What Are Soulbound Tokens (SBT)?

In May 2022, Ethereum co-founder Vitalik Buterin, lawyer Puja Ohlhaver, and economist and social technologist E. Glen Weyl proposed the concept of Soulbound Tokens (SBTs) in their whitepaper "Decentralized Society: Finding Web3’s Soul." 

The whitepaper explains how SBTs can be used as credentials in a fully decentralized society (DeSoc) governed by its users. The paper goes into detail on how SBTs would function in everyday life, and how they would be used to establish trust and governance in a decentralized society.

What Are Soulbound Tokens (SBT)?

A Soulbound Token (SBT) is a type of non-fungible token (NFT) that is unique and permanent, meaning it cannot be traded or transferred. Like regular NFTs, SBTs live on the blockchain and have their own identification code and metadata. The concept of SBTs is derived from the game World of Warcraft (WoW), where "soulbound" is a property of an item that prevents it from being traded or given away to other players.

SBTs can serve as a way to verify personal achievements and information, such as completing a degree, earning a professional certification, or winning an award. They can also be tied to a wide range of other traits, features, and personal information, such as name, birthday, political affiliations, charitable giving, criminal record, medical history, nationality, religious upbringing, and military history. The possibilities are endless, and they all can be stored in your private blockchain wallet.

How Do Soulbound Tokens Work?

Soulbound Tokens (SBTs) can be used as a way to verify personal credentials and affiliations. Unlike other forms of verification, SBTs are permanent and cannot be transferred or sold, making it difficult for individuals to claim false credentials.

Additionally, SBTs have the potential to solve some of the issues plaguing decentralized finance, such as scams and thefts. The inability to transfer or sell SBTs can help ensure the authenticity of NFTs and the trustworthiness of NFT artists and projects.

However, there may be cases where an individual may not want an SBT they have received. The concept of SBTs includes the ability for individuals to hide or destroy unwanted SBTs, but the specifics of how this would work are not yet clear.

Some Examples of How SBTs Can Be Used

• Managing medical records through the use of SBTs
• Storing digital identification cards or membership credentials on the blockchain
• Certifying achievements, such as job history or educational degrees, through the use of SBTs
• Verifying attendance at events, similar to a Proof of Attendance Protocol
• Allowing individuals to build verifiable digital reputations based on past actions, which could aid in tracking DeFi borrowing history and loan approvals
• Introducing reputation-based voting for decentralized autonomous organization (DAO) governance models to mitigate Sybil attacks
• Using social recovery methods to gain access to lost private keys through SBTs.

Limitations of SoulBound Tokens

Buterin and his co-authors have proposed the use of SoulBound Tokens (SBTs) for various purposes such as managing medical records, storing digital ID cards or memberships, certifying achievements, and verifying attendance to events. However, there have been concerns raised about the potential loss of keys and the security of the sensitive information stored in SBTs.

To address this, the team has included a recovery mechanism for lost keys and the option for users to choose whether their SBTs are public or private. Additionally, there are also concerns about the potential negative consequences of using SBTs, such as the creation of a "social credit system" similar to the one being developed in China, which raises ethical questions about privacy and how these tokens could be used.

The Future of Soulbound Tokens

SoulBound Tokens are a significant advancement in the goal of blockchain technology, which is to give regular people control over their data and how it's used. With SBTs, individuals have the power to manage their data and determine who has access to it, which is a significant departure from the centralized model of data storage currently in place. This represents a significant step towards true decentralization in the world of blockchain. It is interesting to consider where this technology will take us in the future.

SBTs have the potential to create a decentralized society where personal relationships and social interactions play a crucial role in building one's Web3 identity. They can also establish credibility and reputation, addressing the trust issue in the Web3 community.

These tokens can't be sold or transferred, which would make it difficult for individuals to cheat the system by purchasing prestige or exaggerating their accomplishments. Additionally, SBTs could also help in reducing identity thefts and scams on the Web3 ecosystem.

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