Soul-Bound NFTs Explained!

    Ethereum creator Vitalik Butarin drew the inspiration behind the idea of soul-bound NFTs from their namesake gaming tokens. Consequently, he proposed the following question: “What if NFTs can be soul-bound as well?

    Whereas investors can choose to trade, sell and buy regular NFTs from whoever they choose whenever they wish. Soul-bound NFTs are essentially tokens on the blockchain that can NOT be sold or sent to any other person. They are yours forever! 

    In detail, they can represent anything from a person’s affiliation with a community or a crypto project to real-world credentials or achievements. To put it simply, they represent your identity on the blockchain.

    In his official paper, Buterin admitted that at the current rate, NFTs serve a singular purpose which is ‘wealth-signaling’ among members of the space. This means publicly asserting that you’re the highest bidder. But, what if there’s more to achieve?

    He continued: “Making more items in the crypto space ‘Soul-bound’ can be one path toward an alternative, where NFTs can represent much more of who you are and not just what you can afford.”

    So, without further ado, let’s jump right in! 

    Significance of Soul-bound NFTs in the Metaverse

    Our actions in the digital dimension where we will spend increasingly more time as technology evolves, AKA the Metaverse, are currently separate from our identities due to the anonymous nature of crypto. 

    This means that having more meaningful and validated activities in the Metaverse (Getting a virtual degree from an official online University for example) might not be possible!

    Hypothetically speaking, if we want to optimize the Metaverse into being a second replica of our lives, we will need both souls and ‘soul bound’ to become a thing. 


    Characteristics of Soul-Bound NFTs:

    • Publicly Visible.
    • Non-Transferable.
    • The issuer can revoke it.
    • A single unique wallet owned by a real person and containing a soul-bound NFT is called a ‘Soul’.

    Use Cases of Soul-Bound NFTs

    1) Soul-bound NFTs alter financing in the Metaverse

    Different Metaverses will have their own micro-economies. In traditional finance, trust and reputation go a very long way. They easily allow for uncollateralized loans to work. 

    Yet, crypto removes ‘trust’ from the whole equation. So, how do we achieve uncollateralized loans if we opt for decentralized finance?

    Your work history, degrees, rental contracts, and so many more can be represented by soul-bound NFTs. This allows you to gain access to uncollateralized loans on-chain. In case you don’t repay the loan, your reputation would take a hit. 

    On the opposite end of the spectrum, trustworthy borrowers can receive soul-bound NFT tokens (think badges) to signal that they’ve repaid their loans and have a better credit rating!

    So basically, we are substituting the good old-fashioned credit score for credentials!

    2) Soul-bound NFTs Empower Governance Rights in DAOs

    Decentralized autonomous Organizations (DAOs) most often use the 1 NFT/Token = 1 Vote mechanism. Naturally, this gives rise to many problems. 

    Namely that someone with A LOT of money, perhaps an NFT whale, can buy up a large number of NFTs to manipulate the voting per their preferences. 

    This is where soul-bound NFTs come into play. 

    First and foremost, they eliminate the # NFTs = # Votes model. 

    Second of all, these NFTs can reduce and put an end to ideological ‘echo chambers’. 

    What are echo chambers? 

    They are necessarily a group of people sprouting from the same company or community. In detail, they unanimously vote on DAO decisions in ways that favor their own personal interests rather than the benefit of all members. 

    How can soul-bound NFTs uncover them? 

    Votes coming from wallets that hold the same or very similar soul-bound NFTs could mean these voters share the same bias and interest. 

    Accordingly, they should be weighted as less than votes with the same numerical level of support but coming from wallets with differing soul-bound NFTs! 

    Based on this idea, Butarin suggested a correlation score that can be leveraged by DAOs to diversify their voter base. 

    3) Social Provenance

    The ability to prove the origin of something and decompose property rights.  

    4) Recover your crypto wallet

    By allocating trusted individuals or communities, you can recover your seed phrase despite losing your private key.

    5) Limiting and redirecting Airdrops

    Only wallets holding reputable soul-bound NFTs can make the airdrop cut. Basically, the more you are affiliated with a crypto community, the more eligible to receive an airdrop.

    6) Measure the ‘Decentralized Index’ of any NFT project 

    Check out the wallets holding the NFTs from a specific collection/project. If they are unique in terms of soul-bound NFTs, it means the project is supported by a large section of the community. And the opposite is also true.

    7) Soul-bound NFT memberships, and event ticketing

    Use Cases of Soul-Bound NFTs

    How to implement Soul-Bound NFTs into our reality?

    Vitalik suggests two ways that harness the current technology to implement soul-bound tokens into our daily lives:

    1) Using Proof of Humanity: 

    Basically, it is a project that allows you to create a profile after you go through a bunch of steps to prove that you’re human. They claim to be AI-resistant and Sybil-proof. 

    If you bind a token to this profile, it becomes soul-bound! Today, this is the most viable option.

    2) Bind Token To Your ENS Domain:

    This service allows you to name your Ethereum address something more readable, like .Chainwitcher.ETH for example. 

    This method assumes that people see their ENS domain as part of their identity and are not willing to transfer it. However, we are not there yet in terms of mass adoption. 

    The Challenges with Soul-Bound NFTs

    1) Compromisation of Privacy

    Since a lot of information about soul-bound NFTs must be public knowledge in order to accurately calculate the correlation score.

    2) Scammers and fakes


    We will surely encounter a lot of individuals who will disguise themselves as a part of a certain decentralized community or company. How? They will do so by acquiring the required soul-bound NFTs in an illicit manner. All the while using another crypto wallet as their primary account.

    The Takeaway

    All the use cases unlocked by using these tokens will generate higher-quality data that can be leveraged by artificial intelligence to optimize our society. And produce more accurate predictions about a lot of what’s to come.

    Although incorporating the brand-new construct that is soul-bound NFTs into the space is easier said than done, it’s not entirely impossible! And if you look closely, you’ll see some in-the-works SBNs floating here and there.

    As always, stay tuned for more!


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