Vitalik Buterin Discusses Benefits of Non-Transferable NFTs

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Ethereum co-founder Vitalik Buterin has published an opinion piece on non-transferable NFTs, arguing that there are some use cases in which token transferability is counterproductive.

True Non-Fungibility

Vitalik Buterin thinks Ethereum users could benefit from non-transferable tokens.

Vitalik Buterin published a blog post today in which he ruminated on the possibility of “soulbound” NFTs, or NFTs which are truly non-fungible in the sense that they cannot be sold or separated from their owners.

Taking the terminology from World of Warcraft (in which a “soulbound” item refers to a item that cannot be sold or separated from the player who carries it), Buterin used the majority of his post to consider the same concept vis-à-vis the NFT space, in which currently most NFTs can be bought, sold, or transferred from owner to owner. 

“While transferable NFTs have their place and can be really valuable on their own for supporting artists and charities,” Buterin wrote, “there is also a large and underexplored design space of what non-transferable NFTs could become.”

To illustrate his point, Buterin listed a number of examples, both real and hypothetical, of instances in which transferability is not a preferred quality in an NFT—he cited POAP, for instance, the “Proof-of-Attendance” protocol which distributes NFTs to users signifying that they personally attended an event. While technically POAP tokens are available to trade on OpenSea, their core use case (i.e. to signal that a person actually attended an event) Buterin argues, would suggest that they would make more sense as strictly non-transferable tokens. 

Buterin also suggested that governance rights may make more sense as non-transferrable, “soulbound” tokens. Rather than allowing the outright purchase of governance tokens—which can easily result in the wealthiest or most power-hungry accumulating an undue proportion of them—Buterin suggests that governance tokens could be bound to key stakeholders in a network or organization. Citizenship or residency NFTs, for example, could bear voting powers, similar to CityDAO’s “citizen” NFTs; however, unlike CityDAO’s NFTs, which are still transferable, the governance NFTs Buterin envisions would “soulbound,” and only available to real-world residents of the city. 

Buterin was careful to cite privacy concerns, noting that it would take some technological innovations to ensure that the totality of a person’s on-chain data does not get publicly mapped to their name and face. However, he noted that “a few fairly simple technical options are possible,” including the use of zk-SNARKs.

The Ethereum co-founder closed his post by pointing out that, while most blockchain innovation and research is performed with the goal of maximum transferability in mind, there are real use cases for NFTs that would perform their functions more efficiently if they were more truly non-fungible. He ended the post with a simple call to the crypto community to focus attention on the points he had discussed. “If we can, this opens a much wider door to blockchains being at the center of ecosystems that are collaborative and fun, and not just about money,” he wrote.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

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