What if NFTs Cannot be Traded? Vitalik Uses "Soul Binding" as an Example: Will Bring Extensive Applications to Blockchain.

Ethereum founder Vitalik Buterin proposed the application of "Soulbound" NFT in his latest article "Soulbound," suggesting that non-transferable NFTs will open a new door for blockchain applications. NFTs will no longer just represent wealth creation but also signify who you are.

Source: https://vitalik.ca/general/2022/01/26/soulbound.html

Using World of Warcraft as an example, Vitalik explained the concept of "Soulbound" items and equipment, which is rarely mentioned in other fields. Once a player obtains a Soulbound item, it cannot be transferred or traded to other players.

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Soulbound items are usually accompanied by challenging mission thresholds, with a clear purpose: to increase game difficulty and player achievement through hard-to-obtain rare equipment.

However, this mechanism is not perfect, as players can still seek help to pass missions or directly buy character accounts in the secondary market using USD, completely bypassing the game system. Nevertheless, this is still much better than having priced equipment items.

What Value Does Current NFT Represent?

He believes that the current nature of NFTs is similar to rare items in games, they have social value:

"Holders can show off and there are more and more tools to help users show off."

What are these NFTs conveying currently?

• Some skills acquired by owning these NFTs.
• Some tips on how to acquire these NFTs.
• Most inevitably become "wealth codes."

What if NFTs Could Be Soul-Bound?

If someone shows the NFT they received for completing something X, we cannot judge whether they did X themselves or paid someone to do it, but in some cases, this is not the main issue, as Vitalik points out:

For a charitable NFT, even if someone buys it from the secondary market, it motivates others to buy it, indirectly helping the charity organization. Charitable NFTs can bring many benefits, but what if the NFTs we issue symbolize not just money but something else?

Best Example: POAP

The best example may be the Proof of Attendance Protocol (POAP), where this NFT represents proof that someone participated in something.

Vitalik believes that POAP would work better if it were soul-bound. On-chain certificates, diplomas also face similar issues; if certificates can be directly purchased from others, their value would significantly decrease.

Transferable NFTs have a place, valuable for artists, charitable organizations, but non-transferable NFTs also have significant, undeveloped design space.

Soul-Bound Governance?

Vitalik has often talked about governance issues before, please see 1 2 3 4 5, and he finds this issue worth mentioning repeatedly:

If governance can easily be transferred, governance mechanisms will go very wrong.

There are two main reasons:

1. If your goal is to distribute governance widely, transferability may allow vested interests to purchase governance from others.
2. If governance is handed to competent individuals, it cannot prevent the incompetent from acquiring governance.

You should be skeptical of transferable governance rights because governance is very likely to flow from gentle talents to troublemakers hungry for power.

What if governance rights become non-transferable? What if a protocol's governance is determined by participation?

This is an effective mechanism but very difficult to implement today.

Potential Solutions

POAP has decided to maintain a transferable mechanism, with good reason:

• Users may want to transfer wallets.
• Users can still circumvent the mechanism through a Wrapper.

For profit, POAP often changes hands, even free POAPs issued by Adidas have been transferred to higher bidders.

On-Chain Verification

The POAP team suggests developers concerned about non-transferability can independently verify on-chain whether the holder is the original holder, a more forward-thinking approach.

Proof of Non-Robot

The most robust non-transferable NFT may currently be "Proof of Humanity," which theoretically allows for the sale of accounts with forged non-robot proof files through smart contracts, but non-robot proof has a revocation function, allowing the original holder to record a video proving their identity to delete the original data, and arbitration by the decentralized court protocol Kleros.

Vitalik points out that buying a non-robot proof account through a third party could lead to assets being seized in the manner described above, making transfers impractical, so non-robot proof is effectively soul-bound.

Domain Binding

For some applications, introducing moderate non-transferability may be sufficient. If users care enough about their ENS domain names, they will not want to transfer the NFT, so binding the NFT to the ENS is a simple viable method.

While a series of methods to restrict transferability can be seen above, different projects will have different trade-offs between security and convenience.

Privacy

Vitalik states that transferable assets can achieve privacy effects through platforms like tornado.cash, while soul-bound items can strengthen privacy through cryptographic techniques like ZK-SNARKs.

Privacy is a key aspect of non-transferable NFTs; in many cases, users do not want to reveal everything they own. If POAP becomes a vaccine certificate in the future, the worst-case scenario would be a system where whether one has been vaccinated is visible to everyone through POAP, affecting individuals' medical autonomy within their specific social circles.

Using privacy as a core mechanism of non-transferable systems can prevent such outcomes, giving us a better chance to create great things.

Development of NFTs

In conclusion, Vitalik mentions that the common criticism of Web3 is "everything starts with money." While people celebrate acquiring wealth and promoting digital ownership, a lot of resources are wasted, limiting the cultural appeal and long-term sustainability brought by NFTs.

Of course, financialized NFTs have their advantages, such as supporting artists, charitable organizations, but this has limitations, and there are many areas outside of financialization that still need development. He points out:

NFTs can represent who you are more than just what you can afford. Launching more "soul-bound" projects in the crypto field may be an alternative.

Currently, there are technical issues; non-transferability is difficult to achieve in the blockchain ecosystem, with all standards built around maximizing transferability. However, not being able to forge non-robot proof or binding ENS to prevent user transactions seems to be the most promising.

There are still usability, privacy, and security issues; we need to think harder and solve these challenges. If successful, it will open wider doors for the blockchain ecosystem, beyond just money.