Introduction to Non-Transferable Tokens (NTTs)

UTC by Ibukun Ogundare · 6 min read
Introduction to Non-Transferable Tokens (NTTs)
Photo: Unsplash

This guide will explain the mechanism behind Non-Transferable Tokens (NTTs), a slight upgrade to the popular non-fungible tokens (NFTs), and provide answers to all lingering questions about this idealized innovation. 

The cryptocurrency and blockchain sectors continue to unveil additional technology. To increase utilization and productivity, the global cryptosystem is aggressively trying to provide solutions to every challenge faced in the sector. For a while now, the blockchain sphere has been battling with trust issues, especially among top stakeholders. There have been several false authentications of a digital asset on the blockchain alongside other illegal activities related to transferrable tokens.

This guide will explain the mechanism behind Non-Transferable Tokens (NTTs), a slight upgrade to the popular non-fungible tokens (NFTs). How can NTT revolutionize digital assets? Will the presence of these soul-bound tokens promote ownership validation? Why will tokens be untransferable? Are there any advantages of NTTs? This guide will provide answers to all lingering questions about this idealized innovation.

Non-Transferable Tokens: New Form of NFTs

Non-transferable tokens (NTTs) are non-transferable digital tokens that serve as identity symbols in a decentralized society. As earlier stated, NTTs are upgraded versions of non-fungible tokens (NFTs). The major difference between the two innovations is transferability. Users can transfer NFTs but cannot transfer NTTs. NTTs are also referred to as soulbound tokens (SBTs). As the name implies, NTTs are eternally bound to a wallet (soul).

The creation of SBTs will ensure trust, credibility, integrity, and affiliations on the Web3 network. This new form of NFT would protect the reputation of many Web3 projects. SBTs will carry details about the owner’s membership, certification, and credentials. It could serve as a CV, academic certificate, proof of attendance protocol (POAP), etc. With the use of SBTs, users cannot trade off their social status on the Web3 network.

How the Soulbound Concept Emerged

The soulbound concept emerged from a popular online game called “World of Witchcraft”. Certain in-game items are referred to as soul-bound items in this game. This is because players cannot trade these items after picking them up. Players can only get these items by fighting against a monster. The team developed this ideology to encourage players to quest against this weird monster. World of Witchcraft prevents players from purchasing these powerful items with tons of in-game gold or from the marketplace.

Ethereum (ETH) co-founder Vitalik Buterin and two other individuals conceptualized the idea of SoulBound NFT in a paper presentation titled “Decentralized Society: Finding Web3’s Soul.” The other founders of the SBT project are Puja Ohlhaver, a lawyer, and E.Glen Weyl, an economist and technologist. Before the proposal of the project in May 2022, Buterin released hints about the ideas in a blog post in January 2022.

Shortly after the release of the soulbound tokens (SBTs) whitepaper, Idexo claimed to have released a similar feat in April 2021. The innovation-dedicated NFT platform minted its non-transferable Early Adopter NFT on BSC, which is attached to the owner’s telegram username. Idexo added SBTs to its SDK (software development kit), permitting users to create SBTs on various blockchain platforms.

How NTTs Work

One may wonder if the operating mechanism of NTTs differs from NFTs. The mechanism of soulbound is like other NFTs except for the transferability aspect. Specific souls or blockchain wallets can issue SBTs, keep SBTs and also assign self-certified tokens.

Unlike NFTs, NTTs are transacted in a one-way direction where only SBTs creators can issue a token to the address of another soul. This transaction method features open verification of the SBT, issuers, and the eventual recipient. For this reason, SBT is not available in any marketplace; it implies that NTTs do not have a market value. Through NTTs, the public can verify the integrity of the association between the soul and the issuing bodies.

Benefits of NTTs

There are several benefits attached to the latest version of NFTs. Like every other developing innovation of blockchain technology, NTTs mitigate trust issues, a major threat to the transaction of NFTs. The trust factor is a major bone of contention between financial and business stakeholders; it is one of the dark sides accompanying Web3 anonymity. NTTs not only prove the ownership of an asset but also go a long way in confirming the owner’s reputation. Web3 users can check out the transactional history of a Web3 anonymous personality before engaging in any business transaction.

Other beneficial applications of non-transferable tokens (NTTs) include verification of work experience of employment candidates and social identification on the decentralized network. The benefits of these new forms of NFTs may explode just like the utility of NFTs.

Use Cases of NTTs

The use cases of NTTs are many and can be applied across the decentralized space. However, it is pertinent to note that the prototype of these use cases of NTTs is yet to be implemented. In fact, the whole idea of NTT is paper-based. The following are the use cases of NTT but not limited to:

  • Verification of ownership. NTTs would help track the originality of NFTs and other digital assets. Prior to this innovation, creators and artists must open their Twitter, Instagram, or OpenSea accounts to confirm the legitimacy of NFTs. They can now use SBTs to resolve this verification issue without battling with ugly occurrences like the disappearance of NFT profile pictures.
  • Soulbound tokens will make a revolutionary turn in DeFi Lending, as most lending firms do not offer uncollateralized loans. SBTs will allow DeFi protocols to offer uncollateralized loans by leveraging on the soul’s interaction.
  • Non-transferable tokens (NTTs) can solve issues regarding airdrops. Sometimes, crypto whales collect most of the new project’s AirDrop preventing the general community from benefiting from the drop. SBTs can help narrow the distribution of tokens to a specific wallet using the Souls details.
  • Sybil attacks protection. SBTs guard against the popular system risk of DAO coin voting. In a DAO setting, an individual can take control of the system by purchasing 51% of the DAO tokens. Before transferring voting rights, a soul must possess tokens on licenses, academic credentials, and endorsement from other Souls.
  • Academic institutions can take advantage of these non-transferable tokens to award digital proof of attendance and academic certifications. This will ease the verification of the work candidate’s credentials.
  • Another use case of NTTs is digital CV. SBTs can serve as unique digital CVs that are publicly verified by previous employers and academic institutions. Besides this, candidates can no longer present other people’s CVs.
  • Health data record. SBTs can provide solutions to patients who frequently change their health providers or doctors. This will gradually replace the use of paperwork for keeping a medical history of patients.

Bottom Line

The blockchain system continues to solve every challenge encountered in Web3. The blockchain community has tweaked many initial innovations to solve unique challenges. Adding non-transferable tokens to the Web3 sphere will cater for issues regarding personalization and trust issues. Upon full exploration, NTTs’ utility will grow beyond its current periscope. There will probably be an outburst of SBTs use cases once Ethereum implements them on its blockchain. However, complications might arise from multiple experiment use cases of SBTs.

Though SBTs are non-transferable, they do not solve privacy issues. Instead, it exposes sensitive details of the owners. In this case, SBTs fault the cryptographic anonymity offered by blockchain technology.



What are non-transferable tokens?

Non-transferable tokens (NTTs) are digital tokens on the blockchain which serve as a means of identification in the decentralized space. These tokens cannot be transferred to another wallet after being issued by the original creators. They are also referred to as soulbound tokens (SBTs). 

How do soulbound tokens work?

Soulbound tokens (SBTs) work in a permanent, one-way direction; issuers disable trading of SBT after distribution. It is bound eternally to the recipient’s wallet. The idea of SBTs originated from a game titled “World of Witchcraft.” In this game, players cannot buy certain powerful game items; they can only play to get them. 

What can soulbound tokens be used for?

Soulbound tokens can serve as proof of ownership, a digital CV, or documents for uncollateralized loans. Institutions can also award SBTs as academic certificates, company membership IDs, and proof of attendance. The use case of SBTs is yet to be explored. More experimental use cases will surface in the future.  

Can you buy soulbound tokens?

No, SBTs cannot be sold or bought. One can earn it through game participation, attendance, experience, or other certifications. This implies that NTTs do not have a market value. 

How to use NTTs?

The use case of non-transferable tokens is currently in the bud stage. Indexo has issued a similar approach to NTTs called the Early Adopter NFT, which is also non-transferable. Binance also launched its own SBT called Binance Account Bound (BAB). BAB is non-transferable and has no monetary value. These tokens will perform functions like verification, airdrop authentication, etc. Individuals can earn NTTs after performing a stipulated task. Thereafter, a soul can use the collected NTT for its designated purpose.  

Why use NTTs?

There are many reasons Web3 users and institutions should explore the use of NTTs. Individuals can use NTTs as a means of verification and social identification. Institutions can issue SBT as awards, trophies, official certifications, and licenses. Though NFTs can perfectly fit into this use case, the original recipient might transfer the issued asset to another person.