Soulbound Tokens (SBTs): How Can They Change Your Life

• Soulbound tokens (SBT) are non-tradable identity NFTs.
• They represent different types of user credentials and identity data.
• Soulbound tokens are a young concept that still has a long way to go.

Decentralized chains once created a revolution and transformed how we exchange value, transfer ownership, and verify transactions. Now they are on the way to changing the world again – by enabling our “souls” on the blockchain. 

Soulbound Tokens (SBTs) are a young but ambitious concept that aims to solve the trust and authenticity issues of Web3 and also of the real world.

What are they? What do they offer, and how can they affect our lives? Read on to discover. 

What are Soulbound Tokens (SBTs)?

Soulbound Tokens (SBTs) are the digital representation of someone’s credentials, credit score, life history, career achievements, medical records, and personal features – all identifying data, which is also stored on the blockchain. 

SBTs are permanent non-fungible tokens (NFTs) that cannot be traded or transferred. They are recorded into the owner’s digital wallet and thus soul bound for a lifetime. Soulbound tokens have no financial value.

Like many other important concepts of Web3, SBTs were pioneered by Vitalik Buterin. Inspired by hard-earned and unsharable “soulbound” items in World of Warcraft, he came up with the idea to bring “non-transferability into practice.”  And the blockchain was the means to do this.

The purpose of soulbound tokens is simple: to offer proof of identity. SBTs enable building and sharing one’s verifiable representation on the blockchain. This is critical for solving trust and authenticity issues that Web3 is currently dealing with. 

Although the concept is still very young, it attracted the attention of the world’s biggest entities. Binance and Japan’s Sumitomo Mitsui (SMBC), one of the largest banks on the planet, have already issued their own soulbound tokens. 

Numerous smaller eyes are also on STBs, which are expected to solve real-world problems and provide real-world utility.

How Do Soulbound Tokens Work?

Remember the big recent fuss about Twitter? When Elon Musk was on his way to buy it and stated that nearly a third of platform’s all “visible accounts” were bots or fake scam accounts? 

This is why he declared war on the bots, put an $8 fee on the platform’s famous blue authenticity check label, and ultimately failed there. Bad actors, impostors, and anyone with an extra $8 could get verified as legit accounts. And this, of course, happened.  

Theoretically, situations like that could have been avoided if soulbound tokens were used to verify Twitter’s users. This is what the process might look like.

Let’s say the real Satoshi Nakamoto has his birth certificate as an SBT stored in his digital wallet, also known as the “soul.” Every SBT is stored and linked to a unique private wallet.

Twitter also has a “soul,” thus special wallet, dedicated to its users ID verification. So, if Satoshi decided to add a blue badge to his Twitter profile, he would need to grant Twitter’s “soul” permission to possess an SBT of his birth certificate, which is stored in Satoshi’s personal wallet. Only then would he become a verified user.

Requiring a wallet’s permission to possess soulbound tokens provides an additional security layer and increases trust. It is a unique feature that other non-fungible tokens do not have yet.  

Where Can SBTs Be Used?

When they first were presented to the public in May 2022, soulbound token concept creators economist E. Glen Weyl, lawyer Puja Ohlhaver, and Ethereum founder Vitalik Buterin declared that SBTs might serve the needs of “Decentralized Society” (DeSec). 

SBTs represent the commitments, credentials, and affiliations of individuals or entities. According to creators, they are capable of enabling other applications such as “community wallet recovery, Sybil-resistant governance, mechanisms for decentralization, and novel markets with decomposable, shared rights.”

This means, there may be numerous use cases of the soulbound tokens, that aim to be used as certificates; variety only depends on the industry and its needs. 

SBTs can verify identity, prove one’s credibility when applying for loans, record academic or career achievements, store medical or criminal records.

They can also help fix the issues of a decentralized world. For instance, help strengthen the DAO governance structure and safeguard it from Sybil (or 51%) attacks that aim to manipulate governance votes.

Soulbound tokens can change the way how token airdrops are distributed. Airdrops are one of the critical ways to entice new Web3 communities, however, tokens are often distributed to random users. SBTs can make airdrops (“souldrops”) more targeted, thus token issuers will only drop them to wallets that can prove their interest or dedication to a certain project.

The Challenges of Soulbound Tokens

On the other hand, soulbound tokens have to face certain serious challenges. One of the biggest points of discussion is whether SBTs could turn into something privacy-threatening, not unlike China’s system of social credits.

The latter evaluates citizens for their behavior (trustworthiness) and accordingly rates or blacklists them. SBT critics ask if tokens will push governments into “unprecedented ways to track citizen behavior” and eventually control them based on this information.

Another critical claim targets the nature of SBTs, which are initially public. This means any data recorded onto southbound tokens might be visible to anyone. According to critics, such flaws could lead to abuse of power and malicious activity against entities or individuals when an SBT issuer purposely grants incorrect SBTs. 

Finally, the critics address the cybersecurity threats to the “souls” and what is recorded in them. NFT wallets might be exploited and drained. There are already numerous cases of malicious actors gaining unauthorized access to digital assets. 

After all, the legit SBT owner may fall victim to scammers and share their private data with someone pretending to be the legit other “soul.” 

The Bottom Line

Soulbound tokens are a fresh concept that still has a long way to go.

Currently, numerous questions remain unanswered. How will SBTs ensure data privacy, how will they align with decentralization, and how will they meet the requirements of the regulators?

Despite these questions, soulbound tokens mark one of the biggest innovations in crypto. If implemented, SBTs will, without a doubt, shape our future. The only question is – how?

Check out on how to verify NFT:

More Than Two-Thirds of NFTs Minted on OpenSea Are Fake – How Can You Verify Yours?

Lean more about DAO:
Decentralized Autonomous Organization (DAO): What Is It?