The ‘Underexplored Design Space’by Vitalik: non-transferrable NFT

2022-02-16, 06:11

【TR; DR】

In a recent blog post， Ethereum co-founder Vitalik Buterin discussed the benefits of non-transferrable NFTs and how their use-case can positively impact investors. NFTs have long been a staple of the Ethereum network， hosting distribution and creation capabilities to artists and developers through protocols such as OpenSea. As a result， Vitalik Buterin has recently been amidst regular discussions in regards to NFTs and their future within various different industries and technologies.

Following his recent admittance that he was ill-prepared for the surge in popularity and value witnessed by investors in NFTs， Buterin has since immersed himself and Ethereum in the development and capabilities of NFTs - ranking as a top contender against Solana.

Typically NFTs are transferable， meaning they can be distributed between different individuals and transacted. However， Buterin has been endorsing non-transferrable NFTs for their additional capabilities and ownership rights they provide to investors.

What is a Non-Transferrable NFT?

Typically， NFTs tend to be transferable， meaning they can be sold， transacted, and swapped across various platforms and between various investors. However， non-transferrable NFTs are rooted in permanence and their ownership cannot be revoked in the same way that a traditional transferable NFT is.

A non-transferrable NFT is an NFT that cannot be traded， swapped， or transacted following it’s awardance. The provision of awards of official certificates or awards could be revolutionised through digital distribution， something which could be propelled by the integration of non-transferrable NFTs on a wider scale across various blockchains.

Vitalik’s Verdict

Within his recent Ethereum blog post， Buterin referenced ‘soulbonds’ from the internationally famed online role-playing game， World of Warcraft， suggesting that their capabilities bear similarities to that of non-transferrable NFTs.

‘Soulbonds’ essentially increase the competitiveness within the World of Warcraft gaming ecosystem， as these ‘bonds’ cannot be purchased with money， they are awarded to select players based on their performance or simply discovered during gameplay. ‘Soulbonds’ cannot be exchanged or sold following a player receiving them， meaning that players are now incentivised for their gameplay in a more valuable and redeeming manner.

Buterin’s reflection upon this integral step within the gaming world was a means of arguing the capabilities of non-transferrable NFTs within Web 3 experiences， a new facet of the internet powered by blockchain technology. Non-transferrable NFTs could enable various incentives to users across the Web 3 space and create an environment fuelled by competition.

‘transferable NFTs have their place and can be really valuable on their own for supporting artists and charities…there is also a large and underexplored design space of what non-transferrable NFTs could become’ - wrote Buterin as he remarked upon the limitations of transferability.

Acknowledging the potential counterproductivity of transferability， Buterin utilised Proof-of-Attendance protocols （POAP） as an example. Typically POAP distributes a range of awards or crypto-badges to those in attendance to different cryptocurrency or blockchain themed events. However， due to their transferability， many of those in personal attendance sell them on various NFT marketplaces， meaning that their fundamental mechanism essentially loses its value.

Furthering his argument against transferable NFTs， Buterin also brought light to the potential governance capabilities of non-transferrable NFTs. Suggesting that transferability is ‘counterproductive’ in the context of ‘widely distribut【ing】’ governance， Buterin remarked on the way in which those with potentially ‘concentrated interests’ are more likely to buy governance rights than others. This fundamentally reduces the diversity of the governance pool and can minimise the voices of those without huge financial backing.

What are Ethereum’s Plans for NFTs?

Whilst Ethereum has long been involved within the NFT space， Vitalik Buterin recently reflected on how he was unprepared for the mass adoption and sensationalization of NFTs - despite his prediction of DeFi technology. Despite ‘completely miss【ing】‘ NFTs, under Buterin’s management， Ethereum has become a significant presence within the NFT ecosystem.

However， in a recent report， JP Morgan suggested that Ethereum was beginning to lose its footing within the NFT world， as powerful contenders such as Solana rose through the ranks and gained more traction through their various capabilities. It was reported by Nikolaos Panigirtzoglou on the behalf of JP Morgan, that Ethereum’s NFT volume has sunk from a monopoly-esque 95% from the first quarter of 2021 to only 80% by the first quarter of 2022.

Ethereum has frequently come under fire for their significant rise in gas fees that have superseded previous expectations， which as a result， has allowed platforms such as Solana to poach investors and to grow their own ecosystem. As the NFT market has now boomed to an approximate $69 billion， Solana appears poised to continue seizing Ethereum’s clientele.

However， despite the likes of Solana and Cardano muscling in on Ethereum in both the NFT and DeFi spaces respectively， Ethereum is still ranked as one of the most valuable platforms to ever exist. It has been estimated that the total locked-in value of every project on the Ethereum network has amassed over $156 billion， almost double that of ten networks combined.

Additionally， Ethereum has disclosed their various plans to reduce the high gas fees through crucial network updates such as ‘sharding’ - which is expected to help prompt an increase in network capacity. Yet, this isn’t due until early 2023， meaning that the likes of Solana and Cardano can potentially continue to surpass Ethereum and poach new investors into their NFT ecosystems.

Whilst little else is known currently in regards to the future of Ethereum NFTs， it can be inferred that non-transferrable NFTs may become commonplace within the network and across it’s variety of different platforms and layers.

Author：Matthew W-D, Gate.io Researcher
*This article represents only the views of the researcher and does not constitute any investment suggestions.
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