While NFTs are really interesting as discussed in this article, there is yet another class of tokens that are worth exploring but not in focus. Soulbound NFTs as Vitalik, Co-founder of Ethereum calls it. The article published by Vitalik can be read here. As the term suggests, this refers to NFTs which are bounded to the soul! In simpler terms, these are a class of NFTs that cannot be transferred. What would be the value of such tokens which we can’t even trade you ask? In real life, we already deal with many such tokens without even noticing. The non-transferable Air or Railway Ticket, Insurance Policies, University Degrees, Driving License, Voter ID, all are examples of non-transferable NFTs or Soulbound NFTs. Many of these in fact are valuable because they are non-transferable.

This becomes abundantly clear when we switch to the gaming world. Imagine that you could just buy a rating at Chess.com. The entire rating/score will lose value if this could have been possible. Instead, every user has to showcase their skillset and beat the best of the best in order to increase their rating. Every player knows and trusts that a person with a very high score must be a kickass chess player. This is what soulbound NFTs will enable in the Web3 ecosystem.

While users owning NFTs can signal wealth and skills in acquiring/selecting such NFTs. Such NFTs can’t signal the inherent skills associated. The primary use case of Soulbound NFTs is to ensure - Merit or skill or interest tokens are not buyable/transferable. This is critical and powerful. Imagine a doctor having a degree token that he just bought from someone. Or an engineer building bridges leveraging such degrees. That will be catastrophic. Therefore, the underlying primitive behind such tokens will be that the user will have to complete these tasks/projects/activities themselves in order to earn Soulbound NFTs. Using Soulbound NFTs, users will signal and be recognized in the blockchain ecosystem. These tokens will help build the reputation required to shoulder important tasks. For many of the activities including governance, such skills could be mandatory for casting a vote towards any decision. More on governance in another article.

Not only IDs and Degrees, but such tokens can also represent the interest and help express your identity in a native manner. Imagine, you could get a Friends Platinum Golden Token for watching the Friends series 10 times! This just indicates your interest and expresses an important part of your identity. If someone is looking at your NFT collection, they will be interested in understanding your genuine interests which could partly be reflected by the tokens you ‘bought’ but more so reflected by the tokens you ‘earned’. Imagine having tinder matches based on your NFT collections which represent your identity and genuine interests. Soulbound NFTs serve a better use case in such scenarios as well. POAP, Proof of Humanity, Bright ID are solutions already working in this direction.

Restricting transferability is as much a technical challenge as an operational challenge. If tokens were made non-transferable, what if a user loses access to his account/wallet! Or if the user just wants to transfer his tokens to a different account? Can wallet recovery solutions like Multi-sig wallets or social recovery wallets provide a solution? This is yet to be seen. Of course, privacy is another aspect becoming critical with the trend of an increasing number of activities on the chain! With many unanswered questions, the Web3 ecosystem is uncertain which often makes it more exciting 😀