Ethereum's Vitalik Buterin Argues Making NFTs 'Soulbound' Could Take Their Utility Beyond Just Ownership Of JPEGs

Comparing non fungible tokens to items in massively multiplayer online games (MMG) in a blog on Wednesday, Ethereum ETH/USD co-creator Vitalik Buterin touched on a way of increasing their utility. 

Soulbound NFTs: Soulbound items exist in the “World of Warcraft” game and can be obtained by completing difficult quests or killing a very powerful monster. 

Since these items cannot be purchased with ease off the shelf, it keeps the game challenging and also ensures that a player actively participates in the game.

Buterin noted that, while the current breed of NFTs have many of the same properties as rare and epic items in MMGs, they also have what he called “signaling value.”

While NFTs at present can signal acquisition skills, they also signal wealth, according to the ETH co-creator.

Buterin asked, “What if we want to create NFTs that are not just about who has the most money, and that actually try to signal something else?”

He then went on to cite Proof of attendance protocol (POAP) as the best example of such an NFT. 

“POAP is a standard by which projects can send NFTs that represents the idea that the recipient personally participated in some event,” said Buterin.

Even POAPs can be transferred and there have been instances where POAPS have been bought and sold when an “economic rationale” existed to do so, according to Buterin.

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The Case For Non-Transferrable NFTs: Buterin said transferable NFTs have their place and can be valuable in supporting artists and charities, but non-transferrable NFTs are also a “large and underexplored design space.”

One of the use cases that Buterin explained in detail was making governance rights soulbound. He made the case for making governance power non-transferrable by saying that if the goal is that such powers should be widely distributed then transferability is counterproductive as it may lead to the concentration of such rights.

Secondly, Buterin pointed out that transferability may lead to governance power passing from the hands of the competent to those who are determined but incompetent.

Buterin illustrated what he meant with an example: “What if we try to make a CityDAO where more voting power goes to the people who actually live in the city, or at least is reliably democratic and avoids undue influence by whales hoarding a large number of citizen NFTs?”

Reinforcing Non-Transferability: Buterin described a few workarounds to reinforce the non-transferability of NFTs. He said the POAP team is suggesting that developers could verify on-chain if the current owner of an NFT is the same address as the original owner, in case they want to allow migration of wallets but ensure that the owner remains the same.

Proof-of-humanity tokens are de-facto soulbound, according to Buterin. Proof of Humanity is a social identity verification system built on Ethereum.

A medium-strength approach that Buterin advocated was using an NFT bound to a name and lookup service built on Ethereum called Ethereum Name Service (ENS). 

“What we're likely to see is a spectrum of approaches to limit transferability, with different projects choosing different tradeoffs between security and convenience,” wrote Buterin.

NFTs Should Focus On 'Who You Are:' Touching on today’s NFTs, Buterin wrote, “People celebrate the ownership, and outright waste, of large amounts of wealth, and this limits the appeal and the long-term sustainability of the culture that emerges around these items.”

He said there are limits to this approach, which can be offset by “making more items in the crypto space ‘soulbound.’”

If NFTs were to take such a course then they can “represent much more of who you are and not just what you can afford,” according to Buterin.

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