What is a SoulBound Token?
|— The concept of SoulBound tokens (SBTs) was proposed in a recent whitepaper written by Vitalik Buterin, Glen Weyl, and Puja Ohlhaver.|
— SBTs act as a foundational building block in the emerging Web3 trend called “Decentralized Society (DeSoc).
— SBTs are NFTs but of a different variety. They are non-transferable and public-verifiable digital tokens.
— SBTs expand the use cases of NFTs. They can be used for immutable records such as employment history, work experience, and academic credentials.
— These tokens can be used in fields like education, professional spaces (as a digital resume), mementos of attendance to major programs. They are perfect vehicles to act as Proof of Knowledge.
NFTs may have existed for years, but they only recently rose to prominence when a digital artist known as Beeple sold a group of NFTs for over $69 million in March 2021. In simple terms, NFTs are tokenized versions of digital assets and enable the buy, sell, and trade of assets.
One of the major use cases of NFTs is to show ownership. Evolved from the ERC-721 standard, their interface contains details like ownership, metadata, and other information stored on the blockchain. However, herein lies the problem. In their current form, NFTs are limited to ownership.
NFTs are Transferable
NFTs have been used mostly in fields like art, real estate, play-to-earn gaming, and the sale of collectibles, emphasizing ownership of something valuable. Nevertheless, NFTs can be traded to anyone willing to buy which presupposes that anyone can own an NFT. This means their utility is limited to proving ownership – but falls short of proving “earned” attributes, such as ability, experience or knowledge.
A good example of this can be illustrated using the idea of proof-of-attendance-protocol (POAP), where attendees of an event are given digital mementos or badges for showing up. If it is sold as an NFT to other people, the buyer becomes the owner even though they did not attend the event. With the current dynamics of NFTs, any individual’s unique merits or credentials can be transferred to others. This creates the problem of authenticity because there is no way to prove the credibility behind these badges. In the bid to solve this problem is where Soulbound tokens come in.
What are SoulBound Tokens?
In a recent white paper by Vitelik Buterin, Glen Weyl, and Puja Ohlhaver, they discussed the possibilities of the creation of a decentralized society (DeSoc) and Soulbound tokens (SBTs). The name was coined from the World of Warcraft game. SBTs are non-transferable NFTs held by a private crypto wallet known as Souls.
Soulbound tokens are non-transferable; once you acquire one, it will always be tied to your personal wallet and identity, and cannot be sold or given to another person. This makes them ideal to digitally represent assets that cannot be acquired by purchasing, such as certificates of competence, reputation, medical records, etc.
The fact that they are non-transferable means that – like the examples above – they are tied to the user for life. The owner of the token can then control who has access to the data contained within the token, and can also revoke that access when they see fit. So SBTs offer a solution for individuals who want maximum control over their personal data, because they allow that data to be managed in tokenized form, rather than kept on a central database.
Adoption is Essential for the Success of SBTs
Nevertheless, SBTs can only gain momentum when there is a rise in adoption by the bodies and institutions that are supposed to issue them. So for example, schools, recruiting companies, and event organizers are all prime examples of entities where SBTs might become relevant – but only once they have the infrastructure to interact with tokenized assets.
SoulBound Token Use Cases
SBTs have a wide range of use cases. Some of them include:
- Education history and work resume – It can be used as proof-of in major institutions like education. When students graduate, the institution’s Soul wallet can offer their respective certificate. The SBT would hold the student’s credential thereby proving the authenticity of a student’s credential.In line with this thought, SBTs contain personal data, individual achievements, and work credentials. Hence, it can also be used as a digital resume in the case of job searches and employees looking for better opportunities.
- Credit history – It can also provide a means for creditors to see the credit report of those seeking loans and be more willing to lend since they have proof of the person’s diligence in payment.
- Medical records – Having a medical record as a SBT can enable a seamless process while switching doctors or seeking insurance. It helps eliminate the pain points of verifying one’s identity, past medical records, and explaining medical history while switching doctors.
Limitations of SoulBound Tokens
Based on the submission by Buterin and his co-writers, there have been questions on issues like the loss of keys. If you can’t access your original wallet – and the SBTs secured there cannot be transferred to another wallet – will users “lose their soul” forever? In addition, the sensitive nature of the information that would be stored there raises serious considerations about the security of using SoulBound Tokens.
In the case of the former, Buterin and his team show that SBTs have a recovery mechanism designed to make sure kegs are recoverable through a specific “guardian” chosen by the owner of the key. For the latter, they state that the SBTs have the option of being public or private, depending on the discretion of the user. This helps to protect the users and their data from online exploitation.
Apart from the above, people have also speculated about whether these use cases could have negative repercussions, such as the creation of a “social credit system”. A type of social credit system, culminating in a social credit rating or blacklist depending on the conduct of the user, is being developed by China. Every individual’s online handle will be attached with a real ID and all the data related to that person will be stored online. This way, people with problematic histories can be identified easily, something that raises ethical questions about privacy, and how these tokens would be used.
The Future of SoulBound Tokens
Let’s go back to the beginning. The goal of blockchain is not just storing value, but allowing regular people to have sovereignty over their data and how it’s used. With the rise of SBTs, the average individual is in charge of their data and can decide both how to manage it and who can access it – something that may seem small, but represents a huge step forward from the centralized model of data storage we currently accept.
In other words, SBTs are the logical next step in blockchain’s pursuit of true decentralization. Where do you think they’ll take us?