What Are SoulBound Tokens? A Comprehensive Guide

June 21, 2022

One of the hottest new trends in the cryptocurrency industry is Soulbound Tokens (SBTs). This emerging blockchain concept can significantly alter how many individuals and initiatives have been operating for years in the cryptocurrency business.

A soulbound token is a blockchain based token that is non-transferable, unique, and can hold information about an individual. The information held by a soulbound token may include education credentials, work experiences, club memberships and many more.

Image by Robert from Pixabay

In other words, it acts like a regular wallet that would hold a driver's license, a library card, and a membership card to the local sporting club, except this information is stored digitally in the form of a soulbound token.

Image by mohamed from Pixabay 

What's the deal with Soulbound Tokens?

A soulbound token can basically serve as your resume on the blockchain. Yes, by putting Harvard as their alma mater on Facebook, anyone can say they went there. With SBTs, Harvard University's "Soul" (their wallet) would have issued your "Soul" a diploma before you can make that claim. Because it’s not transferable, it can prove authenticity.

A soulbound token can be given to members of a group or institution as proof that they belong to that group or institution. SBTs could be used as digital portfolios by artists, writers, and other creative people. Even if it's for something as specific as being the world's leading expert on fingerboarding, your SBT would be a way for others to see that you've done what you said you did.

This would make it very hard for people to make up fake credentials. Buterin and his co-authors wrote that "the tokens could help solve some of the problems plaguing decentralized finance, like scams and theft." They think this is where the real power of the system is. Since SBTs are not transferable like traditional NFTs, you won't be able to get them that way. But users can get rid of their soulbound token whenever they want.


How is a soul bound token different from an NFT or Crypto currency?


A bitcoin or any cryptocurrency is fungible and transferable. NFTs are transferable but not fungible. SBT are not fungible and not transferable.

Cryptocurrencies are “fungible,” suggesting you can trade them or exchange them for one another. They also have the same value. One euro would always be equal to one euro a dollar, and a Bitcoin would always be equal to a Bitcoin. The fungibility of cryptocurrency makes it a secure way to execute blockchain transactions. 

NFTs operate like cryptographic tokens, however unlike cryptocurrencies like bitcoin or Ethereum, they are neither transferable or fungible. SBTs are not transferable, however the original issuer can revoke them. Because SBTs are transmitted to a specific soul address and remain there permanently, they're excellent for use as on-chain credentials.


What role will SBTs play in our daily lives?

Soulbound tokens or SBTs could unlock benefits that fundamentally alter how we perceive social identities in the blockchain ecosystem. NFTs, for example, can be used to demonstrate what a person owns and can afford, as well as to assist content creators and even boost crowdfunding efforts. SBTs, on the other hand, go beyond the monetary incentive to serve as a tool for people to prove who they are and authenticate their reputation, since it's not transferable. They were developed so that users can trace a soulbound token back to the Soul of its initial issuer, just like how the public blockchain enables users to trace crypto transactions.

Users of SBTs can look at people's permanent records before doing business with them. Before leasing a property to someone, one can observe their SBTs. The benefits that SBTs can offer to the world are vast, and they may even allow for the creation of a genuinely decentralized society. Other benefits include:

1. Provenance for NFTs

The reliance on centralized systems for NFT provenance raises the possibility of a lone source of failure. For example, after a temporary downtime in OpenSea, the NFT profile images of persons on Twitter were removed. Creators can mint NFTs straight from their Souls using SBTs. And the more SBTs from that Soul there are, the easier it is to show the authenticity of the NFTs, allowing creators to build a reputation based on an item's scarcity. 

Image by Mohamed from Pixabay


2. Digital CV

When conducting job interviews, the process is sped up by scanning candidate CVs to see if they are qualified for the position. However, verifying the integrity of a candidate's assertions might be challenging at times. For example, health institutions have witnessed many situations in which unskilled medical employees lie about their CVs and, as a result, administer incorrect prescriptions to patients while on the job. 

SBTs address these issues, how, you say? Because they are not transferable, they can function as digital, publicly validated CVs. The SBTs a Soul has gotten from other organizations such as universities and comparable entities can be used to make employment decisions.


3. Souldrops

Crypto projects typically create new communities by making airdrops or conducting token sales. However, this procedure is frequently prone to Sybil assaults and fails to attract the appropriate community. Projects can entice the right communities by implementing airdrops relying on data from the soulbound token and other tokens inside a Soul. For example, a project aimed at improving sustainability could airdrop governance tokens to Souls with SBTs indicating their participation in various sustainable acts in the past.


4. Medical record management

Changing doctors or insurance providers can be a stressful affair. It necessitates time-consuming processes such as obtaining medical history and verifying identification. With something like a medical Soul that has all of your medical history, SBTs would make this time-consuming process obsolete.


5. Enhance lending services on the blockchain ecosystem

There are already plans for lending and borrowing services for cryptocurrency. Most of these services require users to lock up some of their crypto as collateral in order to get a loan. The goal of the proposed soulbound token is to provide users with uncollateralized lending services.

When a user wishes to launch a crypto-based loan, Souls with educational background, employment experience, and other necessary credentials can stand as evidence of the wallet owner's valid history and repute. Soul owners can then put their reputation up as collateral to get a loan. 

When the user gets the loan, the lending company can put a token in the user's Soul showing the exact amount of the loan. This shows that the user used a loan service and still owes money to the company. When the loan has been paid back in full, the SBT that represents it can be burned or the company can make another SBT to show that the loan has been paid back.

With this process, no user can transfer a loan to a soulbound token to hide or get out of a debt that already exists. Also, if a user tries to get rid of the Soul that has the debt so they can make a new one, they won't have the soulbound tokens they need to stake their reputation somewhere else because their credentials are in the wallet that has the debt.


6. DAO Sybil attack defense

A Sybil assault, in which an individual or organized group of individuals accumulates a critical mass of governance tokens and manipulates proposal voting in their favor, is one of the most severe dangers to decentralized autonomous organizations (DAOs). DAOs can use SBTs to mitigate such risks by checking for connections between SBTs owned by Souls who endorse a vote and discounting accordingly.


What will happen with Soulbound Tokens?

Source: Coingape (vitalik buterin soulbound concept creator)

Soulbound tokens will not completely replace NFTs; rather, they will serve as an excellent alternative to NFTs in situations where identification and access control are more necessary. Soulbound tokens could become a core feature of the decentralized society movement, in which blockchain ecosystems grow around shared networks and goods owned and administered by the Souls that use them.

Existing blockchain ideas such as DeFi, NFTs, play-to-earn, and move-to-earn all had humble beginnings but have since seen wider implementation. As of right now, "Soulbound" SBTs can only be considered a few months old at the most (at the time of writing). Ideas, use cases, and ways to implement this blockchain concept still have to be talked about, structured, and clearly spelled out. Remember the year 2024 as the year that soulbound tokens will storm our communities. 


We only live once, but if we do it right, once is enough.

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