Idea: Multi-sig wallets for complex digital ownership

Abstract

A relatively low-tech, local coordination, solution to current copyright challenges associated with NFTs.

Creation of “multi-sig wallets” alongside the release of web3 digital assets, with a process between contributors to define the split of ownership, locked in through consensus between parties.

Motivation

NFTs have shown great promise in some areas, they hint towards an entirely new revenue stream for the creators of digital assets and represent the potential for financial independence & freedom.

However, one can see the ceiling on current implementations. There are constraints that require either a single entity to release the NFT, or for the single entity to agree payment to contributors off-chain, or for rudimentary indelible splits to be defined within the NFT itself.

Real world copyright is far more complex and currently served through aggregated databases underpinning the agreed state of ownership of rights.

However, copyright databases force a centralisation of power; in the ownership of and access to the database and in the power to adjudicate conflicts. Copyright databases are inherently reliant on input data being correct and dissemination of that data to be timely and understood. These issues pose limitations on the comprehensiveness and accuracy of current solutions. This challenge is somewhat mitigated by payment against digital asset usage in a streaming dominant world being delayed by royalty payment mechanisms, but poses a more severe challenge when value is surfaced upfront through NFT sales and payment to owners happens instantly.

3rd party representatives are an essential aspect of the supply chain underpinning the release of art and there is limited capacity for their engagement in current NFT release flows.

Therefore there is a requirement to investigate alternative solutions, to provide a foundation on which the emerging NFT market can scale and flourish. The current situation is sufficient for initial experimentation, but is a ticking time bomb in terms of future litigation.

Music represents a specific use-case for complex ownership structures unpinning digital assets, however the specification described below could be utilised for any digital asset where there are multiple contributors

Proposed solution

A wallet is created alongside the release of an NFT. This wallet will receive funds generated by the NFT, from initial sale and from any subsequent resale royalties.

The wallet will be a multi-sig, building on implementations such as Gnosis Safe.

Payment split allocation within the wallet will be defined through a process of controlling entities stating their claim around ownership of the asset. Splits will be crystallised once consensus is found between the parties.

To provide a fair window for discussion, payment out of the wallet will be delayed by a time period, to be defined by the parties involved. This will also provide an opportunity for 3rd party entities that may not have been included in the initial allocation of keys to state their claim on the asset.

Once payment splits have been locked there will be further opportunity for entities to state claims around asset ownership, enabled through the transparent and verifiable nature of the wallet split formation process. If funds have been found to be allocated erroneously then re-payment to the correct parties should be enacted with clear information being available for real world courts if required.

Non-technical specification

Wallet formation

• Multi-sig wallet creation

• Initial contributing entities defined and provided a key to the wallet

Payment split definition

• Each contributing entity states a claim for their split in the wallet

• Each contributing entity can state a proposal for other entities claims on wallet splits

• Splits are locked in if consensus is reached between contributors

• If conflicts arise then splits are not locked until they are resolved

• Additional contributors can be added to the wallet if consensus is found around their inclusion

Time delay component

• Wallet has a time delay on pay-out, to allow for reasonable discussion regarding split attribution and for additional interested parties to come forwards

• After the initial time delay is completed, all future payments from the wallet happen as soon as the funds are received

• If consensus is reached then contributors can decide to extend time delay to resolve any outstanding split conflicts

Consensus

• Consensus is defined as the majority of key holders, while this may invite collusion, it is seen as the simplest effective method for making changes to wallet splits and ownership

• Wallet changes and payouts are verifiable, should issues occur then appropriate correction processes can be put in place off-chain (e.g. through courts)

Potential areas of extension

DeFi

If creators wants to get money out against the wallet before the payment delay is up then they can do through loan type mechanisms, where their confidence against the claim they have stated provides the collateral, providing a neat solution with regards to confidence weighting around claims stated within an NFT split.

Aggregated view of ownership

Standardisation of wallets underpinning ownership of digital assets lends itself towards a platform to aggregate the information contained within wallets into an overall view of the ownership state of NFTs.

Concierge services

It is extremely likely that a catalyst for the expansion of web3 will be through trusted concierge platforms to hold keys on behalf of entities. While this may be a web2 solution to a web3 problem, the fit with the model proposed above is clear.

Limitations

The model proposed in this piece has several limitations, that may be mitigated as the ecosystem develops, but are important to detail.

Cost in setting up the wallet

Wallets should be an on-chain entity, and thus there will be gas costs involved in its creation. While this is a non insignificant cost in the current environment, protocol efficiency developments should mitigate this to a degree over time. Regardless, the assumption is the costs involved will prove to make a positive business case when compared to future litigation risk.

Cost in changes

The expectation is that the split definition process can done through non expensive means, for example gas-less signing. However, should future changes be required once splits have been locked in then it is likely that gas costs will be required.

All entities may not be “on web3”

A limitation of any initiative that seeks to release a digital asset into web3 with multiple collaborators is that all interested parties may not be in a position to hold keys or tokens. In the short term this is likely a key limitation on which digital assets can be released in this way, however future developments, for example trusted concierge services, may mitigate this.

Reliance on “real world” courts

The ultimate route of appeal in this idea, and arguably any system built to facilitate the definition of ownership, is through pre-existing “real world” courts. Copyright Law is robust as a final mechanism to determine the allocation of funds generated through the sale of digital assets protected by it. The intention with the proposed structure is to minimise the number of cases that are required to go to lawyers, but it is inevitable that they will be needed in some cases where resolution can not be found otherwise. Of course, there is an implicit requirement that for this to be an effective pathway to resolution that the actors involved have exposed their “real world” identity as part of the process, though it is reasonable to believe that this will be the case in the majority of cases due to the nature of the business involved.

Time gated consensus

Consensus is defined within this idea as the majority of interested parties agreeing on a specific detail. However, it is reasonable to believe that this may be open to collusion and coercion. Furthermore, requiring consensus to be gained within a defined time window may lead to inaccurate outcomes. As stated above, the ultimate route to resolution for parties that feel that the process has not delivered a correct outcome will be through lawyers and courts, supported by the transparent design of the split definition process. Alternative mechanism designs could seek to require support from all interested parties to fix splits or for there to be zero or an unlimited window for splits lock-in, however, the expectation is that this would bring greater friction to the system when compared to the edge case issues it may fix.