards with cryptographic chips. The winners will become a part of the project’s website and get unique NFTs. Other users need only to scan the chips in these skateboards to buy the NFT rights from the owners.

PBTs can provide unique experiences. For example, popular brands may host exclusive events or provide VIP access for people that own a physical backed token and NFT. In addition, companies can produce unique items for NFT holders, similar to how Tiffany and Co. made handcrafted pendants available for CryptoPunk token owners.

The best thing about this technology is that it’s available now. An experienced team of blockchain developers is all you need to start.

Unicsoft can help you tokenize physical assets

You don’t need an excessive investment or a specialized in-house team — our company can build your solution from scratch.

Our team will help you conceptualize your ideas and find the optimal solution for your project. Developing a token that supports the EIP-5791 standard is the easy part, as we’ll basically add a custom metadata field.

Integrating the chip with the blockchain is more challenging. Luckily, our team can develop and configure a custom interface to let the ECDSA-enabled chip communicate with your blockchain app. On top of that, we can add compatibility with other standards (like ERC-721 and ERC-20), so your PBT works with other decentralized apps and wallets.

The project will still require your contribution. As a client, your main objectives will be to:

• Organize the procurement of the chips. You also need to make sure the BEAN chip meets the technical specifications for your project.
• Plan the integration into the device. The cryptographic chip should be inseparable from the physical device and, in some cases, control its functionality.
• Maintain the chip’s integrity. You should ensure the chip doesn’t get damaged or deteriorate over time.

Thankfully, our company has a wide pool of manufacturers and vendors. After a consultation, we can suggest the right technical partner to help with the chip-related challenges. The rest is entirely up to us.

What’s next?

Commercial companies, nonprofit organizations, and regular users are getting more involved with blockchain technology. Now, thanks to the EIP-5791 standard, even NFTs can be backed by real-world physical assets.

Time should tell if the physical backed tokens will stick. But even now, they can provide tangible benefits to organizations that seek transparency, decentralized authentication management, and new customer offerings. 

Do you want to experiment with integrating PBTs into your devices? We can ensure you have a working prototype with minimal financial risks and investments. Just reach out to us for a consultation to learn more.