What is an NFT?

An NFT is a unique digital item stored on a blockchain. NFTs can represent almost anything and serve as a digital record of ownership. Ethereum and Arbitrum are two blockchains used for NFTs. 

What makes an NFT a non-transferable, or soulbound, NFT?

Ethereum's co-founder, Vitalik Buterin, first introduced the non-transferable NFT concept in a blog post in January 2022. He was inspired by the video game World of Worldcraft to hypothesize how soulbound NFTs could manifest in web3. He compared their utility to that of WoW's powerful items, which are soulbound or bound to a single player. 

Later, in May 2022, Buterin, along with economist Eric Glen Weyl and lawyer Puja Ohlhaver published a whitepaper, Decentralized Society: Finding Web3's Soul. The white paper introduced the premise and suggested the utility of non-transferable NFTs. Together they also laid out a definition for the NFTs: 

"... Non-transferable ‘soulbound’ tokens (SBTs) representing the commitments, credentials, and aliations of ‘Souls’ can encode the trust networks of the real economy to establish provenance and reputation." 

In simple terms, a non-transferable NFT is a unique identifier and digital token that can only be issued by a "Soul" or assigning individual, brand, or institution. For instance, the white paper outlines the example of a university's capacity to act as a "Soul" and, therefore, issue SBTs (or non-transferable tokens) to those who graduate from their institution or complete their coursework. 

The most important difference between non-transferable NFTs and other NFTs is that non-transferable NFTs cannot be sold or transferred from one wallet to another after landing in the holder’s wallet. 

What are the advantages of using blockchains for non-transferable, or soulbound, NFTs?

Authenticity and provenance

By using a blockchain to track the ownership and movement of a non-transferable NFT, it’s possible to establish a clear and verifiable record of the authenticity and provenance of the NFT. 

The white paper also suggests the following: 

“While blockchain inclusion enables us to trace the time a particular work was made, SBTs would enable us to trace the social provenance, giving us rich social context to the Soul that issued the work—their constellation of memberships, affiliations, credentials—and their social distance to the subject.” 

Ownership and control

Each NFT has verifiable ownership and can only be controlled by the person whose wallet it has been assigned to or the designated assigner.

Accessibility and networks

While non-transferable NFTs are still relatively new and have only a few use cases so far in practice, their proposed use cases do benefit from blockchain’s universality and easy access. For instance, if non-transferable NFTs were used to assign medical history to an individual, their medical records would be easily accessible to any medical provider.  

Where are my NFTs stored?

The white paper proposes that non-transferable NFTs would be assigned to a kind of crypto wallet, but the particulars are still unclear as of writing. 

In addition to proposing where the non-transferable NFT would be stored, the authors of the white paper also outlined how the tokens could be recovered should they be lost: 

“SBTs allow a similar, but broader paradigm: community recovery, where the Soul is the intersectional vote of its social network. Social recovery is a good starting point for security, but has several drawbacks in security and usability. A user curates a set of “guardians'' and gives them the power, by majority, to change the keys of their wallet. Guardians could be a mix of individuals, institutions, or other wallets….While social recovery avoids a single point of failure, successful recovery nonetheless depends on curating and maintaining trusted relationships with a majority of guardians.”

How are non-transferable, or soulbound, NFTs most commonly used?

Critics of soulbound tokens argue that they could violate consent, as they can be airdropped to a person’s crypto wallet, where they will be stored forever, but proponents of the technology argue that there are positive new use cases constantly emerging.

For example, soulbound NFTs can be used to verify a digital identity or reputation, representing achievements, awards, or certifications that are permanently associated with an individual's online persona.

In the case of gaming, soulbound NFTs can represent in-game items or character progress that cannot be traded or sold. This would ensure that certain achievements or items within a game remain unique and permanent to the player who earned them.

Soulbound NFTs could be used to commemorate significant life achievements, personal milestones, or collectible items with sentimental value. For example, they could represent a digital diploma, a marriage certificate, or a family heirloom.

In another use case, content creators and artists could use soulbound NFTs to offer exclusive content or experiences to specific individuals who attend their events. For instance, an author might offer a soulbound NFT that grants access to a private reading of their latest work. The concept of soulbound or non-transferrable NFTs is still evolving, and the use cases mentioned above are just a starting point.