Think of digital assets that can't be passed between peer users ,they are bound to the same user till eternity. The name SoulBound actually originates from a video game named "world of Warcraft" which rewarded it's players with a soul reward known as "soulbound"
What are SoulBound tokens?
Soulbound tokens are publicly-verifiable ,unique , non-transferable, recoverable and non-fungible digital assets . They can act as a form of certificate or curriculum vitae for the web 3.0.
It's worth to note that SBTs have the following characteristics :
• publicly-verifiable : nodes in the network can verify the SBTs easily with the help of a verifying function which could either be zero knowledge or not .
• unique : these digital assets are immutable by default and cannot be replicated.
• non-transferable : it cannot be transferred between peers in the network.
How do SoulBound tokens operate?
Think of a blockchain account or wallet that stores blocks of personal records immutably as digital assets, records such as years of experience , educational background , qualifications , achievements and even accolades can be stored on this account . Such accounts that hold SBTs are called souls.
This can serve as a form of digital identity for the trustless and permissionless web 3.0.
The true potentials of SBTs lies in community issued tokens. These are issued by group of Souls (nodes or accounts) belongings to a community, school or organization . This can be in the form of certificates , testimonials , property papers and a lot more .
Additionally, SBTs are majorly NFTs with an extra property of non-transferability .
How will SoulBound tokens aid our every day Life?
Soulbound tokens or SBTs could unlock benefits that can transform how social identities in real life is perceived.
For example, NFTs serve as a way to prove ownership status , and the things they can afford, support content creators, and even improve crowdfunding efforts. However, beyond the incentive of money, SBTs improve upon the NFT concept to serve as a way for people to prove who they are and confirm their reputation.
With SBTs users can observe the immutable history of people before conducting business with them. For example, SBTs can be used to confirm the experience of a candidate before employing them. A person can observe the SBTs of people before leasing a property to them. The upside opportunities SBTs can potentially bring to the world are quite enormous and they can even enable the realisation of a completely decentralised society.
Web3 and its ecosystem of decentralised solutions have recorded substantial growth in a short time, introducing several innovations that are challenging the norms in many industries of the world today. But even with such significant growth, web3 has many limitations that are preventing it from reaching the next level.
While concepts such as proof of work, proof of stake, smart contracts, and public/private keys have helped in solving some of these issues, others linger in the ecosystem.
One of the major problems is the trust factor lacking in web3.
Every human interaction or business transaction is based on trust levels among stakeholders but web3 is crippled in this area because of the high level of privacy and anonymity in web3 protocols. This has made web3 protocols heavily reliant on the centralised structures of web2, which it is meant to replace.
For example:
DAOs rely on web2 platforms like Discord to negate the possibility of a Sybil attack and to move from coin voting. NFT collectors rely on Twitter and OpenSea to show the provenance of their collections. DeFi lending platforms are unable to give out uncollateralised loans. Soulbound tokens could provide the missing link to bridge the trust gap in web3. Their non-transferability enables them to serve as a means of building social identities that allow protocols and individuals to function based on trust while maintaining privacy at the same time.
Possible Use Cases For SBTs
1) Provenance For NFTs : The heavy reliance on centralized systems for NFT provenance poses the risk of a central point of failure. For example, a temporary downtime in OpenSea saw the NFT profile pictures of people on Twitter taken down.
With SBTs, creators can mint their NFTs directly from their Souls. And the more SBTs from that Soul, the easier it becomes to prove the legitimacy of the NFTs, allowing creators and artists to build a reputation on the scarcity of an item.
2) *DeFi Lending : Current DeFi lending platforms like Aave don’t provide financial services like uncollateralised loans enjoyed in traditional finance because of the hostility of highly privacy-focused decentralised environments.
With SBTs, DeFi protocols can issue uncollateralised loans by leveraging a Soul's real-time relationships across several communities as a social credit score.
3) Digital CV : When conducting interviews for employment, the process is accelerated by scanning through the CVs of candidates to know if they are fit for the intended role. However, it can be challenging sometimes to confirm the validity of a candidate's claims.
For example, health institutions have encountered a series of events where inexperienced medical personnel lie about their CV, and eventually, administer wrong medications to patients during employment.
SBTs solve these challenges since they can serve as a digital CV that can be publicly verified. Employment decisions can be made based on the SBTs a Soul has received from other organisations like universities and related institutions.
4) Souldrops : Crypto projects usually form new communities by launching airdrops or carrying out token sales. But this process is often subject to Sybil attacks and it fails to attract the right community.
With the concept of Souldrops as mentioned in Vitalik Buterin's whitepaper, projects can attract the right communities by conducting airdrops based on computations from the SBT or other tokens within a Soul.
For example, a project based on improving sustainability can airdrop governance tokens to Souls that have SBTs signifying their involvement in different sustainable activities in the past.
Advantages of Soulbound Tokens.
Discover the advantages and disadvantages of SBTs, the latest technology in the blockchain industry.
1) SBTs enable the creation of better trust relationships in decentralised environments.
2) SBTs allow DeFi lending platforms to issue uncollateralised loans.
3) SBTs can significantly improve the voting mechanisms in DAOs.
4) SBTs can help in employing the right candidate for a job.
Disadvantages of Soulbound Tokens.
1) SBTs may reveal too much sensitive information about a person.
2) SBTs are a new concept and trying them out now may still be quite complicated.
3) SBTs may come under criticism for being energy-intensive if they are launched on proof-of-work blockchains.