As a high-profile representative of the block industry this year, NFT has set off a surging wave in the fields of art, entertainment and sports. However, there are still vast areas of NFT that have yet to be developed, and ticketing applications are one of them. As a result, Binance Blockchain Research translated the paper written by Ferdinand Regner of the Technical University of Munich, André Schweizer of the University of Bayreuth, and Nils Urbach of the Frankfurt University of Applied Sciences.Research Papers, so that readers can systematically understand the application practice of NFT in the blockchain ticketing system.

The following is the text, and the Binance Blockchain Research Institute has made deletions that do not affect the expression of the original text.

Text by Ferdinand Regner, André Schweizer and Nils Urbach, Technical University of Munich, Bayreuth University and Frankfurt University of Applied Sciences, respectively
Translation: Binance Blockchain Research Institute

NFT (non-fungible token, also translated as "non-fungible token") is a new type of unique and indivisible blockchain-based token launched in late 2017. This article explores this theoretical and practical knowledge gap and demonstrates the effectiveness of NFTs in the field of event ticketing. Following a rigorous design science research methodology, we designed, built, and fully evaluated a prototype NFT-based event ticketing system. We thus demonstrate the usefulness of NFTs in tokenizing digital goods, preventing fraud, and improving control over secondary market transactions.

introduce

introduce

Blockchain technology is a radical innovation that has the potential to challenge and even replace existing business models that rely on third-party trust. The unique and indivisible or merging design of NFT makes it regarded as the key to unlocking the $200 billion collectibles market worldwide. However, in addition to this first experimental use case, which has been understood by more and more people, a deeper understanding of NFT from the perspective of information system research will also help to conduct research in three other areas.

First, solid descriptive knowledge about the general characteristics of NFTs and how they differ from fungible tokens helps to better understand the benefits and resulting opportunities. Second, improving normative knowledge of the NFT-based app design and evaluation process would benefit both researchers and practitioners. Third, increasing awareness of practical challenges will allow future researchers to better focus on addressing the remaining challenges.

Unfortunately, academic researchers still lack in-depth research on these aspects. Additionally, the current body of knowledge lacks best practices, development project experience, and insights into blockchain-based software development. We therefore conclude that significant research gaps do exist. Our goal is to bridge this gap by demonstrating the domain-specific applicability of non-fungible tokens and answer the following research question: What are the benefits and challenges of practical use of NFTs?

Research methods

Research methods

To design, implement and evaluate a prototype of a blockchain event ticketing system, we adopted a DSR approach. DSR has historically originated in engineering, which involves creating a previously non-existing artifact that serves a meaningful human purpose. Typical of this type of research work is a strong reliance on creativity and trial-and-error search.

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Prototyping and Development

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Problem statement and derivation of design goals

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Overview of Problem Areas Identified

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Design goals

Basic Design Decisions

A well-designed system architecture provides a roadmap for the subsequent development process. Before attempting to immediately apply blockchain-based solutions, we first ensured that our fundamental design decisions were well-founded. Therefore, we follow the decision model of Wüst and Gervais, which helps to decide whether the use of blockchain technology is useful for a specific scenario. Guides the user through sequential decision criteria in the form of questions. The key question is whether all interacting parties can be inherently trusted. Since the answer to this is no, then according to the model, a blockchain solution is sensible. Since we answered the follow-up question in the affirmative, the model suggests using a public permissionless blockchain if publicly available verification is necessary. Our design goals provide valuable guidance for selecting a blockchain with desired functionality. The Ethereum blockchain is a public, permissionless blockchain that supports smart contracts, has the largest developer community and runs a network based on more than 60.000 nodes without a single central point of failure. These properties allow us to build an automated application that inherits key properties of the underlying blockchain, such as decentralized trust, integrity, transparency, non-repudiation, and availability. Ethereum has developed its own high-level programming language that compiles to bytecode that can run on the Ethereum Virtual Machine; it is most popular for its stability with javascript-like syntax.

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result prototype

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Figure 1 UML diagram (simplified)

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Figure 2 console Ropsten testnet contract deployment log

Primary Market: After contract deployment, event participants can buy tickets by sending transactions containing Ether to the payable function buyTicket() until the supply limit is reached. This function first checks that the transferred amount is sufficient, and then calls the internal function \u createTicket(), which "mints" a new NFT as a virtual representation of the ticket. Each ticket is unique because its id can only exist once per contract, and its ownership can be verified at any time by calling the checkTicketOwnership(id) function. The total number of tickets owned can be obtained by calling balanceOf().

Secondary market: Ticket owners can provide resale tickets by calling the function setTicketForSale(). They can use the function setTicketPrice() to charge any amount up to the maximum price defined by the event organizer. Once the ticket owner has set approval by calling approvedAsBuyer(), any user with access to a blockchain-enabled web browser can buy a ticket from the current ticket owner. The buyer can now transfer the desired amount of cryptocurrency to the payable function buyTicketFromAttendee(), which finally transfers the ticket to the buyer. The transaction fee set by the event organizer is automatically deducted and retained by the contract, and only the contract owner can withdraw it. The modifier eventnotstart() disables the use of any setter functions once the activity has started. Therefore, no more tickets can be created or transferred after the time specified in eventStartDate. Organizers can call setTicketToUsed() to validate tickets at venues.

While the scope of the prototype does not have a front end for retail users, its full compatibility with the ERC-721 standard allows users to use any compatible wallet or NFT marketplace such as OpenSea to facilitate peer-to-peer transactions in an effortless manner. The prototype was deployed on Ropsten, the Ethereum test network, thus allowing any user with access to an Ethereum node to call the smart contract and use it. The source code of the implemented prototype, including deployment instructions, is publicly available on GitHub.

assessment and discussion

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Testing and Experimental Evaluation

To thoroughly analyze the functionality, structure, formal completeness, consistency, and quality of the prototype, we rely on algorithmic white-box testing, such as unit testing. To refine and optimize our prototype, we followed a test-driven approach and iterated between testing and refinement. We use the Truffle framework which includes the Mocha testing library and the Chai assertion library for structural, unit and functional testing. To ensure the consistency and quality of each public function and all modifiers our prototype contains, we wrote several unit tests. Additionally, we created a series of integration tests to simulate the complete workflow, allowing us to test the formal integrity and functionality of the prototype.

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Expert evaluation

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expert interview

We presented our research to all experts beforehand and followed semi-structured interview guidelines. We digitally recorded the interviews and then analyzed them against scientific criteria. Our interviews consist of two main parts and usually last about 30 minutes. First, we focus on recommended descriptive evaluation methods, which evaluate the power and utility of artifacts by creating relevant illustrative scenarios. We discussed whether our prototype fit our specified design goals and invited interview partners to come up with realistic scenarios and explore the implications for our prototype. Second, we also pose open questions to allow for an open discussion on general aspects of NFTs. Typical problems are:

• In your opinion, how can the impact of NFTs on the use cases discussed be generalized?

• What do you think are the main benefits of NFTs?

• In your opinion, what are the disadvantages of the use of NFTs?

• What are the remaining challenges and how to deal with them in the future?

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Evaluation Results and Discussion

Design Goal 1 - Digitization: Our simulations show that the entire workflow can be processed without requiring any physical representation of the data. Full digitization is in principle achievable, especially in ticketing and ticketing [expert#5]. However, a fallback mechanism is recommended to include less complex users, such as generating a QR code that encodes a ticket id. The user can then decide whether to print the ticket or display it digitally on the phone [expert#1].

Design Goal 2 - Secondary Markets: NFTs allow us to embed logic into digital assets, such as event tickets themselves, rather than embedding logic into the application that controls the asset. The prototype shows that it is possible to embed business rules for transfers on event tickets, enabling event organizers to control the process, set price limits and charge ticket sellers a fee. Hard-coded logic is superior to governance or regulation that requires monitoring of actual user behavior and enforcement of rules by human actors. It is much easier to charge ticket sellers if tickets are deducted automatically or transactions are blocked, rather than requiring sellers to follow certain rules. Therefore, we believe that the prototype approach is more effective than current existing methods of controlling secondary market transactions. The only weakness we found was a scenario where a user bypasses the system by transmitting the private key of an Ethereum account with active tickets, rather than exchanging tickets within the system [expert #6, #7]. This can be prevented by implementing KYC measures, which verify the identity of users of blockchain addresses [expert #6, #7]. KYC itself, which is currently a hot topic among practitioners and researchers, can also be achieved through blockchain-based systems.

Design Goal 3 - Independence: To be independent from intermediaries, event organizers and event participants need a system that operates in a trustless manner. Using blockchain technology, users can trust rules that are automatically enforced and cannot be manipulated. Since each Ethereum node processes and verifies transactions independently, the only trust required is the underlying blockchain protocol. However, mistrust is not only a property of the platform, but also of each smart contract (Fr). Our interview partners generally felt that independence from intermediaries could be achieved and the design goals achieved. However, some experts emphasized that the most realistic use case for our NFT-based prototype is integration with existing platforms to benefit from user aggregation. Existing reliance on intermediaries is replaced by new reliance on technical intermediaries such as smart contract developers [expert#5].

Design Goal 4 – Security: Our literature review shows that the security of blockchain-based systems relies on the general security of the underlying blockchain protocol and the security of individual smart contracts. The former face security risks such as 51% attacks, where a single entity owns most of the computing power. Operational risks include forks, which can occur if the developer community disagrees on important issues. This could lead to multiple competing versions of the codebase and could compromise the integrity of the blockchain protocol. The latter faces security risks stemming from coding errors, a fact we recognized at the beginning of the process and tried to mitigate as much as possible. Using OpenZeppelin's well-audited code as the basis for our implementation is an effective measure to reduce the attack surface of smart contracts [expert #4]. Despite these measures, the possibility that the application is vulnerable cannot be ruled out. Penetration testing by security professionals will be a valuable contribution. Operational errors, such as redeploying a new smart contract version, further increase the potential for human error. However, a situation where users are misled to interact with an outdated or even fraudulent version of a smart contract instead of a valid one is conceivable and poses a problem. Furthermore, if the private key protecting the campaign organizer is obtained by a malicious party, the security of the campaign organizer's account may be compromised [expert #1].

Therefore, trust in the security measures taken by event organizers is critical to the overall security of the system. We try to limit the potential damage of this scenario by effectively limiting the owner's options to change parameters and suspend transactions. In this case, ownership of the ticket itself would still be protected thanks to the use of NFTs, which embed rules that only grant certain permissions to the current owner. NFTs also help ensure integrity, as they guarantee ticket uniqueness by design [expert#4]. Since the Ethereum blockchain is public and uses pseudonymous identities, the prototype does not provide users with a high level of privacy. Researchers have shown that, with limited effort, privacy based solely on pseudonyms can be overcome. Several interviewed experts pointed to potential legal issues as data privacy laws could be violated. Aside from integrity and privacy, availability is a key factor in a secure system. The Ethereum blockchain was used as the base protocol for our prototype, ensuring almost no downtime.

Design Goal 5 - Validation: Ownership of validation tickets works well in our simulations. Since all transactions using smart contracts are transparent, users can verify the correctness of their actions at any time. The only prerequisites are internet access and possession of the cryptocurrency ether, as function calls are not exempt from transaction costs. Interaction with the smart contract will fail if sufficient gas is not provided (must be paid for using ETH). However, it is also possible to build a network of smart contracts that pay gas costs on behalf of users, as a recent proposal shows. Also, the propagation time using access control at the active location may not be sufficient for scenarios that require low latency. Since it may not be feasible to read all ticket permissions directly from the blockchain, caching the data before the event starts may be a workaround.

Design Goal 6 - Transparency: Since transaction data is immutably stored on the blockchain, a record of ticket ownership is preserved. The open nature of the Ethereum blockchain allows anyone to view and verify the current owner of a ticket at any given time. However, viewing ownership only returns the Ethereum account or smart contract that owns the ticket. Due to the pseudonymous nature of the blockchain, details of a user's identity are unknown unless efforts are made to reveal the real identity behind the account or KYC is performed to identify the user beforehand. For full transparency, KYC is necessary, as any entity can have multiple Ethereum addresses [expert #3]. Greater transparency would be resisted by many event organizers for fear of uncovering illegal side deals, such as withholding Special Detachment tickets invisible to the public that are traded behind the scenes for special interests [expert #2] .

Design Goal 7 - Automation: As our simulation successfully shows, event organizers do not need to take any manual actions after the initial deployment of the smart contract. However, if errors are made during the setup phase, event organizers can only correct these errors by sending transactions to the smart contract, which incurs transaction fees. Therefore, the Sponsor needs to properly fund the account in advance.

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Discuss general benefits and challenges

In addition to our findings related to event ticketing use cases, our literature research and expert interviews reveal further benefits and challenges of NFTs. Here we briefly discuss these findings and propose potential ways to overcome each of the problems we identified.

A key benefit of NFTs is that they allow for uniqueness more than any previous blockchain-based tool [expert #3]. They help make assets programmable, improving liquidity and security. Even for assets with certain fungible characteristics, better differentiation can be achieved if non-fungible tokens are used instead of fungible tokens [expert #3]. Thanks to these advantages, NFT provides new use cases for blockchain technology and has the potential to improve existing blockchain systems by simplifying it [expert #1]. Two main use cases can be distinguished.

First, the tokenization of digital goods is well suited for NFTs, as they can guarantee authenticity and uniqueness [expert #4]. A ticket can be viewed as a bundle of rights, so the tokenization of rights in general can be seen as a viable use case for blockchain-based systems and NFTs in particular [expert #3, #5]. In our gray literature research, we uncovered several use cases that further demonstrate the usefulness of NFTs, such as enabling new business models for software licensing and new forms of ownership for digital art. Second, NFTs are well suited to represent physical assets in the digital realm [expert#4, #7, #9]. Increased ownership transparency benefits regulators [expert #6]. However, to bridge the gap between the physical and digital worlds, add-ons such as smart sensors are necessary [expert #7, #8].

However, using NFTs presents some challenges. Since they are nothing more than a piece of standardized software code executed on a blockchain, they are highly dependent on the properties of the underlying blockchain protocol. As one expert explained, “Anything you can do with an NFT is Ethereum-enabled, and anything you can’t do is not Ethereum-enabled” [expert #1]. One of Ethereum's most notable challenges is its limited scalability. However, we found that solutions to overcome this challenge already exist, such as using state channels. If this issue is fixed, NFTs should be extremely scalable, as tests have shown that one contract can handle 2128 NFTs without issue. Another challenge is the design dilemma of privacy versus permissionless blockchains. Multiple researchers have shown that privacy cannot be guaranteed, as pseudonymized data on public blockchains may be meaningful, and transparency and public access are a key feature. However, the development of promising new technologies such as zero-knowledge proofs (ZKP) is still ongoing and will address this issue in the future. ZKP is a cryptographic method that allows proving certain properties to another party without revealing them (for example, proving that you are of a certain age without revealing your real age). A dedicated team at EY has initially demonstrated that NFT privacy is feasible by combining ZKPs with NFTs to facilitate private equity transactions.

Additionally, NFTs lack accessibility for retail users as they are back-end components that do not provide a user-friendly interface [expert #1]. The requirement to pay gas fees (denominated in ETH) for each function call complicates the use of blockchain-based systems, even for experienced users. As a result, users need to purchase cryptocurrencies upfront to cover transaction fees, even though the business model typically does not charge retail users. However, a recent EIP (Ethereum Improvement Proposal) called "Gas Station Network" shows that this problem can be solved, and smart contracts can replace users to pay gas costs. Not only gas prices fluctuate, but the price of the cryptocurrency ETH fluctuates wildly. This makes it difficult for retail users to calculate costs in terms of fiat currencies such as U.S. dollars. One potential way to overcome this challenge is to use decentralized stablecoins, such as Dai, which attempt to resemble fiat currencies in value, thereby freeing users from the monetary risk and psychological effort of exchange rate fluctuations. Another important challenge in using blockchain systems in general is the limited legal enforceability. While token owners can rely on authenticity, the legal ownership and use of the rights represented by the NFT is another matter [expert #3, #7]. In order for blockchain-based systems to be truly trustless, legal correctness and legitimacy in the current institutional environment are required. Additionally, since NFTs are a very young phenomenon, few people understand NFTs, and the language used in the blockchain space is very technical and often not well understood by the general public [expert #1, #5, #9].

In the process of building the artifact, we revealed a typical problem of NFT in creating tokens. Unlike fungible tokens, with NFTs it is not possible to create many tokens at once. Minting NFTs one by one is cumbersome and inefficient as it requires a lot of computing power and thus incurs a high gas cost. One solution we found and applied is to create tokens only when buyers ask for it and pay for it. This strategy is known as "user-mintable" tokens (another challenge is the two-step process of approving transactions before the actual transaction takes place. While the commonly used solution is to temporarily transfer the NFT to the marketplace contract responsible for the transaction, There are some downsides to this approach. The fact that token ownership is temporarily transferred away from the owner creates problems for some use cases, and security is negatively impacted. More importantly, each additional transfer consumes gas and reduces efficiency .Furthermore, the nature of smart contracts generally makes it easy to extend the system with new functionality. However, upgrading an existing smart contract entails multiple technical and operational risks and costs significant capital. Relying on development frameworks like OpenZeppelin and Truffle can greatly simplify upgrades process and reduce risk.

in conclusion

in conclusion

We study NFTs as an emerging phenomenon and evaluate them as a core building block of a blockchain-based event ticketing system. We followed a design science approach based on the guidelines of Hevner et al ( Findings. We found that NFTs could help overcome current weaknesses of existing non-blockchain event ticketing systems, such as susceptibility to fraud, lack of control over secondary market poses several challenges, mostly from the underlying blockchain protocol. Since we have shown that solutions to overcome these challenges are currently underway, we recommend further research to reassess the status of these challenges in the near future.

Before emphasizing the contribution of our study, we must consider its limitations. First, by considering a specific use case in detail and following a rigorous research process to derive generalized implications from it, we may miss certain insights that may be uncovered in different use cases. The use case itself is limited to a strongly simplified requirements model of the event ticketing system, and the roles of other stakeholders and related processes are not captured in detail. Our architectural choices may narrow the generality even further. Second, although we have attempted to address issues such as user experience, legal implications, and technical and operational risks, we acknowledge their limited role in this study (for a deeper understanding of user acceptance of functional transaction-based systems, we recommend Complementary research into other use cases of functional transactions, including extensive field experiments with retail users and legal experts as key components. Therefore, our findings should only be considered as preliminary steps towards a better theoretical and practical understanding of NFTs.

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