Defining SoulBound Tokens (SBTs)

Soulbound tokens, or SBTs, are digital identity tokens representing a person or entity’s characteristics, features, traits and achievements. Built on blockchain technology, it takes NFTs applications to the next level.

NFTs are linked to a blockchain via their unique identification code, and they cannot be falsified or replicated but can be sold or transferred. However, when an NFT is minted to act as a Soulbound token, it can never be transferred from your Soul. In this instance, the Soul refers to your private wallet. SBTs aims to change the concept of NFTs into something beyond money and bragging rights to a one-of-a-kind and non-transferable token.

Soulbound tokens are, thus, non-transferrable NFTs that represent your identity. They are tied to a blockchain network, holding the unique identifying information of a person or entity, involving personal data and history, such as age, qualification, education, health records and work achievements.

How do Soulbound tokens work?

Although no formal Soulbound token specifications exist so far, the basic functioning of SBT can be outlined from the whitepaper published by Vitalik and his partners.

One of the core and unique features of SBTs is their non-transferability. Contrary to the present NFTs and token standards like the fungible ERC-20 or the non-fungible ERC-721, Soulbound tokens are not developed to have a market value and thus cannot be sold or transferred to another wallet. This is precisely because they are linked to the Souls. So, what exactly are “Souls”?

SBTs are issued by and stored within accounts called Souls. As Souls hold SBTs, they are utilized to establish provenance and reputation. As mentioned previously, Souls can represent individuals, organizations, companies or other entities. Notably, Souls are not expected to have a 1:1 representation of humans, which means that an individual can have multiple Souls in a decentralized society (DeSoc).

For example, an individual can possess several Souls representing their identity (holding a driver’s license or passport), credentials (stores educational and work background), medical records and so on.

Use cases of Soulbound token

Although the concept of SBTs has been formulated so far, and the development of Soulbound tokens is still in its infancy, it finds potential use cases in specific domains. Let us explore its practical applications in daily life.

Education history

One of the significant use cases of Soulbound tokens is issuing a person’s educational history. In a traditional learning system, when a student graduates, educational institutions issue a certificate that proves the completion of their courses. In the context of decentralized identity, the educational institution could be a Soul issuing the SBTs to its students, and the students themselves would be Souls on the receiving end. The SBT would contain a student’s credentials, authenticating their relevant qualifications and proving their university membership. SBTs can, thus, act as proof of attendance.

If SBTs replace traditional degree-issuing processes and proof of attendance in the upcoming years, it can ensure that no one forges their educational details and qualifications. Because SBTs are non-transferable and cannot be sold to others. Also, it can be issued only by training providers and universities.

Job applications

Similar to its use case in the educational industry, SBTs can be leveraged to store work history and professional certificates. Companies can issue their employees’ work experience, projects they have worked on, details of their achievements and other information in the form of SBTs, which the employees can later produce while hunting for other jobs or during interviews. In this case, SBTs will act as proof of skill certificates.

Health records

SBTs in the healthcare domain holds a person’s medical records. The primary benefit of introducing SBT for health records is that it can accelerate the process of switching doctors or healthcare providers. Theoretically, SBTs can replace the generally slow process of filling out paperwork, validating your medical history and the continuous task of approaching different people.

Other than the use cases mentioned earlier, SBTs have practical applications in the following:

Now that we have seen the practical applications of Soulbound tokens in daily life let us look into SBT use cases in the web3 ecosystem.

NFT trading

SBTs can filter out bad apples who misuse the names of famous artists to sell NFT collections to unsuspecting buyers. So, how does this work? Legit NFT artists can tie SBT to their NFT collection and their Soul. NFT collectors can then compare the SBT of the NFT collection with that of the artist’s Soul. If the SBT matches, the buyers can purchase the NFT; if not, it can be confirmed as a counterfeit NFT. As such, SBTs help verify whether an NFT collection is legit.

Governance

DeFi protocols award early users with airdrop tokens for trusting and supporting the project. These tokens serve as voting rights. But, in the current scenario, any wealthy person or entity can buy these tokens from the early users, influencing voting rights without actually earning them. Often, people willing to spend a lot to buy governance rights often stand to benefit directly by influencing the vote. Giving non-transferrable Soulbound tokens to early users can ensure that the control stays in the hands of users who genuinely care about the protocol.

Final Thoughts

Vitalik Buterin considers Soulbound tokens a building block to a decentralized society. By establishing digital identity and provenance, SBTs are proving beneficial in developing a DeSoc. While the concept of a decentralized society may seem abstract, its practical applications are still worth considering. SBTs, with their many use cases in web3, DeFi, and even daily life, is an emerging phenomenon that is likely to revolutionize the web3 ecosystem and elevate the concept of NFTs beyond owning pieces of art and bragging rights.