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How Soulbound Tokens (SBTs) Can Improve Society With Web 3.0
There are growing concerns in many online spaces relating to altered or fake identities, false or incomplete information and other issues with factual data. These concerns tie into many aspects of society. In fact, they impact everything from gaming and social media to the medical industry, employment, finances and more. Soulbound tokens are an exciting advancement in Web 3.0 tech directly tackling this issue. They offer the promise of bringing verifiable digital records into a variety of real-world environments. These soulbound NFTs are exclusively tied to the holder, which yields tremendous benefits. Let’s take a closer look at SBTs.
What Are SBTs?
Soulbound tokens (SBTs) are non-fungible tokens (NFTs) that are permanently linked to the user. Because they’re unique and non-transferrable, SBTs offer beneficial applications in both digital and real-world environments.
Vitalik Buterin is well-known in the cryptocurrency world as the creator of Ethereum, which is the largest programmable blockchain and has the second-largest market cap behind Bitcoin (BTC). While playing the World of Warcraft game, Buterin came up with the idea of non-transferable tokens. Although tokens and NFTs are transferable as assets, Buterin was interested in using them as a type of proof, rather than assets per se. Not long after, Buterin published a paper detailing a decentralized society which he described as an augmented space based on soulbound tokens. The concept of Web 3.0 is established on the idea of a decentralized society.
What are soulbound tokens? SBT are best described as digital tokens that can be publicly verified. These non-transferable tokens hold critical information about a Soul, or individual entity. This information could include real-life employment history, skills, credentials, education, memberships and more. On a more significant level, SBTs enable a variety of other applications to come together in a decentralized society which draws on merging the properties of both “Souls” and communities. This confluence results in the co-creation of a pluralized network of intelligence and goods. In this decentralized society, a combination of advanced governance features and decomposable property rights collectively reward cooperation and trust. At the same time, they protect the network of goods and intelligence from penetration and damage.
Now that we’ve established a conceptualization for soulbound tokens, what are their applications? In society, soulbound NFTs support decentralization mechanisms, sybil-resistant governance, community wallet recovery and more. The token holder is the Soul, which can be an individual, a company or a community. This means that full networks can be created using soulbound tokens. Just as NFTs can be owned and tracked on blockchains, the same holds true for SBTs. However, unlike NFTs, SBTs cannot be transferred.
Can You Buy SBTs?
NFTs, or non-fungible tokens, are unique digital assets that can be purchased and sold. Although soulbound NFTs can be described as an evolution of NFTs, they cannot be traded in a “like” fashion. Instead, SBTs are a type of non-transferable NFT. They hold credentials that are specifically bound to the Soul, or token holder. In this way, they serve as the foundation of a decentralized society. However, because they’re bound to the Soul, SBTs cannot be bought or sold. Notably, because they’re non-transferrable, soulbound tokens do not hold market value.
However, an individual or entity may hold numerous SBTs. These tokens offer a different type of value to the Soul. They’re a type of identity marker, and they may individually hold attributes related to employment history, skills and more. An identification Soul may provide the same information as a person’s driver’s license, passport or other government-issued ID. A medical Soul may have a person’s full medical history.
Be aware that soulbound tokens are a relatively new concept. While there are some preliminary uses in action, soulbound NFTs aren’t expected to be in full use until 2024. As a developing innovation, however, the time frame for bringing soulbound tokens fully online is rough.
SBT Advantages
Thus far, the focus of cryptocurrencies has been centered on finances. Soulbound tokens make an important shift away from finances and toward the evolution of society. SBTs enable a person to focus on themself by building their digital identity, which takes the emphasis off of building financial assets. This can fundamentally shift both digital and real-life societies.
Another critical advantage of SBTs is the ability to verify the token holder's identity and reputation. The unique nature of SBTs increases the difficulty of artificially manipulating “clout” and skills on résumés. As a result, soulbound NFTs promote trust in a decentralized society because token holders can more easily verify their identity and other personalized factors. This has direct and beneficial ramifications for job searches, healthcare and more. Through improved verification capabilities, SBTs may also decrease the incidence of crypto scams.
SBT Drawbacks
One of the most pressing concerns related to what Soulbound tokens are capable of is their potential impact on privacy. Consider, for example, that an individual may collect SBTs describing specific group affiliations, political participation, religion or attendance at special events. Some individuals or groups may identify affiliations and interests that oppose their own ideologies, which could conceivably feed into trolling, harassment or even harm. Illegal redlining could also occur when individuals apply for a new job, loan or something else because of misuse of the data tied to their SBTs. In other instances, policies and companies could use SBTs to target a specific group, such as for predatory lending.
The possibility of loss related to hacking should also be considered. Unfortunately, NFTs are frequently stolen, so it’s reasonable to suspect that soulbound tokens stored in a wallet could also be swiped. The creator of soulbound tokens, Buterin, has an answer for this concern. Specifically, he has suggested a social recovery model in which appointed SBT guardians can collectively aid in SBT recovery.
SBTs vs. NFTs
NFTs and soulbound NFTs have notable similarities as well as strong differences. They’re both non-fungible tokens that function on blockchain networks. They both offer true value for the holder, and each one is unique. More than that, they can be collected. However, they’re collected for different purposes.
An NFT stands out because it’s a digital asset that has financial value. Because of this unique quality, NFTs can be bought, sold and traded. Many tokens have associated NFTs.
Soulbound NFTs, on the other hand, provide value through their identity and data storage functionalities. They contain unique identifiers for the holder, such as driver’s license number, educational background, religious affiliation and more. Because SBTs have details that are specific to the individual, they’re unique. Their verification and identification features provide non-financial value to the token holder. Soulbound tokens also provide functionality for corporations, organizations, governments and other entities. Unlike NFTs, SBTs cannot be traded.
Soulbound NFTs evolved from NFTs. However, SBTs are not replacing NFTs. They serve different and important purposes in their own right, and you can therefore expect both to continue to play a key role in the crypto world going forward.
Practical Use Cases for SBTs
In a decentralized society, each member has access to the same information about an individual or entity. There’s no need to rely on trust, or to personally know the individual or entity, because all information is available to each member. Soulbound tokens directly support a decentralized society. They cannot be transferred, so they’re directly linked to the person or entity for whom they were created. This creates socially verifiable reputations, available to all society members.
It’s useful to explore how the SBTs may be used in a real-life situation. Soulbound NFTs have numerous applications to consider.
Certification and Identification
There are many scenarios in real life when you may need to provide proof of identification. For example, when a person applies for a mortgage, the lender needs to make sure that the applicant is who they say they are. This may be corroborated by reviewing the individual’s government-issued ID. Then, the specific individual’s credit rating and job history must be analyzed. These factors all play into the lender’s risk for extending a loan to that person, and it can drive the loan’s interest rate and other factors.
The tedious process of applying for a mortgage inevitably involves submitting stacks of paperwork to the lender. The lender, in turn, must take time to review and verify all of the documentation. When soulbound NFTs are used, however, identity can more easily be verified. Other factors, such as employment, credit scores and more, may also be reviewed through SBTs. In this way, SBTs can dramatically speed up and simplify the process.
Proof of Attendance for Events
SBTs could be issued at special events in the future. For example, you may attend a seminar and receive a soulbound token confirming your attendance. Organizations, companies, universities and other entities may support individuals as they build their digital clout by obtaining these proof-of-attendance tokens. SBTs may also be used to verify other meaningful life experiences, not related to employment or education. For example, an SBT may be issued when an individual attends a church retreat or a political rally. Proof of attendance may be used when applying for a job, joining an organization, applying for college and more.
Access to Medical Records
A person’s medical history follows them throughout life, but keeping track of medical records is a tedious process. Each doctor visit, lab test, hospital stay and more create additional records to track. When an individual switches doctors, visits an emergency room or takes any number of other steps to obtain care, they must complete lengthy forms outlining their medical history. For special diagnoses, a complete copy of medical records may be needed by the physician. Soulbound tokens could eliminate the need for hassle by storing a complete set of medical records. In addition to saving time, energy and paper, SBTs used in this way could ensure that the individual receives proper care based on their full medical history.
Form of Verifiable Membership or Affiliation
In some situations, an individual or entity may be asked to verify their membership or affiliation with a specific group or organization. For example, a business may need to prove that it’s properly registered with an industry-specific trade organization, or licensed to do business in a particular geographic area. An individual may want to join an online community for their profession, political affiliation or some other distinction. Currently, such verification is often done through centralized, Web 2.0 affiliations. This may be through a social media connection, for example. SBTs may be issued by an organization or group with which the business or individual is affiliated. An SBT can then be used as a form of verification to simplify the process. In addition, SBTs could be used by organizations to confirm that all of their members and their connections are legitimate.
DAO Voting and Governance
DAOs, or decentralized autonomous organizations, often have a solid governance structure in place to steer the direction of the organization and to make other critical decisions. Unfortunately, DAOs can be negatively affected by Sybil attacks. In such a scenario, one or more parties would collect many of the governance tokens with the intention of manipulating voting and governance in their interests, rather than in favor of the organization.
It’s important to note that decentralized governance is a hallmark of this emerging realm, and is widely used on some of the most notable platforms. SBTs could support decentralized governance by ensuring that voting power is weighted according to participation, rather than to the number of tokens held. Even those who don’t intentionally try to manipulate governance may still do so. For example, a crypto whale, who by definition has invested in a large number of tokens, could have a greater influence through voting power than others, even without malicious intentions. Through the use of SBTs, platforms can ensure that each token holder’s voting power is equal.
How SBTs Can Become the Foundations of a Decentralized Society
Soulbound tokens are still being developed and aren’t expected to be fully utilized until 2024. However, the possibilities for their use in a decentralized society are significant, with potential use cases not yet imagined. Practical uses described above, related to the hiring process, applying for a mortgage, joining organizations and simplifying medical records management, are already anticipated and in the works. However, there may be many other functionalities for SBTs once they’re adopted in the mainstream.
Soulbound tokens support a decentralized society, facilitating easier data management and the conveyance of accurate data. In addition, they theoretically promote social scoring to minimize the risk of discrimination and other similar abuses. In the future, soulbound tokens may be used to help an individual apply for college, select a contractor, find a qualified candidate for a job opening, choose the most impactful charity organization for donations and more.
A Web 3.0 society puts users in direct control over their data and facilitates its quick and accurate transfer. As the technology surrounding soulbound tokens continues to evolve and moves into common use, privacy, speed, equality and other factors will be improved.
The Bottom Line
Soulbound tokens represent the next stage of evolution in the crypto space. Though their technology is still being developed, they have the potential to fundamentally change many aspects of both the digital and physical realms. The promises offered by SBTs are almost certain to be expanded upon going forward.
